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MGT603 - Strategic Management - Lecture Handout 08

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Increasing turbulence in markets and industries around the world means the external audit has become an explicit and vital part of the strategic-management process. This lecture provides a framework for collecting and evaluating economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information. Firms that do not mobilize and empower their managers and employees to identify, monitor, forecast, and evaluate key external forces may fail to anticipate emerging opportunities and threats and, consequently, may pursue ineffective strategies, miss opportunities, and invite organizational demise. Firms not taking advantage of the Internet are falling behind technologically.

Economic Forces:

It is important to monitor key economic factors such as:

  • Foreign countries’ economic conditions
  • Import/export factors
  • Demand shifts for goods/services
  • Income differences by region/customer
  • Price fluctuations
  • Exportation of labor & capital
  • Monetary policies
  • Fiscal policies
  • Tax rates
  • ECC policies (European policies)
  • OPEC policies (Organization of Petroleum exporting countries)
  • LDC policies (Less developed countries)

Price fluctuation refers to general price fluctuation. They affect the economic factors and affect the customers buying behaviors. The customers are more conscious about the economic changes and responds according to the changes in key variable factors. So, any change in the price affects the customer buying trend directly.

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MGT604 - Management of Financial Institutions - Lecture Handout 44

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Related Content: MGT604 - VU Lectures, Handouts, PPT Slides, Assignments, Quizzes, Papers & Books of Management of Financial Institutions

Classic Financial Scandals

"Bankers who hire money hungry geniuses should not always express surprise and amazement when some of them turn around with brilliant, creative, and illegal means of making money." “The quotation is from a speech by the financial thriller writer on the Psychology of Risk, Speculation and Fraud, at a conference on EMU in Amsterdam. Barings Bank collapsed when one of the Singapore based employees of London's Barings Bank, Nick Leeson, lost £827 million (US$1.4 billion) - primarily on futures contract speculation. Leeson's actions led the oldest merchant bank to default on its debts. The bank's collapse is considered a pivotal turning point in the history of banking and has become a textbook example of accounting fraud.

• Internal auditing

The way that Barings Bank's activities in Singapore were organized between 1992 and 1995 enabled Leeson to operate effectively without supervision from Barings Bank's head office in London. Leeson acted both as head of settlement operations (charged with ensuring accurate accounting) and as floor manager for Barings' trading on Singapore International Monetary Exchange (SIMEX). Normally the positions would have been held by two employees. This concentration of functions placed Leeson in the position of reporting to an office inside the bank which he himself held. Several observers, including Leeson, placed much of the blame on the bank's own deficient internal auditing and risk management practices.

• Corruption

Because of the absence of oversight, Leeson was able to make seemingly small gambles in the futures market at Barings Futures Singapores (BFS) and cover for his shortfalls by reporting losses as gains to Barings in London. Specifically, Leeson altered the branch's error account, subsequently known by its account number 88888 as the "five-eight account," to prevent the London office from receiving the standard daily reports on trading, price, and
status. Leeson claims the losses started when one of his colleagues bought contracts when she should have sold them. By December 1994 Leeson had cost Barings £200 million but he reported to British tax authorities a £102 million profit. If the company had uncovered his true financial dealings then, collapse might have been avoided as Barings had capital of £350 million

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