Mark to Market: Discrepancies in Risk and Value
Considering these concerns, FASB has offered accountants a number of alternative valuation methods that would complement mark to market values or even completely replace them. One option would be applicable only to debt securities. This could be achieved by looking at cash-flow models that reflect an assets ability to generate a future returns. Another alternative recommended by FASB was to limit the use of fair market value to speculative investments while at the same time valuing inventories using more traditional methods.
Despite the perceived lateral flexibility that fair value accounting offers firms, there are some limitations. Its application is only allowed in certain practices which include broker/dealers, investment companies, and insurance companies. The SEC is monitoring how far companies bend these parameters. For now, they regulator appear to be turning a blind eye.
Post-Shipment Risk: Problems Enforcing Anti-Bribery Regulations
For companies importing to developing nations, the risk of bribery can be expensive. Obviously, bribes increase the cost of doing business but they also prevent democratic processes from taking root. Most bribes are anticipated, however, other times they are unforeseen and can completely wipeout a firm’s profits. A number of NGOs along with the World Bank have begun a crack down on port bribery by trying to enforce regulations laid down by the OECD in 2000. In the process however, they have run into a number speed bumps that make it virtually impossible to bring offenders to justice.
After recent investigation into bribery by the OECD, they were disappointed to report that bribery is seen as a cost of doing business by many multinationals. These same companies are also unwilling to walk away from their business relationships that require bribes because they are concerned that their competitors will be less ethically inclined. However, the OECD was excited to announce that incidence of bribery are gradually decreasing due to a reduction in the supply side pressure. Regardless, if multinationals are not convinced that discontinuing their tacit support of bribery will directly benefit them, it will be an uphill struggle for the OECD.
Additionally, it is difficult to investigate individual incidences of bribery. Cooperation from the payer’s home country, the payee’s country, and country/s where the monies were deposited is required to properly investigate. Even if each of the three parties (countries) were to cooperate, it is unlikely that each one had signed an ODCE’s anti-corruption treaty. This would lead to each country having different legal and cultural definitions of bribery. The complexity of such a case and the lack of professional resources and legal precedent make any effort of enforcement more costly than the original offence.
Ultimately, building a system of international trade that is free of bribery is a distant but not unattainable reality. In the short-run, there are three major ways to help curve port bribery. First, it is important countries that are major trade partners find common definitions of bribery for legal purposes. Second, regulators must enact creative solutions that make participation in bribery for multinational less attractive. Finally, it is important to acknowledge that there is a moral/ethical component to bribery that makes each participate responsible. Continuing to emphasis ethical business practices in corporate culture and learning institutions is paramount.
By David van der Roest
Samurai Bonds
As the global recession continues, most financial institutions are finding it difficult to raise funds. Many firms, however, have found an unlikely haven for raising capital: Japan. The first quarter of the 2009 saw outside firms raise nearly $5 billion via Samurai bonds. If the trend continues, it could set a record. Samurai bonds are yen-denominated bonds that are sold Japanese investors. A diverse group of companies have gone to Japan so far: Deutsche Telekom, Renault, and the Commonwealth Bank of Australia.
What make Japanese Investors so eager to buy foreign debt? Despite the global recession, Japanese households still have money to invest. The island nation’s population is older than most countries and also tends to save more per capita. As retirees look to stretch their retirement moneys further, there has been popular disappointment in the low domestic yields. The nation’s 5 year government bond yield is only 1.32% and the Nikkei has been hammered in the market since the 1980s. Additionally, looking to outside investments would usually require that the Japanese denominate their investments in foreign currencies. This strategy is too risky for Japan’s aging demographic.
When Samurai bonds finally hit the market, it supplied the nation’s demand for low risk, medium yield investments that accommodated the culture’s buy-and-hold mentality. Foreign firms looking to raise money here were naturally seen as a god-send.
Counter Trade: A Life-Line for Developing Economies
The increased use of counter trade over the last few years may help developing nations accelerate their recoveries out of the global recession. When compared to industrialized nations, developing economies usually are affected much worse by recessions. Participating in international trading for less developed countries can be with very difficult especially considering a global recession. The ability to use cash, letters of credit, or a loan is virtually impossible for a developing nation. Also, the need for trade credit is growing at a time when banks are less able or incapable to facilitate international trade. Ultimately, tradable (hard) currencies would be too expensive for LDCs. This hostile trade environment is forcing many countries to look to counter trade as a catalyst for survival and hopefully recovery.
To complicate things further, even if a LDC’s credit or cash reserves were good, a global recession would decrease the demand for raw material and everyday consumer goods. One of the unique features of counter trade is that is appears more effective when used between two developing countries. Knowing this, LDC will be able to weather a demand-side slump by trading with each other. Additionally, the current level of globalization gives LDCs more access to each other than ever before. With an ever increasing globalized market, the opportunity for direct counter trade between LDCs is better than ever before. However, being able to side-step hard currencies and credit problems, while continuing trading activities, is not a walk in the park.
One of the stand-out challenges of counter trade is determining a fair exchange ratio for the products or services being exchanged. How many barrels of oil is a ton of rice worth? And what is the quality of the oil considering a predefined quantity and quality of rice. Many LDCs are realizing that cooperating with each pays off by keeping exports at healthy level regardless of a recession.
