Distinguish between progressive, proportional and regressive taxes.
Distinguish between economic growth and economic development.
Contrast balanced and unbalanced growth.
(/) points) Poutine. Inc.'s business is removing impurities in silver. The refining process is very energy-intensive, so energy costs are a large proportion of its total costs, Customers provide raw silver to Poutine, which Poutine then refines for a fixed fee. Poutine uses coal as its only source of energy. Its fixed costs are extremely stable. The cost of coal is the only variable cost Poutine incurs. Poutine's coal costs currently exceed the refining fee it charges. This situation has occurred several times in recent history. (a) (2 points) The CEO asks you to apply the PESTEL framework to identify the general environmental risks Poutine faces. (i) Identify each of the risks considered in the PESTEL framework. (ii) Provide an example for two of the risks identified above which are specific to Poutine. Poutine's CEO has proposed temporarily stopping the refining of silver until its coal costs are less than the fixed refining fee. (b) (/ point) Identify strategic risks Poutine faces if it implements the CEO's proposal. (c) (2 points) Explain how the CEO's strategy can be described as a financial derivative. Poutine's CFO has concerns about the CEO's plan and asks you to look at implementing a hedging strategy in order to prevent temporary stoppages in refining. (3 points) (i) Describe how Poutine could hedge its risk exposure to changes in the price of coal with forward contracts. (ii) Describe how Poutine could hedge its risk exposure to changes in the price of coal with futures contracts. (iii) Explain whether you would recommend using futures or forward contracts as a hedging strategy. Justify your answer. (c) (3 points) You are asked to assess the CEO's shutdown strategy versus the CFO's hedging strategy. (i) Identify the factors you would consider in choosing between the two. (ii) Explain how these factors will inform your decision.(5 powers) Yonge Life is a U.S.-based life insurance company with the following characteristics: Yonge currently offers 10- and 20-year term life products with face amounts up to $50 million. It has the second largest share of annual sales volume for the 10- and 20-year U.S. term life insurance market. Recent mortality experience has been higher than expected. Yonge reinsures all policies that have a face amount in excess of $5 million with a U.S.-based reinsurer. Yonge mostly invests in high-yield U.S. corporate bonds. Over the past several years, management and staff turnover has been low. Yonge has followed a consistent corporate strategy for several years. External auditors and regulators have not found any major issues with the company's management or processes, Yonge's systems use state-of-the-art technology. The ERM department created the following list of ten risk categories for classifying company risks: Market and economic risk Interest rate risk Foreign exchange risk Credit risk Liquidity risk Systemic risk Demographic risk Non-life insurance risk Operational risk Strategic risk (2) (3 points) Classify each of the ten risk categories as High, Medium, or Low Importance for Yonge Life. Justify your choices. (b) (2 points) Yonge Life is considering expanding its presence by acquiring a Chinese company that sells 5-, 10- and 20-year term policies with face amounts up to the equivalent of U.S. $1 million. There is currently no reinsurance on this book of business and the company's investments are in Chinese investment grade corporate bonds. Identify which risk categories would be of High Importance if Yonge Life makes the acquisition. Justify your choices
