Tag: risk

In times of recession, some companies can do well, even in industries where there are supply problems. One such example is Pacific Andes, a Hong Kong based frozen seafood firm. Many fishing companies have found times tough in an era of dwindling fish stocks and fishing quotas imposed by governments anxious to preserve stocks. The following article looks at Pacific Andes and how it has managed to prosper despite supply challenges and the global recession.

Casting a wide net The Standard (Hong Kong) (24/8/09)

Details of overfishing in the UK can be found at: EyeOverFishing
The site provides a “map of the UK fisheries system, the problems with it, and solutions that are possible today”.

Questions

  1. To what extent can the concept of income elasticity of demand be used to help explain why Pacific Andes has managed to prosper during the recession?
  2. What specific business strategies has Pacific Andes adopted and why?
  3. Why, if overfishing is to the detriment of the fishing indsutry, do fishing fleets still overfish many parts of the oceans? Explain why this is an example of the ‘tragedy of the commons’.
  4. What would you understand by an ‘optimum level of fishing’ for a particular type of fish in a particular part of the oceans? Explore whether the concept of a ‘social optimum’ in this context is the same as an ‘environmental optimum’?

When anyone buys assets – shares, a house, a car or whatever – one important consideration is their likely future value. But the future is uncertain. Your decision to buy, therefore, depends not just on the direct return of the asset (the rate of interest or the pleasure from using the asset) but also on your predictions about the future value of the asset and your attitudes to risk. But with the future of markets so uncertain, or at least the timing of market movements, what’s the best thing to do? The article below considers some of the issues.

The irrelevant future Investors Chronicle (6/4/09)

Questions

  1. Distinguish between ‘risk’ and ‘uncertainty’.
  2. What is meant by a ‘bear’ in the context of investing in shares? Explain why ‘intelligent bears’ would ‘leave some money in the market’.
  3. Faced with uncertainty, why might sticking to a simple ‘do nothing’ rule be the best policy?
  4. If capital markets were efficient in the strongest sense, where everyone has perfect information about the future, would people be able to make large returns on investing in shares and other assets?

Times of economic uncertainty often lead to people seeking what they consider as ‘safe havens’ for their money. Traditionally gold has been one of these safe havens. This financial crisis has been no exception and the price of gold has risen, but there has also been a rapid growth in demand for gold bullion and gold coins and dealers have found themselves besieged by people looking to protect their savings. ATS Bullion, a London gold bullion dealer, has even seen queues: something quite unprecedented for them.

There’s gold in them thar’ shops: the rush is on Guardian (2/10/08)
Austria witnesses new gold rush BBC News Online (12/10/08)
Gold rush as investors pile into bars Financial Times (3/10/08)
Market turmoil sparks gold rush to specialist funds Times Online (13/10/08)

Questions

1. What the main determinants of demand for gold coins and gold bullion?
2. Using diagrams as appropriate, show the changes that have taken place in the market for gold coins in recent months.
3. Discuss the extent to which the supply of gold bullion is likely to keep up with the rapid growth in demand

“‘Capitalism,’ Schumpeter wrote, ‘is by nature a form or method of economic change and not only never is but never can be stationary … This process of Creative Destruction is the essential fact about capitalism”. In the article below William Keegan looks at this process of creative destruction and relates it to the current financial crisis and the downturn in the business cycle.

Moral hazard? It’s just another danger along the capitalist way Guardian (5/10/08)
Time To Drop The Baggage That Comes With Moral Hazard Financial Times (4/10/08)

Questions

1. Explain what is meant by the term ‘Creative Destruction’.
2. Explain what is meant by the term ‘Moral Hazard’.
3. “In theory, enlightened economic policies can moderate the workings of the business cycle”. Discuss possible policies that can moderate the workings of the business cycle.
4. Discuss the extent to which the recent economic boom was an ‘asset-price boom’ rather than a ‘traditional one’.