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Financial Risk Management, A Case of Goldman Sachs Bank during the Financial Crisis

Essay: Financial Risk Management, A Case of Goldman Sachs Bank during the Financial Crisis

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Goldman Sachs was one of the major investment banks (later became a bank) in US that went bankrupt but was bailed out during the financial crisis of 2008 over alleged malpractices involving shorting its subprime mortgage backed securities. Kunt, Evanoff and Kaufman (2011) define financial crisis/ distress as ‘an event in which substantial losses at financial institutions and/or the failure of these institutions cause, or threaten to cause, serious dislocations to the real economy, measured in terms of output foregone.’ Financial malpractices at Goldman Sachs bank saw its profits decline due significant losses being realized from large subprime write downs which were followed by mortgage crisis meaning beneficiaries were unable to pay. The short selling of subprime mortgage securities to Lehman Brothers is blamed to have worsened the financial crisis to the detriment of both institutions. As a result, the bank approached the federal government for a bailout under the troubled asset relief programmed (TARP). Since the loan came with high interest rates and short repayment period, the banks financial condition worsened and become highly geared. In summary, Goldman Sachs financial crisis can be classified as threefold, that is, financial malpractices among traders and top executives in trading mortgage securities (operational risk), mortgage industry crisis/ risks and high financial leverage.

Risk management theories that can be used to explain the crisis an offer insights into possible solutions are discussed hereunder. Weinberg (2007) noted that the bank relied on incomes from trading to maintain its profit growth which was risky. Therefore, the bank should have maintained a prudent model to monitor the value at risk (VaR) for securities being traded. VaR model shows the maximum estimated loss for a portfolio factoring market related risks at a given time horizon (Esch, Kieffer and Lopez, 2005). Capital Asset Pricing Model (CAPM) would also have helped the bank to understand the behavior of capital markets and possibilities of excess, negative and optimal return on a portfolio by analyzing the securities market line (Elton et al., 2010). Brownian motion model of financial risk management though highlights useful risk strategies useful under normal circumstances was found to fail in providing rational understanding of financial turmoil (Borma and Sharma, 2011).

References

Boma, S. & Sharma, D. (2011). “ How much trust should risk managers place on “Brownian Motions” of financial markets?” International Journal of Emerging Markets, 6 (1), 7 – 16. Retrieved from HYPERLINK “http://www.emeraldsinsight.com/journals.htm” www.emeraldsinsight.com/journals.htm

Elton, E., Gruber, M.J., Brown, S. & Goetzmann, W.N. (2010). Modern portfolio theory and investment analysis (8th ed). New Jersey, NJ: John Wiley and Sons Inc

Esch, L., Kieffer, R. & Lopez, T. (2005) Asset risk and management: Risk oriented finance. West Sussex: John Wiley & Sons Ltd

Kunt, A.D., Evanoff, D. & Kaufman, G.G. (2011). The international financial crisis: Have the rules of finance changed? (Ed.). Singapore: World Scientific Publishing Co. Ltd

Weinberg, N. (2007). “Sachs appeal (Goldman Sachs Group)”, Strategic Direction, 23(7), 56 – 61. Retrieved from HYPERLINK “http://www.emeraldinsight.com/journals.htm” www.emeraldinsight.com/journals.htm

EARLY CHILDHOOD EDUCATION

EARLY CHILDHOOD EDUCATION

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Preschool children love to play, get dirty and discover. Discussed herein, is an overview of Piaget’s Stage Theory and classroom management. Included in this section is a menu of activities that foster learning across each of the domains: physical, cognitive, social and emotional, and language acquisition as well as a detailed step-by-step procedure. Preschool teachers need to be cognizant of individual children’s developmental level, chronological ages and general developmental stages. Children feel secure and benefit from a structured and routine environment.

Discussion

Discovery centres in preschool foster observational and problem-solving skills through the exploration and examination of objects. Teaching pre-schoolers using a learner centred approach is considered best practice, as regards classroom management. When setting up a preschool classroom, the expectation in the environment should be clear. The floor plans include should clearly demonstrate the most effective classroom arrangement to foster learning among preschool children (Koza & Smith 2007). Developing effective activity centres in the early childhood classroom results in measurable, meaningful educational outcomes, and the physical embodiment of developmentally appropriate practice. Classroom management also involves effective strategies of parent involvement that will ensure student achievement. Many of Piaget’s ideas were based on insights carefully gleaned from careful observation of his own three children during infancy. He suggested that the child’s cognitive development could be divided into four thought stages: The sensorimotor period (birth – age two); preoperational period (ages two – seven); the concrete operational period (ages seven – eleven); and formal operational period (age 11 onwards).

Piaget regarded his age norms as approximations and acknowledged that transitional ages may vary, but, Piaget was convinced that all children progress through the stages of cognitive development in the same order. As the child develops and goes through the process of assimilation and accommodation, their brain develop through natural process of maturation, and therefore their understanding of the world matures and their ability to accurately interpret and predict the world develops (Van 2012). Piaget thought that there were clear links between children’s cognitive development and the natural biological maturation of the brain. According to Piaget, cognitive development is an inevitable process, as the brain matures the thinking natures, and the understanding increases. Piaget developed a stage theory, based upon his research with children. This theory described different stages of cognitive development. Piaget’s theory can be thought of as based upon the idea of a staircase. Each stage represents a step and each step represents more development and a higher level of cognitive ability. It is important to note that these stages are fixed in sequence. That is, a, individual cannot complete the stages in any order other than that described.

The sensorimotor stage encompasses children from age 0 – 2 years. This is a stage of rapid development. During this stage, the child will change from a fairly helpless new-born baby to a walking, talking toddler. This stage is dominated by sensory activity. The new-born baby is dependent upon built-in schemas and reflexes, and is unable to imitate or integrate information. An example of a reflex is the sucking reflex, which is necessary for feeding and growing. As the child develops, their sensory and motor activities develop and increase, so that at the end of this period they stand able to imitate and integrate information to some degree (Koza & Smith 2007). A 2-year-old child is capable of using objects to represent other objects, for example, a cup can become a boat in a game. Object permanence is a key factor in this stage of Piaget’s model. Piaget hypothesised that at 8 months the child develops the concept of object permanence, which is knowledge that an object is ‘permanently present, even if temporarily out of sight’. Before a child acquires object permanence thy will cease to look for an object when it is out of their field of vision. If they cannot see it, it does not exist.

During the preoperational period, which extends roughly from ages 2 to 7, children progressively improve their understanding of mental pictures. While development in symbolic reasoning continues, Piaget highlighted the limitations in preoperational though. Consider a simple problem that Piaget presented to youngsters. He would take two identical beakers and fill each with the same amount of water. After a child had approved that both beakers held the same quantity of water, he would pour the water from one of the beaker into a considerable taller, thinner beaker. He would then ask the child whether the two differently shaped beakers still contained the same amount of water. Confronted like this, children in the preoperational period generally said no. they typically focused on the on the higher water line in the higher beaker then insisted that the slender beaker held more water. The children had not yet mastered the principle of conversation (Van 2012). Conversation is Piaget’s term for the consciousness that physical measures remain steady regardless of changes in their shape appearance. Why were the preoperational children unable to solve conversation problem? According to Piaget, their inability to understand conversation is caused by some basic flaws in preoperational thinking. These flaws include centration, irreversibility, and egocentrism.

Centration is the trend to concentrate on one trait of a challenge, while neglecting other crucial aspects. When working on the conversation problem with water, preoperational children tend to concentrate on the tallness of the liquid whilst overlooking the width. They have difficulty in focusing on several aspects of the problem at once. Irreversibility is the inability to envision reversing an action. Preoperational children cannot mentally “undo” something. For instance, in grappling with the conversation of water, they don’t think about what would happen if the water were poured back from the giant beaker into the first beaker. Lastly, in thinking, egocentrism is illustrated by an imperfect ability to assign another individual’s perspective (Koza & Smith 2007). Indeed, Piaget felt that preoperational children fail to acknowledge that there exists different standpoint excluding their own. For example, if they ask a preoperational girl whether her sister has a sister, she will almost certainly say no if they exist the merely two girls in their family. She is unable to view sisterhood from her sister’s perspective.

The concrete operational stage includes children of ages 7 – 12 years. The term operation is used because this stage is characterized by development of strategies and rules of interpreting and investigating the child’s world. The term concrete, by definition, refers to the child’s ability to apply these strategies to things that are present. Thus the child can solve problems they can see or manipulate. The formal operational stage, alternatively, involves children of ages 12 – 16 years (Van 2012). At this stage, the dependency on concrete objects diminishes in this stage and children are able to solve hypothetical deductive reasoning and systematic problem solving. Hypothetical deductive reasoning that uses deductive logic, for example, a child is told that all rabbits have furry feet and all guinea pigs have bald feet. When asked the question, what type of feet does a rabbit have? The children will deduce that all rabbits have fury feet. Thus type of reasoning is not seen in younger children. The second element of this stage is systematic problem solving. As the term suggest, a child at this stage will solve problems in a systematic logical manner. For example, a child trying to make a colour purple from a set of paints will be made on the foundation of what they need to learn from previous combinations. This is a systematic approach which will eventually solve the problem, it is not random but clearly thought out.

In early childhood, a learning focus on movement provides ample opportunity for children to become more physically competent and to learn in the social, cognitive, and affective domains. Physical education has traditionally concentrated on learning in the physical domain that develops specific skills in certain activities. Although this is the distinctive ingredient of physical education, the parallel learning opportunities that enhance teamwork, self-esteem, and problem solving are just as important and for some children more meaningful in the interactive, dynamic, and challenging context that physical education provides. This is particularly so for young children, for whom play remains spontaneous, exciting, and central to the culture of childhood. In relation to the cognitive domain, learning is an active process between the mental system and the environment (Koza & Smith 2007). While learning, the children’s mind does not only receive the information but rather acts on it, interpretation. Learning is a meaningful activity where new information is given interpretation within the teaching-learning environment. Within this context, teaching becomes effective if there is a background situation which makes it impossible to use the new knowledge.

Learning increases the pace for change. For example, activities related to intellective skill development cannot proceed without the social system management that helps to foster roles and relationships appropriate to a new division of learning. Integration and learning are responsibilities that fall within each domain, because without a shared commitment to interdependence and the production of value adding knowledge, the legitimacy of the learning community will suffer (Van 2012).

Conclusion

In light of the above, discovery centres in preschool foster observational and problem-solving skills through the exploration and examination of objects. Teaching pre-schoolers using a learner centred approach is considered best practice, as regards classroom management. Piaget regarded his age norms as approximations and acknowledged that transitional ages may vary, but, Piaget was convinced that all children progress through the stages of cognitive development in the same order. Learning increases the pace for change. For example, activities related to intellective skill development cannot proceed without the social system management that helps to foster roles and relationships appropriate to a new division of learning. Although this is the distinctive ingredient of physical education, the parallel learning opportunities that enhance teamwork, self-esteem, and problem solving are just as important and for some children more meaningful in the interactive, dynamic, and challenging context that physical education provides.

References

Koza, W., & Smith, J. L. (2007). Managing an effective early childhood classroom. Huntington Beach, Calif: Shell Education

Van, B. D. L. (2012). College study skills: Becoming a strategic learner. Boston, MA: Wadsworth/Cengage Learning.

Financial Risk Management why I would like to study this course at UCL

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Financial Risk Management

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Financial Risk Management has always been my forte. Financial Risk Management at graduate level offers immense opportunities for students. It offers learners a chance to gain computational, mathematical, and statistical skills requisite for maneuvering today’s financial needs. This course offers a real chance for the learners to appreciate the dynamics of a rapidly changing business environment. Such skills are valuable when understanding the various risks in the industry, and enable the learner to come up practical skills for navigating the turbulent waters. In addition, being successful in today’s business world requires the learner to have a clear understanding of the psychological and managerial issues that have a direct impact on management of business. Many problems and risks bedevil today’s business. The environment changes rapidly, and this requires competent staff that can address and remedy the situation as it arises. Financial Risk Management is the right course to address these challenges.

I would like to study this course at UCL for a number of reasons. First, this is a public university with a bias towards research. I love doing research because without so, one becomes intellectually redundant. Secondly, UCL has a highly respectable standing in world league tables. This would grant me an opportunity to study and carry out research with the best brains, and by using the most recent publications. The financial world changes rapidly, and this calls for timely and consistent research to keep up with the happenings. Third, the location of the University is ideal for this kind of academic course. London is a major financial hub. The Financial Services Authority (FSA), Bank of England (BoE), and Financial Services Industry (FSI) have a direct and an unwavering interest in the quality of financial analysis and risk management. The collaboration of UCL and these institutions will offer an opportunity for learners to up their analytical skills, develop an interest in entrepreneurial skills, and offer the best advice concerning the financial risk situation.

There is every motivation to study Financial Risk Management. I have always fancied offering practical advice in real situations. There is a high demand for risk management expertise. This is because managing risk is the first step towards succeeding as an enterprise, especially in the prevailing market forces. The conduct of business is now global and understanding risk factors, and initiating mitigating measures is a sure way to get to a winning start. The development of global markets and instruments means there will always be inherent risks in the running of any business. The risk managers must have a clear and concise understanding of credit risk, market risks, operational risks, and liquidity risk. This course handles these areas in a more comprehensive manner, alongside other quantitative risks and the tools requisite for understanding market changes. It would be interesting to learn other changes in risk management when I commence this course.

My academic and professional background makes me ideal for a course in Financial Risk Management. First, I hold a degree in Mathematics, which predisposes me to an analytical mind. Mathematics enables an individual to have a pragmatic and practical approach to problem analysis. I am also a mature student who understands the requirements of graduate studies. I am also efficient, have organizational skills and human skills, and ability to manage myself well. I can also assess situations objectively, and have a sense of self-discipline. In addition, I am forward looking and have a strategic mind, with a keen eye for risk. I have the ability to keep abreast with the volatility of financial markets. Lastly, I have communication skills with the ability to win over teams to my side. Communication also requires an organization to pass relevant information to all stakeholders. It would be imprudent to lie to organizations about actual risk, or to communicate such information ambiguously. The risk manager must have the ability to summarize a lot of information, analyze it, and come up with an honest assessment of the situation. Hence, communication skills are a requisite for a successful financial risk manager.

My programming experience comes from the work I have been doing since the year 2008. During that year, I helped to raise funds for Wenchuan earthquake victims, and helped to organize 30 people of Chinese descent to watch the opening ceremony of the 2008 Olympics. I also represented Chinese students at school, and did voluntary work for a famous singer’s concert. In all these endeavors, I gained praiseworthy reports.

A career in Financial Risk Management has numerous opportunities, given the shifting nature of business operations. I would like to acquire the skills that would enable me to offer faithful and timely advice to organizations on all matters of risk, and to become a trailblazer in my field of specialization. The financial world is prone with many risks. I would like to assist business organizations and investors to understand business environments before investing their resources. This would minimize chances of loss, and would ensure businesses remain sustainable in the end. Finally, completing this course will enable me to play an active role in risk management by learning what is new, and what can potentially affect businesses. This course has the potential to change the way I view the world of finance and risk, and will be the perfect opportunity for me to learn what motivates and excites me. It is my hope that the skills I learn will be of immense value to organizations.