1. In cases where the markets are too thin for viable open-market operations, or the monetary base cannot be controlled for some reason, the monetary authorities often attempt to limit the creation of reserves by the banking system through the imposition of, or changes in, reserve ratios against demand deposits and sometimes also against other types of deposits.

Select one:

True

False

2. In the United States, the discount rate is frequently below the market short interest rates; since banks can make a profit from borrowing from the Fed and then buying market instruments, keeping the discount rate below the market rates becomes an incentive for commercial banks to borrow from the Fed.

Select one:

True

False

3. Since the early 1990s, the most common tools of monetary policy in developed economies have been changes in interest rates, supported by changes in the money supply induced by open-market operations and borrowing from the central bank.

Select one:

True

False

4. In the Western economies, changes in the required reserve ratios are now either no longer available as an instrument of monetary policy or not used in practice for this purpose.

Select one:

True

False

Introduction This case highlights how capital controls work and further what their objectives are. It outlines the advantages and disadvantages of capital controls, especially controls on inflows of capital and whether these and other policies like bank regulation and fiscal policy spur or hinder economic growth. Activity Instructions Respond to the following: Why did Chile institute capital controls in 1991? What were the objectives of the encaje? How did the URR work? Did the controls meet their objectives? What was the role of other policies in Chile’s economic success in the 1990s? What were the arguments for and against getting rid of the controls in the context of the aftermath of the Asian and Russian financial crises? Discuss the importance of alternative policy options such as bank regulation and fiscal policy. Was Chile in danger of suffering a crisis such as that of 1982? When analyzing a case study, all the used references (including the Internet) should appear within the text [e.g. (John Doe, 2008)] and on the references page. You are expected to apply all applicable course concepts, as well as those specific to the chapter from which the case or paper topic is drawn. The analysis should also contain a summary of related current developments obtained through searches on the

Power Train, Ltd.

We have smashing systems for reporting, tracking, and controlling costs on design projects. Our planning of projects is better than any I have seen at other companies. Our scheduling seemed to serve us well when we were small and we had only a few projects. Now that we have many more projects and schedule using multiproject software, there are too many occasions when the right people are not assigned to the projects deemed important to our success. This situation is costing us big money, headaches, and stress!

Claude Jones, VP, Design and Operations

Page 293

HISTORY

Power Train, Ltd. (PT), was founded in 1970 by Daniel Gage, a skilled mechanical engineer and machinist. Prior to founding PT he worked for three years as design engineer for a company that designed and built transmissions for military tanks and trucks. It was a natural transition for Dan to start a company designing and building power trains for farm tractor companies. Today, Dan is no longer active in the management of PT but is still revered as its founder. He and his family still own 25 percent of the company, which went public in 1998. PT has been growing at a 6 percent clip for the last five years but expects industry growth to level off as supply exceeds demand.

Today, PT continues its proud tradition of designing and building the best-quality power trains for manufacturers of farm tractors and equipment. The company employs 178 design engineers and has about 1,800 production and support staff. Contract design projects for tractor manufacturers represent a major portion of PT’s revenue. At any given time, about 45 to 60 design projects are going on concurrently. A small portion of their design work is for military vehicles. PT only accepts military contracts that involve very advanced, new technology and are cost plus.

A new phenomenon has attracted management of PT to look into a larger market. Last year a large Swedish truck manufacturer approached PT to consider designing power trains for its trucks. As the industry consolidates, the opportunities for PT should increase because these large firms are moving to more outsourcing to cut infrastructure costs and stay very flexible. Only last week a PT design engineer spoke to a German truck manufacturing manager at a conference. The German manager was already exploring outsourcing of drive trains to Porsche and was very pleased to be reminded of PT’s expertise in the area. A meeting is set up for next month.

CLAUDE JONES

Claude Jones joined PT in 1999 as a new MBA from the University of Edinburgh. He worked as a mechanical engineer for U.K. Hydraulics for five years prior to returning to school for the MBA. “I just wanted to be part of the management team and where the action is.” Jones moved quickly through the ranks. Today he is the vice president of design and operations. Sitting at his desk, Jones is pondering the conflicts and confusion that seem to be increasing in scheduling people to projects. He gets a real rush at the thought of designing power trains for large trucks; however, given their current project scheduling problems, a large increase in business would only compound their problems. Somehow these conflicts in scheduling have to be resolved before any serious thought can be given to expanding into design of power transmissions for truck manufacturers.

Jones is thinking of the problems PT had in the last year. The MF project is the first to come to mind. The project was not terribly complex and did not require their best design engineers. Unfortunately, the scheduling software assigned one of the most creative and expensive engineers to the MF project. A similar situation, but reversed, happened on the Deer project. This project involved a big customer and new hydrostatic technology for small tractors. In this project the scheduling software assigned engineers who were not familiar with small tractor transmissions. Somehow, thinks Jones, the right people need to be scheduled to the right projects. Upon reflection, this problem with scheduling has been increasing since PT went to multiproject scheduling. Maybe a project office is needed to keep on top of these problems.

A meeting with the information technology team and software vendors was positive but not very helpful because these people are not really into detailed scheduling problems. The vendors provided all sorts of evidence suggesting the heuristics used—least Page 294slack, shortest duration, and identification number—are absolutely efficient in scheduling people and minimizing project delays. One project software vendor, Lauren, kept saying their software would allow PT to customize the scheduling of projects and people to almost any variation selected. Lauren repeated over and over, “If the standard heuristics do not meet your requirements, create your own heuristics that do.” Lauren even volunteered to assist in setting up the system. But she is not willing to spend time on the problem until PT can describe to her exactly what criteria will be used (and their sequence) to select and schedule people to projects.

QUESTION: After reading the case, analyze the scheduling problem that is happening at Power Train and develop a set of descriptive rules and/or processes that Power Train can adopt so that it is well positioned to handle its expansion into the truck power train business.*********

1.Which of the following forms of compensation is most likely to align the interests of managers and common stockholders:

A.A salary linked to the dividends paid by the company

B.A salary linked to the company’s profits

C.A salary linked to the level of the company’s common stock buybacks

D.A salary linked to the company’s revenues

E.A salary that is paid partly in the form of the company’s shares

2.Which of the following statements regarding agency problems and costs are correct?

1. An agency problem exists when there is a conflict of interest between a principal and an agent.
2. An agency problem exists when there is a conflict of interest between a firm’s shareholders and management
3. An agency cost occurs when management makes a decision that decreases their pay and prestige but increases the firm’s stock price.
4. An agency cost occurs when a firm’s management avoids risky projects that would increase the stock price because they are worried about keeping their jobs.

A.1 only

B.1 and 2 only

C.1, 2, and 3 only

D.1, 2, and 4 only

E.1, 2, 3, and 4

3.Your brother has offered to give you either $5,000 today or $8,000 in 10 years. Presume that your brother will honor his promise. If the interest rate is 5% per year, which option is preferable?

A.The $5,000 today is preferable.

B.The $8,000 in 10 years is preferable.

C.The offers are equally preferable.

4.Which of the following represents a financing (or capital structure) decision?

A.A decision to have dinner at the most expensive restaurant in town, charged to the company’s expense account.

B.A decision to buy a new factory to support a new line of production.

C.A decision to expand the operations to enter a new market.

D.A decision to issue $10 million worth of debt to partially finance capital expenditures.

E.A decision to invest in software to help speed the collection of accounts receivable.

5.As the winner of a breakfast cereal competition, you can choose one of the prizes listed below. If the interest rate is 12% per year, which one of the following is the most valuable prize? Ignore taxes.

A.$100,000 now.

B.$180,000 at the end of five years.

C.$11,400 every year forever.

D.$19,000 at the end of each of the next 10 years.

E.$6,500 next year and increasing thereafter by 5% a year forever.

GRAMMAR: Subject-Verb Agreement in the Simple Present

INSTRUCTIONS: Complete each sentence with the correct verb.

11. Everyone who ________________ (attend / attends) the concert will receive a t-shirt and poster.

12. The U.S. Olympic ice hockey team ________________ (practice / practices) in Colorado.

13. All the drinking water in New York City ________________ (come / comes) from the mountains more than a hundred miles away.

14. One of the most obvious causes of car accidents ________________ (is / are) drivers who use their phones while driving.

15. Living in a big city ________________ (cost / costs) more money than living in a small town.

GRAMMAR: Word Forms

INSTRUCTIONS: Complete each sentence with the correct word form.

16. Scientists were quick to understand the ________________ (important / importance) of the new discovery.

17. Choosing a major in college can be a difficult ________________ (decide / decision) to make.

18. Effective teachers plan ________________ (creative / creatively) lessons for their students.

19. Stress can have a negative effect on a person’s ________________ (mental / mentally) health.

20. The ________________ (recommend / recommendation) of some experts is to avoid checking email throughout the day.

INSTRUCTIONS: Choose the correct word to complete each sentence.

____ 21. A(n) ________________ advantage of this program is that it can be used on mobile devices.

a. doubtful b. additional c. abandoned

____ 22. Although a university degree cannot ________________ a great job, graduates do tend to receive higher salaries than those without a degree.

a. be related to b. shrink c. guarantee

____ 23. Races that are 10,000 kilometers or longer test the ________________ of the athletes.

a. impact b. strategy c. endurance

____ 24. Sitting still for long periods of time can be a ________________ challenging task for young learners.

a. dilemma b. mentally c. particularly

INSTRUCTIONS: Choose the correct word form to complete each sentence.

25. Families often build an ________________ (addition / add / additional / additionally) to their house as they have more children and need more space.

26. Modern medicine has made it unnecessary for people to ________________ (endure / endurance / enduring) the terrible pain that often accompanies diseases such as cancer.

27. When learning a new language, it is best to ________________ (interaction / interact / interactive / interactively) with native speakers as often as possible.

28. Strong ________________ (motivation / motivate / motivational) can be a powerful tool in reaching one’s goals.

29. The sales department’s ________________ (strategy / strategize / strategic / strategically) for increasing sales has been extremely successful.

The MBA decision: Ben Bates graduated from college six years ago with a finance undergraduate degree. Although he is satisfied with his current job, his goal is to become an inves\tment banker. He feels that an MBA degree would allow him to achieve his goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry College. Although internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither school will allow its student to work while enrolled in its MBA program. Ben currently works at the money management firm of Dewey and Louis. His annual salary at the firm is $70,000 per year, and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expects to work for 37 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 28 percent. Ben has a savings account with enough money to cover the entire cost of his MBA program. The Ritter College of Business at Wilton University is one of the top MBA programs in the country. The MBA degree requires two years of full-time enrollment at the university. The annual tuition is $65,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $2,000 per year. Ben expected that after graduation from Wilton, he will receive a job offer for about $100,000 per year, with a $10,000 signing bonus. The salary at this job will increase at 4% per year. Because of the higher salary, his average income tax rate will increase to 32 percent. The Bradley School of Business at Mount Perry College began its MBA 16 years ago. The Bradley School is smaller and less well known than the Ritter College. Bradley offers an accelerated, oneyear program, with a tuition cost of $75,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $3,000. Ben thinks that he will receive an offer of $85,000 per year upon graduation, with a $10,000 signing bonus. The salary at this job will increase at 3.5 percent. His average tax rate at this level of income will be 30 percent. Both schools offer a health insurance plan that will cost $2,500 per year, payable at the beginning of the year. Ben also estimates that room and board expenses will cost $15,000 per year at either school. The appropriate discount rate is 6 percent.

Assuming all salaries are paid at the end of each year, what is the best option for Ben – from a strictly financial standpoint?

Ben Bates graduated from college six years ago with a finance undergraduate degree. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve this goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry College. Although Internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither school will allow its students to work while enrolled in its MBA program.

Ben Currently works at the money management firm of Dewey and Louis. His Annual salary at the firm is $53,000 per year, and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expects to work for 38 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26 percent. Ben has a savings account with enough money to cover the entire cost of his MBA program.

The Ritter College of Business at Wilton University is one of the top MBA programs in the Country. The MBA degree requires two years of full-time enrollment at the university. The annual tuition is $58,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $2000 per year. Ben expects that after graduation from Wilton, he will receive a job offer for about $87,000 per year, with a $10,000 signing bonus. The salary at this job will increase at 4 percent per year. Because of the higher salary, his average income tax rate will increase to 31 percent.

       The Bradley School of Business at Mount Perry College began its MBA program 16 years ago. The Bradley School is smaller and less well known than Ritter College. Bradley offers an accelerated one-year program, with a tuition cost of $75,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $4200. Ben thinks that he will receive an offer of $78,000 per year upon graduation, with an $8,000 signing bonus. The salary at this job will increase at 3.5 percent per year. His average tax rate at this level of income will be at 29%.

       Both Schools offer a health insurance plan that will cost $3,000 per year, payable at the beginning of the year. Ben has also found that both schools offer graduate housing. His room and board expenses will decrease by $4,000 per year at either school he attends. The appropriate discount rate is 6.5 percent.

Assume that Ben decides to work on the MBA program at Wilton University, what is the present value of direct cost?

Ben Bates graduated from college six years ago with a finance undergraduate degree.

Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve his goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry College. Although internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither school will allow its student to work while enrolled in its MBA program.

Ben currently works at the money management firm of Dewey and Louis. His annual salary at the firm is $70,000 per year, and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expects to work for 37 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 28 percent. Ben has a savings account with enough money to cover the entire cost of his MBA program.

The Ritter College of Business at Wilton University is one of the top MBA programs in the country. The MBA degree requires two years of full-time enrollment at the university. The annual tuition is $65,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $2,000 per year. Ben expected that after graduation from Wilton, he will receive a job offer for about $100,000 per year, with a $10,000 signing bonus. The salary at this job will increase at 4% per year. Because of the higher salary, his average income tax rate will increase to 32 percent.

The Bradley School of Business at Mount Perry College began its MBA 16 years ago. The Bradley School is smaller and less well known than the Ritter College. Bradley offers an accelerated, one-year program, with a tuition cost of $75,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $3,000. Ben thinks that he will receive an offer of $85,000 per year upon graduation, with a $10,000 signing bonus. The salary at this job will increase at 3.5 percent. His average tax rate at this level of income will be 30 percent.

Both schools offer a health insurance plan that will cost $2,500 per year, payable at the beginning of the year. Ben also estimates that room and board expenses will cost $15,000 per year at either school. The appropriate discount rate is 6 percent.

Assuming all salaries are paid at the end of each year, what is the best option for Ben

– from a strictly financial standpoint?

critique and re-write the memo.

Dear Colleagues,

I hope that you are all enjoying your summer respite even if teaching a class or two. It appears that as July 1 thirteen members of BET will be joining the Division from the Business Department, Information Management and Technology Department, and the Paralegal Program. WELCOME we are happy to have you as even closer colleagues! Please know that the move to three divisions is in progress and that plenty of details will need to be ironed out over the coming months, or perhaps years. This email serves several purposes: 1) those from BET may not be aware that I am interim in my position as DD and actually have a faculty contract. Because of this I am only part-time from now until August 11, working T-R. During this period I will be in the office from 8:00 AM-6:00 PM on TR and 8:00 AM-2:00 PM on Wednesday. I check email at least once on the other days. 2) In trying to think of a name for the Division it became apparent that we could not include all the parts in the name. I am proposing that the entire Division be referred to as Social Science and Professional Careers. If you have other suggestions please feel free to send them to me. I could not come up with a catchy acronym. 3) Departments will still meet as departments on the first Tuesday of the month. That means that Business, IMT, HSP, CJ, Global Studies, Psychology and Sociology will have their separate meetings. Currently DARC, DIS and Social Services are invited to PSYCH department meetings. I would ask that they now invite ECE as well, noting that the program attendance at department meetings is optional. 4) It appears that unlike the other Divisions, ours will have three “schools”. I am proposing the names below, but you can decide ultimately on what you want to be called.

School of Business and Hospitality: includes the Business Department, IMT, Paralegal and Hospitality

School of Social Science and Criminal Justice: includes CJ, Global Studies (ECN, GEO, HIS, POL) and Sociology

School of Behavioral Sciences: includes Psychology, DARC, DIS, ECE, and Social Services

5) It is possible that ultimately the Dean may decide to combine the last two “schools” in which case the name might be School of Basic and Applied Behavioral Sciences or School of Social and Behavioral Sciences. No one should get hung up on names yet since we have time to make those decisions.

Please know that my door is always open and I am happy to have you drop in and see me. Please feel free to ask any questions you might have.

Rob

Your task: Critique and re-write the memo.

Dear Colleagues,

I hope that you are all enjoying your summer respite even if teaching a class or two. It appears that as July 1 thirteen members of BET will be joining the Division from the Business Department, Information Management and Technology Department, and the Paralegal Program. WELCOME we are happy to have you as even closer colleagues! Please know that the move to three divisions is in progress and that plenty of details will need to be ironed out over the coming months, or perhaps years. This email serves several purposes: 1) those from BET may not be aware that I am interim in my position as DD and actually have a faculty contract. Because of this I am only part-time from now until August 11, working T-R. During this period I will be in the office from 8:00 AM-6:00 PM on TR and 8:00 AM-2:00 PM on Wednesday. I check email at least once on the other days. 2) In trying to think of a name for the Division it became apparent that we could not include all the parts in the name. I am proposing that the entire Division be referred to as Social Science and Professional Careers. If you have other suggestions please feel free to send them to me. I could not come up with a catchy acronym. 3) Departments will still meet as departments on the first Tuesday of the month. That means that Business, IMT, HSP, CJ, Global Studies, Psychology and Sociology will have their separate meetings. Currently DARC, DIS and Social Services are invited to PSYCH department meetings. I would ask that they now invite ECE as well, noting that the program attendance at department meetings is optional. 4) It appears that unlike the other Divisions, ours will have three “schools”. I am proposing the names below, but you can decide ultimately on what you want to be called.

School of Business and Hospitality: includes the Business Department, IMT, Paralegal and Hospitality

School of Social Science and Criminal Justice: includes CJ, Global Studies (ECN, GEO, HIS, POL) and Sociology

School of Behavioral Sciences: includes Psychology, DARC, DIS, ECE, and Social Services

5) It is possible that ultimately the Dean may decide to combine the last two “schools” in which case the name might be School of Basic and Applied Behavioral Sciences or School of Social and Behavioral Sciences. No one should get hung up on names yet since we have time to make those decisions.

Please know that my door is always open and I am happy to have you drop in and see me. Please feel free to ask any questions you might have.

xyz