Choice of Company:
Select a HEDGE FUND publicly traded company headquartered in the United States and listed on a national securities exchange
ECONOMICS - Fiscal & Monetary Policies
TEXT: Money, Banking, and Financial Markets by Stephen Cecchetti & Kermit Schoenholtz
Overview
The final project for this course is the creation of an economic risk mitigation proposal.
Professionals working in areas of finance and economics combine understanding of the business and management issues related to the real-world activities of public and private entities worldwide, with a sound knowledge of macroeconomic theory and policy tools and technical skills. They are frequently asked to interpret data todraw research-based conclusionsregarding activities of the firms they manage, in relation to broader macroeconomic phenomena.
In this project, you will develop the ability to understand how economy-wide or regional economic forces affect decisions of senior business management officials in the private sector.
The project is divided into three milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. These milestones will be submitted in Modules Three, Five,and Seven. Your comprehensive proposal will be submitted in Module Nine.
In this assignment, you will demonstrate your mastery of the following course outcomes:
- Propose strategies to enhance business opportunities by applying advanced macroeconomic theory to senior management level decisions
- Evaluate the implications of government fiscal and discretionary policies for business practice
- Draw connections between the business cycle and economic policies and trends in planning for business contingencies
- Assess the interrelationships between monetary policy and shifts in money and capital markets for their effects on the businessclimate
- Evaluate fiscal and monetary policies for their effectiveness in achieving their intended economic outcomes
Prompt
With attention to the amount of information you are able to derive from sources reasonably available to you and which are amenableto citation and verification, select a publicly traded companyheadquartered in the United States andlisted on a national securitiesexchange.
Imagine that you have been hired to consult with the publicly traded company's management team during a period of managerial transition. You have been hired to evaluate the risks this firm faces in the near and medium term, to allow the management team to advise the board of directors appropriately.Assume managers are new to the firm and unfamiliar with its operations and the economic environment in which it operates, but that they are familiar with general business practice. Evaluate the implications of government fiscal and monetary policiesand business cycle phenomenafor the firm you selected. In light of existing evidence, assess which areas of this firm's operations are significantly influenced by macroeconomic fluctuations inoutput, interest and prices associated with business cycle phenomena, or policy decisions made by the federal government. Present conclusions that can be drawn regarding challenges or opportunities specific to this firm, and provide a plan for mitigating any risksthat the firm might face due to systematic factors in particular.
For your economic risk mitigation proposal, you must create a professional paper and apply the theories and concepts from the course to construct a polished proposal encompassing your analysis of systematic risks faced by this company, its economic outlook, and a plan that may be implemented to mitigate risks.
Specifically,the following critical elements must be addressed:
I. Identification of Risk
a. Using the aspects of risk outlined in Chapters 5-8, identify the types of economic riskthat certain broad varieties of activities expose business entities to.
b. Identifyand describetwo areas of your chosen firm's operations that are subject to significant economic riskof each of the following: idiosyncratic, systematic,andsystemic varieties.
c. Identify specific macroeconomic variablesthat are associated empirically with an increase in the identified varieties of risk, and which may indicate increase or decrease insystematic and systemic risk specifically.
d. Graphicallyand/or mathematicallyillustrate a movementin macroeconomic variablesthat would theoretically be associated with this risk.
II. Analysis of Macroeconomic Data
a. Document recent fiscal and monetary actionstaken by U.S. authoritiesaddressing business cycle phenomena.
b. Calculate annual percentage changes inGDPand the Consumer Price Index (CPI-U)in the United Statesfrom 1948 to the current year.
c. Partition yourdata into the periods of 1948-1972, and from 1973 to the most recent year available. Plot annual percentage changes in GDP for these two periods. Compute a trend and assess variation, and describe patterns that you discern in relation to what you know about business cycle fluctuations.
d. Consult FRED(Federal Reserve Economic Data)to determine what has beenidentified to be the natural rate of unemployment and the current rate of unemployment in the current period.Using the FRED data, characterize the current relationship between actual and potential output(Okun's law may be used to guide your assessment).
e. In light of what you identifyto bethe current relationshipbetweenactual and potential output, and the policy actions documented in "step a"above, graphically or mathematically illustrate the current macroeconomic risk factorsand explain why this result isof significance to the firm that you are considering.
f. Describe the theoretical basisof each documented policy action that you have assembled and,using data collected here,evaluate its effectiveness. Did the policy achieve its intended economic outcomes? If so, what indicates that itwassuccessful? If it was notsuccessful, why did it fall short? Use examples to illustrate your point and back up your argument with research.
III. Implications of Government Fiscal and Monetary Policies on Firm's Business
a. Apply your analysis of macroeconomic data and recent policy and policy effectiveness completed in Part II to predicttrendsin GDP growth, inflation,and interest rates.
b. Identify likely effects of predicted trendson your chosen firm's operations. In other words,what should managers beespecially attentive to,based on your research? Use examples to illustrate your pointsand back up your argument with research.
c. Based on your conclusions regarding areas of risk thatare systematicin origin,describe one or more ways that thefirm's operations may besignificantly influenced by shifts in money and capital markets, and government regulation of these.
d. Identify and describe one ongoing policy initiativecurrently underway that might raise or mitigate systematic risk, if it is successful.Describe the empirical or historical basis of this action, and evaluate the potential effectiveness of this policy. Illustrate the theoretical basis of this action using research.If this action is successful, how will this be beneficialor detrimental to the firm you have selected to review here?
IV. Conclusion: Economic Risk Mitigation Proposal
a. Proposestrategies to mitigate systematic economic riskfor your firm. Be sure that your strategies are justified,based on your own research of macroeconomic data, economic outlook, and identification of possible risks expected in the next 1-5 years.