Essay Sample: Risk Analysis and Long-Term Investment Decisions

High interest on payday loans has a lot of effects to consumers. The data of the high interest on pay day loans is always limited and have so much restriction per day on the usage rates. These restrictions go to the extent of reducing the payday loan usage (Skiba & Tobacman, 2008). In this case, the consumers may experience a lot of losses because these banks and financial institutions charge high interests at a very competitive rate thus leading to a huge loss to the consumer. The other problem is that if the consumer is not able to repay the cash on time an enormous amount of fee will be charged in return making him pay an extra cost. Consumers in this sector are at times faced with challenges of remaining in debt at all times. Consumers in this area will always be forced to take these kinds of loans to be able to cope with the daily activities (Skiba & Tobacman, 2008). Some of the consumers end up in very hard situations where they are forced to pay massive amounts of debts followed by huge penalties taking all their earning. The payday loans are harmful because the customer will be obliged to ask for more cash from the loan.

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The high interest on payday loans is very strict on consumers because they operate within the regulations and has significant market share thus get severe to their offers. Another problem with the customers on the pay day loans is high penalties whenever the consumer fails to pay the debt on time while the lender takes the credit very seriously no matter how small the loan might be. The user is trapped in a cycle of debts (Skiba, & Tobacman, 2008). Another issue is that the consumer must always have collateral for any loan he or she is taking and its a qualification that any consumer taking a payday loan must have a job and a bank account.

Lower airline fares at mid-week will probably be a third-degree discrimination under a condition that if only those traveling at midweek tend to have higher elasticity demand (Schmalensee, 1981). People who are traveling during the mid-week would seem to be midweek business travelers, and this would have a lower elasticity of demand which is not, in this case, referred to as discrimination. An example of this could be due to small marginal expense in a flight returning when the plane is empty (Schmalensee, 1981). One could also argue out that the midweek market comprises of a group of consumers who has the low elasticity which would be considered as price discrimination. Under such a condition it would not be favorable to change prices of different price in the market if the other different markets do not have elasticity demand and that result to no profit in the price discrimination.

The system of private education particularly when the person pays all the cost without help from the government subsidiaries there is under-investment in that kind of teaching. The social benefits are that this kind of individual education help learners to develop social skills, apart from the vocational training that is offered but in this case individual will be forced to settle on one skill that will earn him a living without financial constraints (Becker, 1960). In this kind of education, there is a high rate of underinvestment because the sector is afraid of taking the risk of the little assets they have. The individuals at times will be forced to pay more to enable these kinds of institutions to take risks and at the same time be in a position in maximizing their wealth at the cost of debt holders. The private education is of great importance to the financiers. The investors can negotiate for prices, unlike the individual who will be forced to cater everything on his own without any government support (Becker, 1960). There is always under investment where the person pays for their education through a lot of strain while the society finds it easy to raise funds through many channels like fundraising to support that kind of education system.

An exporter faces foreign exchange risk because of the fluctuation of the foreign currency rates of exchange (Dumas, & Solnik, 1995).The small foreign exchange tends to receive a big amount of the local currency which forces the exporter to face the risk of depreciation in the foreign currency. The exporter may also face the foreign exchange risk due to economic exposure in the country. The market value will always be influenced by the exchange rates that are unexpected. Due to this the market will be at risk and at the same time affect the cash flows in the future. Many exporters use the currency hedging in especially when trying to protect their companies from the risk of the currency changing values (Dumas, & Solnik, 1995). Big retailers who export significant amounts of products use the currency hedging to avoid the erosion of their big profits by changes in the currency value which can also be done to it. An exporter can also open a bank in the country he is exporting from where the importer will change the currencies to the US dollar, and while purchasing modify the cash into local currency this will help in hedging the foreign exchange risk. An exporter can as well use the currency options to hedge the currency risks (Dumas, & Solnik, 1995). Currency option is where the exporter will choose a specified date at the time of exchange. The currency option is not an obligation but an opportunity that the bank gives for you to sell the currency at a certain set price.

References

Skiba, P. M., & Tobacman, J. (2008). Payday loans, uncertainty and discounting: explaining patterns of borrowing, repayment, and default.

Schmalensee, R. (1981). Output and welfare implications of monopolistic third-degree price discrimination. The American Economic Review, 71(1), 242-247.

Becker, G. S. (1960). Underinvestment in college education?. The American Economic Review, 50(2), 346-354.

Dumas, B., & Solnik, B. (1995). The world price of foreign exchange risk. The journal of finance, 50(2), 445-479.