CBA assingnment

8/6/2019 CBA assingnment

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Current Business Affairs

Assignment-1

Submitted to

Sir. Captain Munawwar Ahmad

Submitted By

Shajiah Ali (01-120091-066)

MBA-4(b)


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ENRON Corporation Scandal

In 2001, United States was shocked by the collapse of Enron, a multibillion dollar

corporation that employed thousands of people. Enron came to born as a result of a 1985 merger

of two companies. Company took a huge amount of debt during its foundation and its CEO

Kenneth Lay recruited the sharpest and shrewd businesspeople in his company one of them was

Jeffrey Skilling. After that the company also got involved in the trading of commodities and

providing services and therefore its stock value increased over 50% in one year. In the year 2001

the conspiracy of Lay, Skilling and others led to the collapse of the company due to fraud, false

reporting of revenue, shoddy accounting practices and a general disregard for virtually every

tenet of business ethics. A number of people and firms were involved in this scandal which were

y Arthur Anderson involvement, the Enrons accounting firm which created false earningreports, thereby hiding huge amounts of debt and artificially inflating stock prices beyond the

point of no return

y Enron with the help of government resources was able to wreak a great deal of havoc in anincredibly short period of time which was not limited to the unites states only but also

extended to other nations and continents

Enrons stock values nearly doubled in one year through illegal and unethical activities.

This falsely valued stock was bought in huge amounts by Enrons very own employees, who

either on purpose or through deception, did not ask any questions about how the stock was

growing so quickly in value or what would happen when the price fell. Moreover, many

employees had their entire pensions invested in Enron stock. The major event that changed

everything for Enrons employees was the collapse of the company in a hail of legal problems,

alleged crimes, and finger pointing. When Enron crashed, employees were affected in several

ways. Most obvious is the loss of employment for thousands of highly skilled and well paid

employees, who were forced to try to find work elsewhere virtually overnight. Many of these

employees also had their life savings totally invested in Enron stock which was now worthless.

The Stock Market was also highly influenced by the Enron scandal, the crash of Enrons

stock sent out a loud message to all stock investors that it was extremely important to take a


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closer look at the stocks that one already owned, as well as any that they were considering

purchasing from that point forward. The scandal changed the lives of everyone in America, and

elsewhere, in one way or another, for better or for worse. It forced everyone to look at

themselves and fully realize the consequences of reckless greed and the breakage of laws on a

whim.

(Edward Raver, The Enron Scandal: the Crime, Scandal, Tragedy,

and Controversy of the Century (Dec 15, 2006))

WorldCom debacle

In 1998, the telecommunications industry began to slow down and WorldCom's

stock was declining. CEO Bernard Ebbers came under increasing pressure from banks to cover

margin calls on his WorldCom stock that was used to finance his other businesses endeavors.

During 2001, Ebbers persuaded WorldCom's board of directors to provide him corporate loans

and guarantees totaling more than $400 million. Ebbers wanted to cover the margin calls, but this

strategy ultimately failed. Beginning in 1999 and continuing through May 2002, WorldCom used

shady accounting methods to mask its declining financial condition by falsely professing

financial growth and profitability to increase the price of WorldComs stock

The fraud was accomplished in two main ways. First, WorldCom's accounting departmentunderreported 'line costs' (interconnection expenses with other telecommunication companies) by

capitalizing these costs on the balance sheet rather than properly expensing them. Second, the

company inflated revenues with bogus accounting entries from 'corporate unallocated revenue

accounts. The first discovery of possible illegal activity was by WorldCom's own internal audit

department who uncovered approximately $3.8 billion of the fraud in June 2002. Then SEC

launched an investigation and by the end of 2003, it was estimated that the company's total assets

had been inflated by around $11 billion. On July 21, 2002, WorldCom filed for Chapter 11

bankruptcy protection, the largest such filing in United States history. The company emerged

from Chapter 11 bankruptcy in 2004 with about $5.7 billion in debt. At last count, WorldCom

has yet to pay its creditors, many of whom have waited years for the money owed.

(JJ WorldCom Scandal: A Look Back at One of the Biggest Corporate

Scandals in U.S. History (March 8, 2007))


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and life insurance networks of any insurer. AIG's primary activities include both General

Insurance and Life Insurance & Retirement Services operations. Other significant activities

include Financial Services and Asset Management. AIG's major product and service groupings

are General Insurance, Life Insurance & Retirement Services, Financial Services and Asset

ManagementIt was one of the financial companies to receive billions of dollars in taxpayer money

to help it stay afloat in 2008 and 2009, but was criticized heavily for using some of that money to

pay out bonuses to employees. AIG has also lobbied Congress on extending free trade

agreements with numerous countries, including China, India and Chile. After the terrorism

attacks of September 11, AIG asked Congress to pass legislation that would help pay for any

insurance claims resulting from future terrorist attacks.

(The AIG Story: A Brief Introduction -by Michael S. Rozeff)

(OpenSecrets.org-AIG)

Lehman Brothers

After decades operating as a major financial services firm, Lehman Brothers went

bankrupt in 2008, one of the most notable victims of the nation's mortgage crisis and economic

downturn of the late 2000s. It was a primary dealer in the U.S. Treasury securities market. The

firm's worldwide headquarters were in New York City, with regional headquarters

in London and Tokyo, as well as offices located throughout the world.

On September 15, 2008, the firm filed for Chapter 11 bankruptcy protection following the

massive exodus of most of its clients, drastic losses in its stock, and devaluation of its assets by

credit rating agencies. The filing marked the largest bankruptcy in U.S. history

The bank Barclays acquired a significant portion of Lehman in late 2008. Until it went bankrupt,

Lehman, through its political action committee, routinely spent at least a quarter-million dollars

each election cycle. While favoring Republican candidates for much of the 2000s, the company's

PAC swung sharply toward Democrats during the 2008 election cycle -- ironically, a cycle in

which it spent more money through its PAC than in any previous.

(SHVOONG.com-Lehman Brothers)


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Arthur Anderson

Andersen LLP was the largest Big Five public accounting firm, providing audit, tax

and consulting services in 84 countries. The firm dissolved because of legal issues arising from a

series of client financial misstatements. Arthur Andersen was 28 when he started the firm in

1913, offering accounting, auditing and tax services. The firm quickly became known for an

uncompromising adherence to accounting principles. The firm added consulting services in 1954

to help audit clients set up their computer systems, and Andersen Consulting became an industry

leader.

In 2000, Arthur Andersen split from Andersen Consulting, which renamed itself

"Andersen" and rebuilt a consulting group of 15,000 professionals. Andersen was convicted in

2002 of one count of obstruction of justice because of its role in auditing Enron. After theconviction, the firm could no longer provide public accounting services. After the conviction, the

audit, tax and consulting practices were separated and sold to various competitors' firms. In

2005, the conviction was overturned by the Supreme Court in a unanimous vote.

(Laurie Phillips, eHow Contributor -The History of the Arthur Andersen

Accounting Firm)

Goldman SachsGoldman Sachs is a leading global investment banking and securities firm with three

principal business lines:

y Investment Bankingy Trading and Principal Investments; andy Asset Management and Securities Services.

Goldman Sachs was founded in 1869 and is headquartered in New York City, and employs

32,500 people with additional offices in major international financial centers. Goldman Sachs,

one of Wall Streets most prestigious investment banks, was also among the many banks in 2008

and 2009 to receive billions of dollars in taxpayer money to help it stay afloat. Like others in the

securities industry, Goldman Sachs advises and invests in nearly every industry affected by

federal legislation. The firm closely monitors issues including economic policy, trade and nearly


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all legislation that governs the financial sector. It has been a major proponent of privatizing

Social Security as well as legislation that would essentially deregulate the investment

banking/securities industry. The firm tends to give most of its money to Democrats. A number of

high-ranking government officials in recent years have spent part of their careers at Goldman

Sachs.

(OpenSecrets.org-Goldman Sachs)

Infosys

Infosys Technologies Ltd. (NASDAQ: INFY) was started in 1981 by seven people

with US$ 250. Today, it is a global leader in the "next generation" of IT and consulting with

revenues of US$ 5.7 billion. Infosys defines designs and delivers technology-enabled business

solutions for Global 2000 companies. Infosys also provides a complete range of services by

leveraging their domain and business expertise and strategic alliances with leading technology

providers. Their offerings span business and technology consulting, services, systems, product

engineering, custom software development, maintenance, re-engineering, independent testing

and validation services, IT infrastructure services and business process outsourcing.

Infosys pioneered the Global Delivery Model (GDM), which emerged as a disruptive

force in the industry leading to the rise of offshore outsourcing. Infosys has a global

footprint with 65 offices and 59 development centers in India, China, Australia, the Czech

Republic, Poland, the UK, Canada and Japan. Infosys and its subsidiaries have 127,779

employees as on December 31, 2010. Infosys takes pride in building strategic long-term client

relationships. Over 97% of our revenues come from existing customers.

(Infosys Building Tomorrows Enterprise)

Tata group

The Tata Group is India's largest conglomerate company, with revenues equivalent of about

3.2% of India's GDP. Tata Group comprises more than 90 companies with activities ranging

from manufacturing and chemicals to consumer products and business services. Its Tata

Steel unit is India's largest private steelmaker, while Tata Power is the nation's largest private


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power utility. Tata Motors makes the world's most inexpensive car. Other units include Tata

Communications, Tata Consultancy Services and Tata Global Beverages . Tata Group is

managed through holding company Tata Sons.

Out of 98 operating companies in seven business sectors, 27 are publicly listed enterprises. The

Tata Group has operations in more than 85 countries across six continents and its companies

export products and services to 80 nations. The group takes the name of its founder, Jamsedji

Tata, a member of whose family has almost variably been the chairman of the group. The current

chairman of the Tata group is Ratan Tata, who took over from J. R. D. Tata in 1991. The

company is currently in its fifth generation of family stewardship. 65.8% of the ownership of

Tata Group is held by the charitable trust of Tata.

(Hoovers-Tata Group of companies)

Moodys, Fitch and Standard and Poors

Standard & Poor's, Moody's Investor Service and Fitch Ratings are the Big Three credit rating

agencies. Each of them is explained below

yMoodysMoody's Investors Service is among the worlds most respected and widely utilized

sources for credit ratings, research and risk analysis. Moodys commitment and expertise

contribute to stable, transparent and integrated financial markets, protecting the integrity of

credit. In addition to our core ratings business, Moodys provides research data and analytic

tools for assessing credit risk, and publishes market-leading credit opinions, deal research

and commentary, serving more than 9,300 customer accounts at some 2,400 institutions

around the globe. (Moodys.com)

y FitchFitch Group, Inc. is a rating agency which provides credit opinions, research, and

financial data. The company focuses on the development of fixed income products and

services, as well as on the credit, corporate, and structured finance programs. It offers credit

ratings, analytics, and related services; delivery methods in Internet, data feeds, Web

services, partners, and RSS areas; and tools and models in the areas of market implied


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ratings, financial institutions, structured finance, sovereigns, corporates, and structured

credit. The company also provides credit and corporate finance training programs for

professionals working in fixed income, credit risk management, and origination/relationship

management. Fitch Group, Inc., through its subsidiaries, offers enterprise risk management

services in Toronto, Canada. The company serves financial institutions, investment and

commercial banks, fund management firms, brokerage firms, insurance companies,

exchanges, and regulators. Fitch Group, Inc. was formerly known as Fitch Ratings and

changed its name in January 2005. The company was founded in 1913 and is headquartered

in New York, New York with an additional office in London, the United Kingdom.

(Bloomberg Business week-Fitch Group, Ins.)

y Standard and PoorsStandard & Poor's (S&P) is a United States-based financial services company. It is a

global leader in credit ratings and credit risk analysis, with ratings on approximately US$32

trillion of debt issued in 100+ countries. Standard & Poors credit ratings, indices, investment

research and data provide financial decision-makers with the information and opinions they

need to feel confident about their decisions It is a division of The McGraw-Hill

Companies that publishes financial research and analysis on stocks and bonds. It is one of

the Big Three credit rating agencies

(Standard & Poors Home page)


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Global financial crisis and its effect on Pakistan


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Introduction

The financial crisis that has spanned the globe has had an especially strong impact in

countries beset by political uncertainty. Analysts say weak governments saddled with poorly

performing economies are more vulnerable to social unrest and armed insurgency. The global

financial crisis is impacting the real and social sectors of developing countries through multiple

channels. According to analysts, Pakistan is one of the most prominent examples of a nation

where economic pressures are feeding unrest and threatening a wobbly government

The global financial crisis is likely to affect Pakistan in two ways, directly and indirectly. So far

the impact of global financial crisis has not been felt in Pakistan as a separate crisis as we are

already facing the same for the last year. There are however, other reasons which may work as a

bulwark for Pakistan against such odds.

y First and foremost is that Pakistans economy is not fully integrated with the worldseconomy and therefore, is less likely to be affected

y Secondly, the system of mortgage banking is still in infancy in Pakistan, the banks largelyoperate in loaning against business

y Thirdly, is the sharp decline in oil and agricultural produce which has helped Pakistan tobreathe a fresh.

According to some analysts this global crisis may help Pakistan in a short term to control

depletion of foreign reserves. The argument is based on the premise that due to global crisis a

trend in sharp decline in oil and food commodities prices have been witnessed and it will help

Pakistan in cutting down its import bill which in turn help boost its foreign reserves. By

analyzing the economic trends in Pakistan, we see that despite an impressive growth rate of more

than 6% over the last 6 years( 2001 to 2007), and despite of tall claims from the former Banker

turned Prime Minister, Mr. Shaukat Aziz, Pakistans economy could not exhibit resilience to face

the economic challenges of the last year when the oil and food prices experience a sudden

upward trend. Pakistan faced a major challenge in shape of energy shortage and food inflation.


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Pakistans financial state has always shown mixed results- some years of good growth and some

not. Pakistan largely depends on exports of cotton and textile related items- rice, sports goods,

chemicals and manufacturing items also contribute to exports. Another big source of foreign

earnings is remittances received from the Pakistanis expatriates. Pakistans economic base is yet

to be broadened with a focus on value added products, diversity in exports items, finding new

markets and progress in high technology. Even though Pakistan may escape the immediate

negative implications of the global recession, there will be long-term direct and indirect

consequences. Of the directs, the foreign investments and bilateral assistance are on the top. This

financial crisis will have a significant impact on the size of remittances which Pakistan receives

from the Europe and the US. There is a strong likely hood that this single largest source of

foreign exchange may come under stress. The indirect consequence would be that Pakistans

exports will suffer as imports of the economies in recession will fall and possibility of slashing of

funds from ongoing foreign funded projects can not also be ruled out.

Another outcome is most likely to happen- the efforts and resources required for war against

terror would diminish. The logical consequence would be that Pakistan again will face and bear

the brunt of this volatile situation alone as it happened at the time of Soviet with drawl from

Afghanistan in 80s.

Impact of the Global Crisis on Pakistans Economy

The developing nature of the financial sector has been a saving grace for the Pakistani

economy. Less developed linkages with international markets have meant that the direct impact

of the financial crisis has not been felt by the Pakistani financial sector. However; effects of the

crisis have been felt, even though in a limited manner, by the real sectors of the economy. The

effects of the global slowdown have been transmitted through the trade balance; with a

slowdown in global demand and fall in commodity prices having varying effects, the capital

account; with a significant reduction in private inflows to Pakistan.

Financial Sector

The operating environment of the financial sector experienced significant deterioration

in 2007 and 2008, due to a confluence of factors emanating from both the domestic and

international economic and financial developments. While the domestic environment was


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characterized by weakening macroeconomic indicators and the uncertainty caused by the

prolonged period of political transition, the global financial crisis and the commodity price hike

had a feedback impact on the financial sector through the real sector of the economy. Pakistan,

which remained largely unscathed from a direct impact of the crisis, has been more concerned

with issues relating to monetary stability due to rising inflation since before the advent of the

crisis. With a thriving banking sector, increasingly resilient to a wide variety of shocks,

increasing but still relatively less correlation of domestic financial markets with global financial

developments, a proactive and vigilant regulatory environment, and most importantly, no direct

exposure to securitized instruments, risks to financial stability were largely contained and well

managed as the crisis unfolded and impacted the financial sectors in advanced economies.

Capital Flows &Workers Remittances

A beleaguered international economic environment has held back Foreign Investment as

it posted a decline of 47.5 percent during the first ten months of 2008-09 compared to the

corresponding period of the previous year. Most of this decrease has come in the shape of an

outflow of private portfolio investment of US$ 1 billion. Investment from countries such as the

United States, United Kingdom, Singapore, and Hong Kong, which have been at the apex of the

international crisis, has dropped significantly. Some Asian economies have witnessed an

anticipated fall in workers remittances as unemployment grew in advanced host economies.

However, workers remittances to Pakistan remained vigorous and unaffected by the crisis,

totaling US$ 6.36 billion in July-April 2008-09 as against US$ 5.32 billion in the corresponding

period last year, thereby displaying a rise of 19.5 percent.

Commodity Prices & Trade

An unprecedented hike in international commodity prices wreaked havoc on

Pakistans external sector during 2007-08, with the current account widening significantly.

However, in the wake of a reduction in global demand and the resultant decrease in commodity

prices, the import bill has reduced significantly, decreasing the current account deficit. A key

loss to developing countries during the current crisis has been a decrease in exports as demand

from advanced economies contracts. Pakistan has witnessed a slowdown in exports, but this


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reduction stands apart from that witnessed by other Asian economies for two reasons. Firstly, the

fall in exports is partly due to a fall in domestic productivity and it is hard to distinguish between

the impact of the crisis and internal factors on exports. Secondly, the fall in imports has outpaced

the fall in exports, having a positive effect on the trade balance.

External Financing

The global crisis has restricted Pakistans ability to tap international debt capital

markets to raise funds. An increasing cost of borrowing internationally, coupled with

deterioration in the countrys credit rating has ruled out issuance of government paper as a

financing mechanism. Pakistans presence in the international capital markets in 2008-09 was

limited to the repayment of Eurobond amounting to US$ 500 million made in February 2009

with no new issuance at the backdrop of financial crisis engulfing the global markets.

Conclusion

Pakistan faces a plethora of challenges that stem from both the domestic environment

as well as the negative outlook of the global economy. The government should now focus on

boosting economic activity and providing growth impetus. In order to achieve an increase in

production and the desired level of growth, efforts must be concentrated on increasing capacity

of industry, and removing inefficiencies which would allow productive sectors to function at

optimal levels.

The impact of the global crisis has so far been very limited, but a few credible threats still

remain. The future of workers remittances is uncertain given the fact that employment in host

countries is limited. The external sector still faces multiple threats in the form of a further

reduction in international demand and secondly, a recent rally in international commodity prices

as investors seek refuge could potentially reverse the gains registered in the current account

balance. With regards to external financing, if current conditions in international markets persist,

the government will have to increase reliance on funding from multilateral and bilateral agencies.

It is vital that fiscal, monetary, and external debt policies work in tandem to protect the sectors

exposed to the international crisis, while striving to re-establish domestic economic growth.

TheWorld Bank Group-Impact of Global Financial Crisis on South

Asia (February 17, 2009)


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Muhammad Saqib Aziz-Impact of Global Financial Crisis on

Pakistan (The London summit 2010)

Mohammed Mansoor Ali- Global Financial Crisis: Impact on

Pakistan and Policy Response (July 2009)

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CBA assingnment