its a finance paper I just need help by answering the questions that are asked all the instructions are in the paper thank you
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FIN 315 Principles of Investments
Score: Justification of analysis [30 points]; Recommendation [30 points]; Justification of
recommendations [30 points]; References [10 points]
Matt, a management level executive of Goldman Sachs, is on the verge of making a decision on how to
reimburse the agreed upon magnanimous payment packages to the group of eight highly salaried traders
who had made between $1.5 billion to $3 billion for Goldman Sachs during the years 2008 and 2009. In
this context, the main problem that Matt is facing is that owing to the financial recession, there was a
widespread criticism and demand for reform in the pay structures across the global financial industry. The
extensive criticism is directed to the practice of paying hefty bonuses to the traders by the financial
institutes in case their risky investment succeeds. On the contrary, the traders are not subjected to any sort
of penalty during instances when their hazardous investments fail. Instead, the bailout amount is paid out
from the pockets of the taxpayers if in case the failure of the huge perilous investments leads to a crisis
scenario like the subprime crisis (Martin & Scotto, “Bailouts and Bonuses on Wall Street”).
Hence, it can be observed that in both the scenarios the financial executives and traders have nothing to
lose. Furthermore, the lack of disincentive or a negative consequence and the enormous amount of
bonuses involved in the process facilitate and encourage the traders as well as the financial institutes on
the whole to pursue making exceedingly risky investments.
The fact that Citigroup had paid a similar large amount of compensation to one of its traders, who had
earned $2 billion for the company, had created much criticism amongst the public. In this scenario, the
major problem that Matt would have to encounter is that if Goldman Sachs does not pay the concerned
eight traders their due bonus of $125 million as per the contract, they might depart for other
organizations, obtaining the clients with them as well. Besides, Goldman Sachs had obtained in excess of
$10 billion in the form of taxpayer assistance from a federal bailout. Furthermore, the concerned group of
eight traders had also played a significant part in the financial depression owing to their association with
Financial Products group of AIG (Martin & Scotto, “Bailouts and Bonuses on Wall Street”).
Analyze the above case according to the following format. Your analysis should not exceed six double
spaced typed pages.
Justification of Analysis
A justification of the analysis of the ethical problems of Goldman Sachs should be based on the following
points.
1) Cash bonuses for making risky investments. Are there any downside risks?
2) Federal bailouts in case of failure
Recommendations
Your recommendations should be based on the following issues.
1) Contracts between parties and Goldman Sachs
2) Industry standards
3) Loss of high performing traders to rival companies
4) Obligation to the government and society as a whole
Justification of Recommendations
A justification of your recommendations should be based on the following theories.
The two most common approaches in the process of ethical decision making are the utilitarianism theory
and the deontological theory.
1) The utilitarianism theory also known as the ‘consequentialism’ was formulated by Jeremy Bentham
and John Stuart Mill. This theory characterizes the ethical goodness of acts by their outcomes (Smart, J. J.
C. & Williams, B., “Utilitarianism; For And Against”). The utilitarianism theory differentiates between
good and bad acts on the basis of the contentment produced by the outcomes of the acts. According to this
theory, those acts are considered to be correct that generate maximum contentment for the utmost number
of people. Thus, the utilitarianism theory prescribes that, once in a while, personal interests of certain
individuals can be forgone for the overall good of larger number of people.
2) The deontological theory is often referred to as the theory of duties and was formulated by Immanuel
Kant. This theory differentiates between right and wrong by accentuating on the observance of duty as the
chief indicator of moral rightness (Frankena, W. K., “Ethics”). The actions and behaviours are considered
to be right or wrong on the basis of the intentions behind those actions and not by the end results. Thus, as
opposed to exploring the outcomes of actions as in the case of utilitarianism theory, as per the
deontological theory the selection of the act is examined.
References [10 Points]
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