How Firms Decide Between Risk Retention And Transfer Finance Essay

How Firms Decide Between Risk Retention And Transfer Finance Essay Generally, the purpose of risk management is value maximization for a for-profit organization. In other words, risk management aims to maximize value by minimizing the cost of risk. Total costs of pure risk include costs of control and costs of financing. This essay focuses on risk financing. There are two broad methods of risk financing: risk retention and risk transfer. Risk transfer contains insurance and other contractual risk transfers. At the beginning of this assay, I am going to introduce the concept of retention, insurance, and contractual risk transfers, and their advantages and disadvantages. Then I will discuss how a firm should decide between risk retention and risk transfer, if a captive insurer is not to be employed. Finally, I will discuss how a firm, having a captive insurer, should finance its pure risk losses. With retention, a business retains the obligation to pay for part or all of the losses. When coupled with a formal plan to fund losses for medium-to-large businesses, retention often is called self-insurance. (Harrington and Niehaus 1999 Page 12) Retention can be financed via a captive insurance company (an insurance company owned by a non-insurance company which is also its customer), a risk retention group, cash flows from ongoing activities, and general working capital (the excess of the firms liquid assets over its short-term liabilities). In addition, firms can also obtain funds by borrowing, loans, issuing new stock and selling other business asset, such as buildings and cars. Funds to pay retained losses should be large so that there is enough money to pay retained losses. In addition, the retained losses are unpredictable, and they may be large or small. However, there is an opportunity cost for a fund. The opportunity cost is the difference between the return on the fund and the firms normal rate of return. As a result of this, if funds are large, the opportunity costs will be large; if funds are small, they may fail to pay all losses. In addition, there may also be costs incurred in converting non-liquid assets into cash for settling losses. (Dr. David Ayling 2009) Risk transfer includes insurance and contractual risk transfers. Insurance is a form of risk management primarily. A firm could purchase insurance contacts to cover risk losses. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known small loss to prevent a large, possibly devastating loss. An insurer is a company selling the insurance; an insured or policyholder is the person or entity buying the insurance. (Web 1) Firms can transfer some of risk losses to insurance company by insurance contracts. According to Dr. David Ayling (2009), the benefits of insurance include reduction of uncertainty, loss control advice, liquidity of company protected, long term planning mire feasible, and access to large risk combination services. On the other hands, insurance does not cover loss of goodwill, loss of market share, lost customers and suppliers, and so no. In addition, some r isks are not insurable, such as risk losses are too large, risks are not measurable, risks are not predictable, and so on. Firms can also use some contractual risk transfers to transfer risk to another party. For example, if a firm wants to build a house, and hire a construction company to build the house, it could perform some task routinely into contracts, such as if workers or pedestrians are injured by accidence when the house is building, the construction company pay for these losses; and if the house crashes after it is completed, the construction company will be responsible for it. Having introduced risk retention and risk transfer, the following will discuss how a firm should decide between risk retention and risk transfer, if a captive insurer is not to be employed. Both risk retention and risk transfer is important and primary methods for risk financing. How should a firm decide the methods of risk management? The severity and frequency probability of risk losses determine which method should be used to finance risk losses. According to Dr. David Ayling (2009), when the frequency probabilities of pure risks are low and their severities are high, then the method of risk transfer would be better to finance the risk losses, because the severities are high, which means the risk losses may be large. If using risk retention, they need large funds to finance the risk losses so that the opportunity costs of the funds will be large. As a result, the risks could be transferred to insurer or another party by buying insurance or making contracts. However, risk retention may be better, if the frequency probabilities of pure risks are low and their severities are low. Because they need only small funds to cover the risks as both frequency probabilities and s everities are low. In addition, the insurance may be expensive; commonly the price of the insurance is high than the opportunity cost of retention. Even more, the risk losses may not be covered by insurance. When the frequency probabilities of risk losses are high, both retention and insurance are not better methods, because the risk losses will continually happen. As a result, if the severities of the risk losses are high, we should avoid these risks. In the other words, we should abandon these businesses, because they are too dangerous; if the severities of the risk losses are low, we should control it by increasing precautions and limits on risk activity designed to reduce the frequency and severity of accidents. (Harrington and Niehaus 1999 Page 23) There is an important factor that may affect firms decision between retention and insurance. The factor is tax. When calculating its taxable income, a noninsurance company can only deduct losses that were paid during the year. In contrast, an insurer can deduct the discounted value of incurred losses, which equals losses paid during the year plus the change during the year in the discounted value of its liability for unpaid claims. This distinction essentially allows insurers to deduct losses earlier than noninsurance companies, which all else equal increases the present value of expected tax deductions if a loss exposure is insured. Although the tax break is granted to insurers, competition among insurers for business will cause most or even the entire tax break to be given to policyholders through lower premiums. (Harrington and Niehaus 1999 Page 218) In practice, many large companies have established captive insurance companies. These companies make payment to their captive insurers, which then pay losses to the large companies. It is an important method of financing losses for large firms, and can be viewed as a special type of retention and self-insurance. If a firm has a captive insurer, the firm should finance risk losses by buy insurance from its captive insurer. A firm could benefit a lot by using a captive insurer. To begin with, the parent company could reduce expected tax payments relative to retention. As I have discussed before, insurance has a tax advantage compared with retention. In addition, Dr. David Ayling (2009) mentioned that the parent company could access to the reinsurance markets through its captive. The parent first buys insurance through its captive, which then purchases reinsurance. Finally, Harrington and Niehaus (1999) said captive also can be used to reduce risk. The parents risk exposures will be poo led with other unrelated companies exposures, if its captive sells insurance or reinsurance to other unrelated companies. Consequently, a large firm will benefit from its captive insurer in reducing expected tax payments, accessing to the reinsurance markets, and reducing risk through the captives transaction. In conclusion, as retention and insurance have their own advantages and disadvantages, the frequency probabilities and severities of risks determine which methods of risk financing should be used. Insurance is a good risk financing method for a low frequency and high severity risk; in contrast, retention is a good risk financing method for a low frequency and low severity risk. For many large companies, using a captive insurer becomes an important method of financing losses. Captives could benefit their parent company from reducing expected tax payments, accessing to the reinsurance markets, and reducing risk through the captives transaction. However, according to Dr. David Ayling (2009), if risk losses could be transferred to someone other than an insurer at a cheaper cost, or can be prevented or reduced at a cost cheaper than insurance, insurance and retention are not the best methods of risk losses financing, because risk management aims to maximize value by minimizing the cost of risk. Bibliography and Reference Dr. David Ayling (2009) Corporate Risk Managements handout, Bangor University. Harrington, S. E, Niehaus, G. R, (1999) Risk Management and Insurance, Boston: Irwin/McGraw-Hill. Web 1: Wikipedia (2009) Insurance (Online) Wikimedia Foundations, Inc: USA. Available from: http://en.wikipedia.org/wiki/Insurance (Accessed 8/12/09)

McEthics in Europe and Asia

McEthics in Europe and Asia: should McDonald's extend its response to ethical criticism in Europe? Introduction The â€Å"McEthics† case describes how Mc Donald's, the fast food industrys market leader, faces charges concerning growing health problems in Europe and Asia. 1) Set out the main criticisms that have been leveled at Mc Donald's in Europe. To what extent are these criticisms likely to be replicated in Asia? What differences can be predicted? There are four main areas of critique that have been leveled at Mc Donald's in Europe.First, the products are said to be fat and unhealthy, which fosters health problems, especially obesity and diabetes. Secondly, the labor conditions are heavily criticized. Mc Donald's has been accused of paying too little wages and being ‘strongly antipathetic' to unions. Harsh criticism also arose concerning the companies advertising. These accusations are based on the belief that Mc Donald's ‘exploits children' and uses false adve rtisement of its food as nutritious'. The last point of criticism is the firms ‘culpable responsibility for animal cruelty.Additionally, in France a whole wave of an anti-American sentiment aggravates the negative image of Mc Donald's. In Asia the main point of criticism that is replicated is health issues. The fat foods and emerging fast food culture is especially dangerous to children's health. In Europe traditions of protests and rebellions may help people change and the treedom ot speech. Moreover, governments nave a great interest in a healthy population because offering an expensive welfare and health care system.From our point of view these factors have led to a strong resistance against Mc Donald's which would never emerge in Asia in such an extent. ) Describe and evaluate the tactics used by McDonald's in responding to their critics in Europe? Will these work to the same degree in Asia? According to the case, Mc Donald's quickly reacted to criticism in Europe and star ted various campaigns in order to improve its image. For instance, they developed a healthier menu, introducing salads and fruit packages or launched sport initiatives and awareness campaigns.By contrast, in Asia Mc Donald's is reacting very slowly, not answering to the peoples concern. One possible explanation for Mc Donald's actions in Europe could be that European governments started taxing the fast food industry. In the meantime, Asian governments seem to show now interest in such measures. This observation is also a strong indicator that Mc Donald's campaigns in Europe are not truly altruistic. It rather seems that Mc Donald's is merely after profit and stakeholders satisfaction rather than providing healthy food. ) Should Mc Donald's offer healthy alternatives to the same extent in all the countries in which it operates, or Just those where it has been criticized in the past, or is it expecting further regulation? What if customers overseas do not want healthy options? Mc Dona ld's should offer healthy alternatives in every country as ong as customers accept and buy them. If customers do not want healthy options, Mc Donald's should offer other alternatives such like sport programs or simple information packages. Scientific research clearly proofs that fast food, consumed on a regular basis, is extremely unhealthy.Mc Donald's could be said to have an ethical responsibility to educate its customers about fast food and healthy alternatives. 4) How could Mc Donald's seek to avoid further criticism in the future? Can the company realistically present itself as an ethical corporation? Only if Mc Donald's operated as truly altruistic company, benefitting the community, could they avoid further criticism. As of now, Mc Donald's is only known to be vastly successful in the economic perspective of the triple bottom line. Mc Donald's is also committed to social and environmental perspectives.The Ronald McDonald House Charities for example provide healthcare etc. to children in need. Furthermore Mc Donald's 2009 Corporate Responsibility Report clearly states how Mc Donald's tackles the environmental issues and provides examples of Mc Donald's sustainable supply chain. However this is not what comes to mind when we think about this fast food chain. The solution to Mc Donald's problem is already in place. The catch is however that no one knows about the corporations' environmental and social efforts.Through proper marketing strategies Mc Donald's could earn a much better reputation with very little effort. 5) How sustainable is the fast food industry from the point of the triple bottom line? The triple bottom line combines the three factors of environmental, economic and social sustainability. The economic sustainability in the fast food sector has been proven in the past by Mc Donald's balance sheets. Concerning the environmental angle, one can argue that there is room for mprovement. For instance in Austria Mc Donald's is starting to use local products and has sorted rubbish for several years.There are programs in place to aid Farmers become more sustainable, bringing Mc Donald's supply chain to a high standard of environmental responsibili Concerning social sustainability, the tast t industry is lacking vision. They are providing healthcare to people in need but why not tackle the cause of these children's health problems? If the fast food industry could find a successful shift to truly healthy fast food, social sustainability could prove to be a contributing factor to the fast food industries profits.

Intro lit. Grammatical person Essay

An Introduction What Is Literature and Why Do We Study It? †¢ Literature [Roberts and Jacobs] – a composition that tells a story, dramatizes a situation, expresses emotions, analyzes and advocates ideas – helps us grow personally and intellectually – language in use; hence inseparable from it – product of a particular culture; even more culture-bound than language – makes us human Literary Genres Four genres of literature: Prose fiction †¢ Epic myths, legends, fables, novels, short stories Poetry †¢ Open form and closed form †¢ Relies on imagery, figurative language, sound Drama †¢ Made up of dialogue and set direction †¢ Designed to be performed Nonfiction prose †¢ News reports, feature articles, essays, editorials, textbooks, historical and biographical works FICTION -any imaginative recreation and reconstruction of life which includes short stories and novels -myth and legend — origins and extraordinary events like wars, conquests, births, death, as well as the phenomena of nature Elements of Fiction 1. Setting †¢ a work’s natural, manufactured, political, cultural and temporal environment, including everything that characters know and own (place, time, objects) †¢ Its purpose is to establish realism or verisimilitude, to organize a story, and to create atmosphere or mood. †¢ It may reinforce development of characters and theme. 2. Characters the representations of a human being Classification of fictional characters: – Round (dynamic) = lifelike, fully-developed and recognizes changes in and adjusts to the circumstances – Flat = no growth, static – Stock = representative of a group or class (stereotypical) – Protagonist = the hero or heroine, main person in the story, person on the quest, etc. – Antagonist = the person causing the conflict, in opposition to the protagonist, the obstacle, etc. Five ways of revealing literary characters: 1. Actions 2. Descriptions 3. Dramatic statements and thoughts 4. Statements by other characters 5. Statements by the author speaking as storyteller, or observer 3. Plot and Structure the way the actions are arranged in the story reflection of motivation and causation *In the story, the queen died and then the king died shortly after. Conflict – controlling impulse in a connected pattern of causes and effects – Opposition of two or more forces (e.g., hatred, envy, anger, argument, avoidance, gossip, lies, fighting, etc.) -can be internal (man vs. himself) or external (man vs. fate/condition/other characters) Dilemma – conflict within or for one person – Conflict is a major element of plot because it arouses curiosity, causes doubt, and creates tension therefore producing interest among readers/audience. LITERARY DEVICE flashback foreshadowing local color – the superficial elements of setting, dialect, and customs Closed Plots 1) Linear – arranged chronologically 2) Circular – combination of linear and flashback 3) In Medias Res – begins in the middle part of the action Structure of Closed Plots PYRAMID PATTERN OF DEVELOPMENT Exposition Complication Crisis Climax Resolution (Denouement) 4. Point of View †¢ Refers to speaker, narrator, persona or voice created by the author to tell the story †¢ Point of view depends on two factors: – Physical situation of the narrator as an observer – Speaker’s intellectual and emotional position †¢ First person – I, we †¢ Third person – He, she, they (most common) Omniscient – all-knowing; delves into the minds of the characters at any point in the story Limited omniscient – some insight 5. Theme (Donnà ©e) Theme embodies meaning, interpretation, explanation and significance of every detail in a literary piece along with values in order to appreciate it. It is not as obvious as character or setting. It is important to consider the meaning of what has been read and then develop an explanatory and comprehensive assertion. It points out the significant truth about life and human nature that is illustrated in the actions, preoccupations, and decisions of the characters. It is not just some familiar saying or moral. Theme can be found in any of these: – direct statements by the authorial voice – direct statements by a first-person speaker – dramatic statements by characters – figurative language, characters who stand for ideas – the work itself – as a whole Theme should be: 1. expressed in complete statements 2. stated as a generalization about life. 3. a statement that accounts for all major details in the story 4. be stated in more than one way 5. should avoid statements that reduce the theme to some familiar saying 6. Images –concrete qualities rather than abstract meanings which appeal to the five senses 7. Symbolism Symbols stand for something other than themselves. They bring to mind not their own concrete qualities, but the idea or abstraction that is associated with them. Symbol creates a direct, meaningful equation between & among: – a specific object, scene, character, or action – ideas, values, persons or ways of life Symbols may be: – Archetypes (universal) = known by most literate people and have usually been used in most literary pieces therefore becoming representative figures (e.g., white dove, color black) – Contextual (authorial) = private, created by the author – Allegory = complete and self-sufficient narrative (e.g., â€Å"Young Goodman Brown†) – Fable = stories about animals that possess human traits (e.g., Aesop’s Fables) – Parable = allegory with moral or religious bent (e.g., Biblical stories) – Myth = story that embodies and codifies religious, philosophical and cultural values of the civilization in which it is composed (e.g., George Washington chopping down the cherry tree) – Allusion = the use of other culturally well-known works from the Bible, Greek and Roman mythology, famous art, etc. 8. Tone and Style †¢ Tone = methods by which writers and speakers reveal attitudes or feelings †¢ Style = ways in which writers assemble words to tell the story, to develop an argument, dramatize the play, compose the poem †¢ Essential aspect of style is diction Choice of words in the service of content Formal = standard or elegant words Neutral = everyday standard vocabulary Informal = colloquial, substandard language, slang †¢ Language may be: – Specific = images – General = broad classes – Concrete = qualities of immediate perception – Abstract = broader, less palpable qualities †¢ Denotation = word meanings †¢ Connotation = word suggestions †¢ Verbal irony = contradictory statements – One thing said, opposite is meant – Irony = satire, parody, sarcasm †¢ Understatement = does not fully describe the importance of a situation – deliberately †¢ Hyperbole (overstatement) = words far in excess of the situation

The Slavery Of The United States - 1869 Words

Modern Day Slavery In early 17th century, European settlers used slaves as cheap servants. Slaves were the personal property of their owners, and slave masters had absolute authority over them as human property. Chattel slaves, as they were traditionally referred to in the past, were bought and sold as if they were possessions. Even though owning a person as property was lawfully protected in the United States, enslaved individuals were not protected from mistreatment and abuse they endured. Historically, slaves experienced abuse at the hands of their masters. Slaves were chained, whipped and were often beaten while withstanding days of hard labor. Although we are taught that slavery ended centuries ago and the 13th amendment†¦show more content†¦These individuals are forced into marriages, hard labor, prostitution or other compelled situations. The most widely accepted definition of human trafficking comes from the State of California Department of Justice as â€Å"the recruitment, t ransportation, transfer, harboring or receipt of persons, by means of the threat or use of force or other forms of coercion, of abduction, of fraud, of deception, of the abuse of power or of a position of vulnerability or of the giving or receiving of payments or benefits to achieve the consent of a person having control over another person, for the purpose of exploitation.† Victims of human trafficking are considered today as modern day slaves. The International Labor Organizations (ILO) estimates the number of enslaved victims in the world today is at around 21 million. It is estimated that over 4 million people fall prey to trafficking each year, which is considered to be a conservative estimate according to the Federal Bureau of Investigations (FBI) because not all victims come forward about their situations due to fear of their lives. Traffickers control their victims through physical threats, similar to the abuse chattel slaves endured in American history. According to the Polaris Project, one of the most well-known anti-trafficking organizations, most victims of human trafficking are often mistreated, handcuffed, beaten, and raped if they do not comply with their traffickers demands. Furthermore, if traffickers know of the