1.) A critic recently claimed that hedge funds cause market volatility to increa

Question

1.) A critic recently claimed that hedge funds cause market volatility to increase when they publicize (and document) that a public corporation exaggerated its earnings. The critic argued that hedge funds should not be allowed to make such public statements, and should not be allowed to take short positions that bet against the firm that is being criticized. Should you support or refute this opinion?

2.) Should large securities firms be allowed to be independent and insulated form bank regulation, or should they be required to register as bank holding companies, and therefore be subject to bank regulations? Write a short essay that supports your opinion.

-This is all the questions ask. I copied and pasted the exact verbage. Both state to write short essay question.

Explanation / Answer

1.) Opinion -

Hedge funds should be allowed to make such public statements, and should be allowed to take short positions that bet against the firm that is being criticized.

Reason -

2.) Should large securities firms be allowed to be independent and insulated form bank regulation, or should they be required to register as bank holding companies, and therefore be subject to bank regulations?

Opinion - Large securities firms should be required to register as bank holding companies, and therefore be subject to bank regulations. Following are the advantages -

1. Bank holding companies can facilitate the expansion of banking organisations and can reach out in areas which are limited or prohibited by law through branch banking.

2. They can avail benefits of tax, like the interest payments on debt required for acquisition of bank can set off from pre-tax income and an adequate capital is to be maintained in the bank.

3. The holding company can borrow money, acquire other banks and non-bank organisations more easily, and issue stock with greater regulatory ease. They are supervised and regulated at federal level.

4. The mangerial expertise of the holding company and bank is reviewed through the examination reports, if any banking laws or regulations are violated.

5. The federal reserve checks the competitive impact of holding company proposal which may prevent acquisition resulting into monopoly or to reduce competition.

6. The federal reserve ensures whether the holding company proposal will improved banking services to meet the credit needs of the applicant and bank.

7. The federal reserve decides on the activities to be performed so that it doesn't create competitiveness among banking subsidiary and non-banking subsidiary.

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