Question

kboard/execute/displaylearningUnit?course id- 23444 18content id_971869 1 Activity 5.1 (ST.5.6.8) Blog Objective: This activity has the purpose of helping students apply the relevance concepts of financial institutions to a real situation. Student Instructions: 1. Answer the following question: what is its role of the financial institution in Puerto Rico for the investments markets? 2 Uses text information as general reference to participated in this Blog, and answer the subjects. 3. In this participation you can earn up to (5 pts.) 4. All assignment will be submitted on Saturday at midnight. 754 PM 1/6/2020 Cop

Answer 1

Puerto Rico has been facing an economic crisis for a number of years now and it has gotten worse only. The financial institutions play an important role as the backbone of an economy. As the economy is severely hit and needs revival, it is indeed impossible to do it without the aid of robust and dynamic financial institutions.

The institutions need to provide liquidity to the economy which stimulates a higher level of economic activity which otherwise would be impossible. Whenever an economy faces a downturn, its investors make a back turn which further pushes it into the death well. At this point when the government is trying to make the economy get back to its feet by restructuring the debt, the financial institutions have a major role to play, the govt would devise the monetary policy only but it is the financial institutions that offer and lends credit. They are the intermediaries or the channel between the savers and borrowers. Without financial institutions, people wouldn’t be able to take advantage of the changing interest rates of loans and deposits. Many FIs even provide investment advice to their customers and they often have an active investment desk for the same. If we see it another way, this is a risky period for investment in Puerto Rico, the business could shield themselves through the services like insurance and risk hedging instruments of the financial institutions.

Activity 2

A)

• Financial planning: It is imperative for a financial manager to prepare the financial plan, which projects revenues, expenditures, and financing needs for a foreseeable period.
• Investment (spending money): The firm has to make some expenditure before realizing returns. The manager should conduct a thorough analysis of risk and return before making investments. The effort should be to invest the firm’s funds in projects and securities that provide high returns with lower risks.
• Financing (raising money): Funds for a company is like the blood to the body. The manager should attempt to raise funds for operations and investments in such a way seeking the best balance between debt (borrowed funds) and equity (funds raised through selling the ownership stake in the business).
• Dividend payout: The shareholders need or expect some return on the money they invested in the business which is paid in the form of dividends or bonus share. The manager should make such a payout that the shareholders do not feel agitated while the growth prospects of the company is also not hampered.

b) If I would have been the financial manager for the company, I would have done the following:

• Making a balance of debt and equity that creates the maximum value of equity shares. It is necessary to have some debt in the capital structure to raise the wealth of equity shareholders but it should not be high enough that poses a risk to the solvency and liquidity of the company.
• To invest in the projects that add maximum to the wealth of the shareholders. This can be done by making use of capital budgeting techniques like NPV and IRR.
• Making plans before the period well in time. A good and efficient plan is considered to be half success, so it is important to be sure about the tasks to be done in the following period.
• A business needs to take the demographics and the societal factors into consideration in which the business resides. The investment should be made into the products or projects which appeal to the local public and such projects which could be opposed by the locals need to dropped.