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SYNOPSIS Summary of the Case The retail side of Gibb River Bank was making money, but it did

not grow at all in 2003, moreover, its plenty of depositors, but few new ones, made Bruce Honiball, as the manager of retail services, to figure out new financial products and services that would generate excitement and attention to their loyal depositors as well as their prospective depositors, considering that the bank had no appetite for the major new risk. In line with this, Bruce proposed an Equity Linked Deposit wherein the interested client will deposit an amount of $A100 for one year, and at the end of the period, the depositor will get the full $A100 plus $A5 for every 10% rise in the value of Australian All Ordinaries stock index, however, if the market index falls, the bank will just refund the $A100 deposit. However, Honiball was questioned if the bank can afford such attractive offer. This made him to suggest a new opinion to Shiela Liu, a newly hired smart MBA graduate, called Bear Market Deposit, which is entirely opposite of his first proposal; if the market goes up, the depositor will just get $A100, and if the market goes down, depositor will get his $A100 plus $5 for every 10% that the market falls. Highlights The retail sector of Gibb River Bank experienced no growth in 2003. Mr. Bruce Honiball has to figure out new financial services and products that would capture the attraction of their loyal and prospective depositors, which will in turn contribute growth in the sector as well as to the whole bank. The bank had no appetite for the major new risks. Mr. Honiball proposed Equity Linked Deposits and Bear Market Deposit, these were being subject to examination if the bank can afford to make these investments, and if it will be in line to Honiballs objective of giving growth in the retail services of the said bank. Tungkol sa market, interest rate, etc., ung table. Problem Due to the fact that the retail sector of Gibbs River Bank did not deliver any growth in year 2003, Bruce Honiball, being the manager of retail services, has these following problems: 1. Can the first proposed idea, the Equity Linked Deposit, be affordable and an attractive offer for the customers given that the company has no room for new risks. And the bank can be able to earn much from the reinvestments of the deposits? 2. Can the second proposed solution, the Bear Market Deposit, be effective given the data about equity-linked deposits? Can it be a better offer than the first proposal? 3. In case the two proposals are not good enough, and there should be other options to consider, what would be the best financial service or product that would create excitement and attention to new customers and the loyal ones which would generate profit and growth for the retail side, as well as for the whole company? Point of View

Since Bruce Honiball is the manager of retail services at the Gibb River Bank, the group chose to take his place as a reference for the groups point of view, and which whom the recommendation shall be applied. RISK IDENTIFICATION Method Used The group used the Scenario Based in risk identification, this is supported by the fact that Mr. Honiball is responsible to create new financial services and products which will be in line with his objective of giving growth to the retail sector. Thus, as he proposed different products, there are different scenarios which may be considered as an alternative way to achieve the objective and any event that triggers an undesired scenario alternative is identified as risk. Areas of Consideration Marketing. Since, the main concern is the retail sectors growth, marketing area is greatly affected, Mr. Honiball must be able to come up with new financial products or services that will attract their current depositors and to have new depositors that will give profit and growth to the sector, and thus, this functional area is more susceptible source of risk. Financial. If ever the management of the bank will pursue the proposals of Mr. Honiball, financial area will be also affected; if they can afford to pay off its depositors with their entire deposits plus $A5 for every 10% up of the market, and if the market will continue to go up, the bank will be in risk of having a loss. Operational. Answer this Human Resource. Answer this Types of Risk and its Causes Types of Risks Causes Market Risk (including If Mr. Honiball will pursue to his Equity Linked Deposit, he interest rate risk) will be mainly subject to market risk, due to the fact that he will be investing mainly in Australian stocks, the price fluctuations or volatility increases and decreases in the dayto-day market will be a great uncertainty because it is out of the control of Gibb River Bank. Market Timing risk Attempting to predict the future market price movements based on the outlook of market or economic conditions resulting from their technical or fundamental analysis. The potential gains from getting market timing can be vast. However, because of the unpredictability of the market, it is tough to predict future price movements. Operational risk Operational risk can be summarized as human risk; it is the risk of business operations failing due to human error. Reputational Risk If his proposals will turn out to be negative, the reputation of the bank from its current and prospect depositors will be affected. Confidence risk Due to the unanticipated changes in the willingness of the investors to take on investment risk

The unpredictable changes in investors desired time to receive payouts. Identifying the time horizon is important so that alternatives can be evaluated for performance over the same period of time. *mag isip pa kayo ng risks. Tapos ung major risk, dito natin lagay. Ung risk na minor, sa appendix na lang. Oks? Kc one part per page. Kakapusin tayo eh. Time Horizon Risk RISK ASSESSMENT Degree of Risk Hazard, peril, exposure Isa isa ba to, or general? Di ko to gets? Bago iimplement ba o after iimplement ung proposal? Value at- Risk
VALUE AT RISK Covariance of: Favorable Interest rate vs Market Return Interest Rate vs Dividend Yield 1.5746%

Risks Effects of market and interest rate changes Dvidend yield based on interest rate movements

Base 0.1683%

Unfavorable -1.2381%

1.4338%

0.0274%

-1.3789%

Dividend yield Market Return vs Dividend 1.3592% -0.0471% affected by market Yield return TOTAL 4.3676% 0.1486% Variance of Interest Rates, Equity Return and Year-End Dividend Yield Pinaturo ko lang to kay Renz, wla ako book eh. Explain this!

-1.4535% -4.0705% 1.4064%

Alternative Courses of Actions


Alternative Courses of Actions Pursue the first idea: Equity Linked Deposit

Advantage Attractive for investors since they have nothing to lose, only gains if the market is up. Attractive for investors who view the market as a down market. Life the first idea, they have nothing to lose. An attractive advertisement for investors especially for risk takers. Both, the investors and the bank, will win and also lose depending on the market. It is less risky not only for the company but also for the investors. Attractive for risk

Disadvantage Although they will have more investors, it is risky for the company because if the market is always up, then they will lose a lot of money. Risky and bad for the company because it is hard to predict the future prices of the market. Risky and costly. Its disadvantage can also be the fact that most investors are risk risk averse and they will not consider it a good investment for them. Can they afford offering new asset types for the investors since we should also consider

Do the second suggestion: Bear Market Deposit Combine the 2 suggestions where there can be both a share for the upside and downside (elaborate natin to) (Diversification) Consider other asset types. Offer new and safer asset types like

bonds, derivatives, ETFs, etc. Dont do anything

averse investors. They wont face any new risks.

cost effectiveness? Wont generate more investors hence, no new income for the company.

Pde din pursue no.1 but lower down ung additional payment. Ganun din sa 2. Tas magprepresent value tayo. Gets?compute compute. Wag na kaya isama ung diversification? Sa tingin nyo? Kc mas risky? What we need is ung product na maattract ang depositors, ung pag rereinvestan natin ng deposit from clients, tayo na bhala dun, not part of financial products that were offering, ilagay nalang natin sa recommendation. So revise nalang ung first and second proposal?

RISK PRIORITIZATION Rubrics / Matrix Criteria* Excellent Good Fair Poor Total

Alternative Course of Action 1. 1. Attractiveness 2. Growth Potential 3. Not Susceptible to new major risk 4. Cost Effectiveness and Profitability 5. Easiness, Safety and within the Control. *Reasons in selecting the criteria are in the appendix. Kayo na bahala magsagot nito. Justify ha. Tapos ung weight, kayo na magdecide. Conclusive Justification Ano ba to? Ung sa weight, criteria, ijujustify? SOLUTIONS AND RECOMMENDATIONS Plan of Actions Madali na to. After makuha ung tally sa rubrics kaya na to. Tabular Presentation Solution Planning? Duration Resource Specific Activities

APPENDIX
End - Year Dividend Yield
5.10% 4.60% 3.90% 4.80% 5.40% 5.50% 6% 3.80% 3.80% 3.20% 4.10% 3.90% 3.60% 3.60% 3.80% 3.50% 3.20% 3.30% 4% 3.50%

Year
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Interest Rate Market Return


11% 15% 17.10% 14.10% 11.7% 17.30% 15.90% 11.10% 6.80% 5.30% 5.40% 8% 7.40% 5.50% 5% 4.90% 4.90% 4.80% 4.80% 4.90% -2.30% 44.10% 52.20% -7.90% 17.90% 17.40% -17.50% 34.20% -2.30% 45.40% -8.70% 20.20% 14.60% 12.20% 11.60% 19.30% 5% 10.10% -8.10% 15.90%

Australian Interest Rates and Equity Returns


60% 50% 40% 30% 20% 10% 0% -10% 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 -20% -30% Interest Rate Market Return End - Year Dividend Yield

Edit table and chart format. Then, explanation?!

Criteria for the Alternative Course of Action Attractiveness. This criterion shows if the alternative course of action will catch the attention of their loyal depositors, as well as new clients to take the banks offer. Growth Potential. The courses of actions are being offered because of its objective to increase the growth of the retail sector, thus, growth potential is highly considered. Not Susceptible to New Major Risk. Since the bank has no appetite for new major risk, the new investment should not be vulnerable for any downside risks, meaning the uncertainty of a return, new risks, and the potential for financial loss. Cost Effectiveness and Profitability. The alternative action must be cost effective and efficient; that the bank can afford what they will offer; the probability of having a loss is minimal; and the profitability and efficiency to generate earnings is more likely to happen. Easiness, Safety and within the Control. The alternative course of action must be easy to implement, and not likely to fall in value. In addition, the internal, as well as the external factors that will affect implementing such, must as much as possible is within the control of the management.

Tasks: Rose Faye Nikki Rachelle

Highlights (ung one bullet lang, at kung may madadagdag kapa), area of consideration Faye, ung alternative courses of action. Nagets mo ba? Tx mo nalang ako. Risk and its causes (kung may madadagdag kpa) at degree of risk. VaR (explain) at rubrics(ung weight lang ng criteria, and explain) kunwari, growth potential, weight is 1.5, y 1.5? dahil ba un ung main reason kaya may ganto. Gets? Wag mo sasagutan rubrics. Sabay sabay tayo. Weight lang

Sa January 2, send nyo. Kaya ba? Mga 1pm. Kaya? Cge. Thanks. We will have a meeting on January 3, 2012. We need to finalize this na. May part 4 at 5 pa tayong dapat tapusin. At mga computations. Padala nalang ng laptop nyo/ Sa January 4 pasahan daw kc iriringbind pa. So aun. Thanks a lolt