Posted: December 3rd, 2022

Controlling Hot Money

Controlling Hot Money

1. Statement of the Problem
The firm experiences cash flow volatility due to some uncooperative and selfish shareholders. According to Le et al. (2018), cash flow volatility has a direction that points out the association between itself and a stock’s systematic risk. Since 1997, the sales of the Japanese Equity Fund recorded significant investment flow. This scenario implies a negative cash flow period- the organization struggles with collectibles and therefore loses money to individual shareholders who were selfish to increase their profits. Therefore, the organization operates on cash flow deficit, making it susceptible to running out of reserves and eventually having two options, to close down or request loans for other institutions to keep running. Another scenario leading to the systematic risk is the trick that some shareholders have adopted to challenge the system by switching between funds without following the right procedure. Secondly, some shareholders are taking advantage of the weakness of the computation of the net asset value technique. This technique and selfishness make these shareholders sell information about the prospective stock prices for individual gains. Also, the organization has a problem with its structure. It comprises of two mutual fund directors, the CEO and Herrara, and eight independent directors. The mutual fund directors have the fiduciary duty of representing the shareholders’ interests, including the self-centered ones. Therefore, they can influence the decisions of the independent directors when they side with the shareholders. I believe that these problems are important because they determine the sustainability of the organization.
2. Analysis of Issues
PEST Analysis
Political Factors Economic Factors
• Tax policy- the rates and incentives may impact the operations of the organization differently. An increment in the tax rates may lead to a subsequent increment in fund operating expenses such as the management fee and the 12b-1 fee. Also, higher taxes may negatively affect the pricing of the Japanese Equities Funds. On the other hand, the incentives may encourage the operations of the firm.
• Trade controls- the government can control the operations of the firm by imposing higher taxes on the elements of the organization that cross the borders to protect the consumers and the shareholders of the organization.
• Data protection law- the government should make the data laws stricter to protect this organization. In particular, the laws should hinder the shareholders that sell the stock price information without the knowledge of the organization. • Stock market trends- an uptrend is represented by higher swings highs and higher swings lows. On the other hand, a downtrend is represented by lower swings lows and lower swings highs. The stock prices information that the stakeholders sell to unauthorized people should reveal either trends.
• Inflation rates- the inflation rates influence the stock market prices. A higher inflation rate affects the stock prices negatively and subsequently the returns. The higher the inflation, the higher the interest rates, and subsequently the lower the investment activities.
Socio-cultural Factors Technological Factors
• Buying habit- the organization should be aware of the four principal buying habits, complex, dissonance, habitual, and variety. Understanding the buying habits of the shareholders and prospects makes it easy to establish the prices of the stock. • Spending on research and development- Smith realized that managing cash flows was time-consuming. He would, otherwise use this time doing other important activities such as selecting securities.
• Technology level- with better technology level, the firm would not be losing vital information to unauthorized hands. It would manage information adequately for its benefit.

3. Strategic Alternatives and Recommendations
Political Factors
Tax Policy- the government should either keep the taxes at the current rates of lower them. The lower the rates, the operating expenses such as the management fee. With the lower rates, the firm can continue to operate smoothly.
Date Protection Law- there should be stricter data protection law to ensure that no information gets out of the organization to harm its operations. The regulation of such information as the stock price information encourages the healthy operation of the firm.
Economic Factors
Stock Market Trends- the organization should keep all its operations a secret so that it can maintain upward trends most of the time.
Inflation rates- the firm should strive to keep the inflation rates lower to encourage investment from various shareholders and prospects.
Socio-Cultural Factors
Buying habit- the organization should be aware of the buying habit every time to ensure that it maximizes on the high seasons and takes care of the low seasons.
Technological Research and Development- Smith needs more superior technology to handle the management of cash flows.
Technology level- the firm needs better technology infrastructure to manage Information Systems and cash flows.

References
Eryilmaz, F. (2016). Volatility and the Regulation of Stock Markets: Evidence from South Asia. In Financial Market Regulations and Legal Challenges in South Asia (pp. 134-145). IGI Global. https://www.igi-global.com/chapter/volatility-and-the-regulation-of-stock-markets/147802
Le, D. H., Tran, P. L., Ta, T. P., & Vu, D. M. (2018). Determinants of corporate cash holding: Evidence from UK listed firms. Business and Economic Horizons (BEH), 14(1232-2019-856), 561-569. https://www.ceeol.com/search/article-detail?id=689582
Whitten, D., & Brahmasrene, T. (2019). Accounting reporting standards: attitudes toward cash flow reporting and the impact on share price. International Journal of Critical Accounting, 11(1), 26-39. https://www.inderscienceonline.com/doi/abs/10.1504/IJCA.2019.103832

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