Banking Industry Meltdown Case Study

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Banking Industry Meltdown: The Ethical and Financial Risks of Derivatives
Q1: What are the ethical risks associated with derivatives?
An ethical issue relates to the level of transparency that exists in using complex financial instruments to create profits to customer and derivatives are financial instruments with values that change relative to underlying variables, such as assets, events, or prices. .Ethical risks associated with derivatives are:
• Derivatives expose investors to counter-party risk. For example, if a business wants a fixed-interest loan but banks only offer variable rates, the business swaps payment with another business that wants a variable rate, creating a fixed rate for the first business.
• Derivatives can also
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In addition few are accusing the Company for non-ethical behavior in its dealings. It is realized that Lehman Brothers assisted bundle of dollars in the mortgages in the derivatives components for the First Alliance. The company has also brought various CDS and also great amounts of subprime debts and other lower ranked assets.
Q4.How can ethical corporate culture with adequate internal controls, including ethics and compliance policies, prevent future disasters in financial companies?
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This shoe that there is accuracy with vital ethical assessments by those offering oversight, the investor may be the part of ethical misconduct. To some point, this is what occur in year 2008 global crises. This show significant danger on economy of the world and produced in widespread nonprofit, government, business and personal financial loss. The industry of finance is required to create ethics an enterprise-broad concern and portion of the performance assessments. The protection that CDS, subprime loans and model of the computer were not non ethical procedures ignored the truth that the decision makers mishandled the financial instruments to destroy others. It is very clear that business ethics in an organization need value related leadership from the top management, determined action which comprise managing and usage of the standards of the sufficient conduct and continuous and openness effort to enhance ethical performance of the organization. Thus the importance of ethical behavior associates to value and traditions of organizations, not only to the individual who creates the action and takes

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