What Are The Challenges Posed To Financial Stability Finance Essay - Free Essay Example

Sample details Pages: 14 Words: 4088 Downloads: 4 Date added: 2017/06/26 Category Finance Essay Type Cause and effect essay Did you like this example? Critically discuss the issues at stake with reference to actual case studies stressing their similarities and differences in the recent Bear and Sterns and Lehman case, the law and any policy guidelines available Introduction Over the past decade international financial conglomerates have become an increasingly important feature of the financial landscape. Universal banking countries have long integrated the securities business with traditional commercial banking, but over the last decade most regulatory obstacles to combining banking and the securities business have fallen in Japan and the United States as well. More broadly financial liberalization has removed most statutory barriers that once prevented banking, securities and insurance firms from operating within the same financial conglomerate  [1]  (Joint Forum, 2001, p.69). Increasingly these combinations have included banking and insurance operations. Allianz in Germany, ING and Fortis in the Netherlands, Credit Suisse in Switzerland, and Citigroup in the US have all made important cross-sector acquisitions in recent years to combine banking and insurance activities  [2]  . Indeed, virtually all of the lar ge, international financial institutions are to some extent financial conglomerates combining at least two of the three formerly distinct functions of banks, securities firms or insurance companies. In this paper we shall focus on international financial conglomerates that combine banking with financial activity in at least one other sector In recent years, the subject of financial stability has been a cause of extensive debate for policy makers and the indeed the world at large. One of the main reasons for this spur was the East Asian financial crisis of the late 1990s. Following that turmoil, the World Bank and the International Monetary Fund (IMF) introduced the Financial Sector Assessment Program (FSAP) in 1999, aimed at assessing regularly the strengths and weaknesses of financial systems in their member countries.  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Despite this increased focus on financial stability issues, it is notable that a widely accepted definition of financial sta bility does not exist and the concept has generated a considerable amount of debate among academics, market participants and policy makers  [3]  .    Crocket defines1 financial stability as requiring that the key institutions in the financial system are stable, in that there is a high degree of confidence that they continue to meet their contractual obligations without interruption or outside assistance; and that the key markets are stable, in that participants can confidently transact in them at prices that reflect the fundamental forces and do not vary substantially over short periods when there have been no changes in the fundamentals  [4]  . Don’t waste time! Our writers will create an original "What Are The Challenges Posed To Financial Stability Finance Essay" essay for you Create order BODY In the dealings of market economies firms go bankrupt incessantly. The procedure of bankruptcy is dealt with speedily by bankruptcy courts, which follows that there is little or no attention given except where there are outrageous claims. So the question that beckons is: what makes the bankruptcy if financial firms different? The common reply to this question by economists is that the collapse of a financial firm or conglomerate poses risks to the financial stability of an economy. A collapse of such an institution can often lurk a contagion risk, giving that manner with which banks operate. The implicit effect of this is that other banks that might not necessarily have a direct relationship with the collapsing company might be affected.  [5] This follows through to the issue of payments systems. There is a very likely chance that investments failures can affect payment systems through contagions. There is the possibility of narrow banking where all cash checking accounts i s either explicitly on hand or backed by investment in completely safe easy-to-liquidate Treasury bills. And all other savings and investments are at risk and not eligible for government assistance in a narrow banking system.  [6] There is however a second possibility, currently in use, is a marriage between the payments system and investment regulated and guaranteed by the federal government through the Federal Deposit Insurance Corporation (FDIC). In theory government monitoring allows banks to operate until their net worth is near zero. They then are taken over by the FDIC but no payments-system contag`1ion occurs. The advantage of the current system is that total investment can increase because all the money in checking accounts is invested rather than just sitting in the vault or in Treasury bills. The disadvantage is that customers no longer pay attention to what banks do with their money and assume that bank regulators and the FDIC figure everything out and prevent syste mic risk.  [7] With regards to banks like Lehman Brothers and Bear Stearns, some economists argue that because investment banks are not explicitly involved in the payments system their bankruptcy is no different from that of Enron or your local hardware store. There is no possibility of contagion and the government should not become involved. On the other hand others argue that the investment banks are integrally involved with each other through over-the-counter markets in financial derivatives, which are essentially insurance contracts tied to interest rates, currency exchange rates, and credit defaults. This is the investment bank equivalent of the checking account relationships between commercial banks. The central role Bear Stearns played in the over-the-counter derivative market is invoked by some economists as necessitating the federal guarantee of assets to facilitate the takeover of Bear Stearns by JP Morgan rather than bankruptcy.  [8]  This argument prompts the thought of the too big to fail syndrome. Why can banks not be allowed to fail when they have taken wrong steps? Why were some banks like American International Group (AIG), Bear and Stearns, Northern Rock bailed out while a similar bank like Lehman Brothers allowed to fail? Why was Lehman treated differently by the fed (Federal Reserve Bank)? Are some banks really too big to fail? The fed took a treacherous risk and establish a fallacious pattern in March when it concocted the takeover of Bear and Stearns by JPMorgan Chase and pledged $29 billion in potential losses. The argument to justify this act by the fed and chief Ben Bernanke (chairman of the federal reserve) is that Bear and Stearns was just too big to fail and the consequence of allowing it to so would have been nothing short of a calamity on the economy of the United States (US), tax payers and indeed the world.  [9] It follows that if Bear was too big to fail and deserved a bail out, why then was Lehman which was the forth largest bank, a big player in backed securities and mortgages in comparison to Bear which was the fifth allowed to fail. The writer goes further by refuting support for the big bank that have made reckless decisions therefore should be allowed to enjoy the consequences. More so, the US runs a free market economy where companies should be allowed to fail.  [10] . By all standards, AIG qualified as a Too big to fail candidate. What made Fed and Treasury officials apprehensive was not simply the prospect of another giant bankruptcy on Wall Street, but AIGs role as an extensive provider of esoteric financial insurance contracts to investors who wanted to hedge potential losses on complex debt securities they bought. The problem insurance contracts take the form of credit-default swaps (CDS), which effectively required AIG to cover losses suffered by the buyers in the event of counterparty default. AIG was potentially liable for billions of dollars of risky securities that were considered safe in normal time. An AIG collapse would cause it to default on all of its insurance claims. Institutional investors around the world would instantly be forced to reappraise the value of securities insured by AIG against counterparty losses. This would require them to increase their capital to maintain their credit ratings. Small investors, including anyone who owned money market funds or pension funds that hold AIG issued securities, could suffer losses. On the day before the AIG bailout became news after market closing, the New York money market firm Reserve Primary Fund, with $62 billion under management, announced that it broke the buck, meaning that its net asset fell below the standard $1 per share, a development all mutual funds normally would do everything to avoid. During a day of emergency meetings at the New York Fed, the Treasury and Fed reversed initial reluctance to bail out another financial institution. Though unspoken, the underlying conclusion was that this was not a takeover, not a bail out. If anyone is being bailed out, it is the central bank, which is desperately trying to create a fire break to prevent a global capital market collapse that it may not have enough financial resources on its balance sheet to support. The Treasury had to announce that it is issuing $40 billion of 45-day Treasu ry Bills to help buttress the Feds balance sheet. More will be issued as needed by the Fed. There are signs that the governments fire fighting measures are less than effective. Market sentiment suggests that more financial firms can be expected to fail before the crisis crests. Mark-to-market requirements for valuing structured finance instruments and portfolios that are structured to appear safe in long-term probability models reduce the prospect of disaster to a very short fuse. A hedge that would be considered safe over a period of a year can suddenly be reduced to a position of high risk in a matter of days or even hours by market volatility. In such a market environment, the Fed, rather than its traditional role of market stabilizer over the long term, is often reduced to an emergency fire fighter in raging forest fires in a financial landscape infested with elements that practice arson for profit. David Wessel  [11]  defends the too big to fail, saying ther e are financial institutions that are too big to fail and they cannot be allowed to fail because the country fall in trouble. George Sholts (former Treasury Secretary) says that if they are too big to fail, they are too big  [12]  . The current thinking of the fed and treasury is that we are stuck with this situation because it not feasibly possible or indeed logical to make these organisations shrink to prevent them from putting the economy at risk. And forcing banks to resize would be putting the economy at a disadvantage because the global organisations do need big banks, having small banks in the US and big ones in other countries would not benefit the US economy. Wessel reiterated the fact that there are bank that are too big to fail but they should be regulated to reduce risk. The regulation should however not categorise some bank as being too big and some others not because this will cause big companies to be $2 shy of being too big to fail thereby defeating the purpos e of the regulation. The regulation should be done by means of taxation that is taxing on size, so they hold more capital thus more durable to shock.  [13]  Being too encourages recklessness by bank as they would believe that government would bail them out therefore take reckless risks. A too big to fail company is a company that the government is afraid to let fail because of the economic consequence to the people outside the institution.  [14] The financial crisis showed the world the extent of power the fed has in relation to liquid cash and the sort. The president of the US does not have the ammunition to fight a financial crisis, he only spends money allocated to him by the congress (the congress is not very reliable with rapid response due to its structure). The only system that can possible provide an enormous amount of cash rapidly at short notice is the fed and that essentially what they did. When AIG asked for help with regards a bailout, they were quick to see th at Morgan Stanley, Goldman Sax would be next to fall if they did not do anything to help. Wessel also brought up an argument against Ben Bernanke and the fed on reasons AIG, Bear and Stearns could be bailed out but Lehman could not. Bernanke claimed not to have had the legal authority to safe Lehman. This begs the questions that why was the law stretched to save one but not the other? Wessel also believes that Bernanke made a lot of wrong decision, Bernanke like Roosevelt did what they thought was right in the situation they found their selves, Some of they were trial and error, which numerous people suffered the consequences and might suffer more in the future. However there are some decisions that did work, which is evident in the very slow revival of the economy. We see an unemployment rate of 10% as opposed to 20 or 25%, which is considered progress.  [15] In their book 13 Bankers  [16]  , Simon and James, discussed extensively about the financial crisis, its caus es, too big to fail and so on. They say in Obamas attempt to resolve a financial crisis he puts in place a reform which they think is rather weak and does not tackle the too big to fail problem. However they Simon and James are in support of the fact that there should be new consumer agency vis-a-vie financial products. However the problem of banks being so big that their collapse creates an economic pandemonium such that they force the fed to rescue them, this problem is not solved. Simon further suggests that if banks are too big to fail, they are too big to exist. No bank or financial institution should exist if its collapse can cause economic disruption. Any such bank should simply be made smaller, which has no economic detriment to the economy. This implies that if an economy allows for financial aristocracy, there would be adverse consequences. Financial concentration will bring collapse as seen through Andrew Jackson in the 1830s, Thomas Jefferson, Theodore Roosevelt (end of 19th century), Franklin Delano Roosevelt (1920s boom and burst)  [17]  . If Obama does not the big banks, the future holds another great crisis. This is not to say that there would not be bumps in the financial system but the existence of these banks at that size is more detrimental to the economy. If these underlying core financial, political and economic issues that brought the country into the present financial crisis are not dealt with, the next financial meltdown is not far off. Challenge  The financial systems in developing economies however, have remained resilient to the financial woes in the US because business has still been done in the tradition way where individuals or companies need to have a good track record to be given credit or loans in these countries as a result the risk levels are very minimal. However, the impact would be felt in the real economy as a result of reduced demand for imports. This is likely to affect international market prices of such products. Banks in the developing economies will likely see their credit lines from foreign banks squeezed and the increasing financial flows that these economies have been experiencing are going to dry up. Dr Huang pointed towards the observed asymmetry in the speed of replacing positions after termination with Lehman and argued that this asymmetry caused the dislocations in the swap and repo markets. Dr. Huang noted that the market turmoil was avoidable, as there had been precedence for succes sful regulator intervention. The New York Federal Reserve could have minimized systemic risk by transferring Lehmans matched books to another derivatives dealer as had occurred when Dresdner Bank and Refco Inc failed. Impact on Swap Markets In an interest rate swap (IRS), two counterparties exchange a fixed interest rate for a floating interest rate at regular time intervals. The floating rate is usually set to be equal to a short-term benchmark rate, like the USD LIBOR rate, while the fixed rate is set when the swap is initiated and reflects the market expectation of the level of the floating rate throughout the life of the swap. By convention, an IRS receiver is the counterparty that receives fixed and pays floating, and the IRS payer is the counterparty that pays fixed and receives floating. While the Federal Reserve did not immediately cut the target Fed Funds rate after the collapse of Lehman, cutting this rate was widely anticipated as a necessary measure to ensure liquidity in the markets. Counterparties to Lehman who were IRS receivers rushed to replace their long duration positions in the markets immediately, since such positions would likely increase in value, receiving the same fixed rate for an anticipa ted lower floating rate. The increase in value could then be used to hedge losses from other short duration positions in their portfolio. However, the converse was true for counterparties who were IRS payers. Due to bankruptcy regulations, the payers had already closed their positions with Lehman at a single closing price, regardless of the contract size. Since the short duration positions that IRS payers owned were probably used to hedge their long duration exposures, and long duration exposures were likely to rise in value, there was no incentive for the IRS payers to replace their loss-making hedges immediately. Under the Expectations Theory of interest rates, forward interest rates are what the market expects future interest rates to be. However, a few weeks after Lehman filed for bankruptcy on September 15, 2008, the long end of the term structure of the USD interest rates fell sharply. Between September 15, 2008 and October 17, 2008, the 30-year end of the two- week USD forward curve fell by about 30 basis points. While the rates at 30-years could be distorted by market expectations of future economic conditions, such as long-term inflation rates, Dr. Huang believed it was unreasonable for the markets to have such strong opinions on interest rates movement 20 to 30 years into the future that could affect 30-year forward rates so strongly. The more plausible reason for the drop in 30-year rates was the massive influx of IRS receivers looking to immediately replace their terminated Lehman swap positions, and the shortfall of IRS payers who were willing to wait to replace their loss-making swap positions. Since swaps are usually long-dated contracts, the demand and supply imbalance depressed the longer maturity end of the term structure. To illustrate the demand and supply imbalances, Dr. Huang utilized a quantitative model to generate an estimation of the fair value for the 30 year rates based on a linear combination of interest rate s at four other standard maturities. The swap rate from the model is then compared to the 30 year USD swap rates. Since the market and model rates are supposed to track the value of each other over time, if the market rate is greater than the model rates, market participants would profit from entering an IRS as a receiver. The converse is true when the market rate is lower than the model rate. The results implied by the quantitative model are consistent with stylized facts, with market rates above model rates during periods of distress, such as the Russian default, with government cutting interest rates to prevent recession and market rates below model rates during times of stability, like before the Dotcom crash, with governments increasing interest rates to curb inflation. However, in contrast to previous crises, the market swap rates were below model rates in the case of Lehmans collapse. This means that interest rates were too low relative to the model predict ions due to IRS receivers rushing into the market to replace their long duration positions. The dislocation in the fixed income market was not limited to the U.S. Europe also experienced low 30-year EUR swap rates relative to the model, as defined benefits pension funds replaced their long dated receiver IRS in the market to hedge their liabilities. On the other hand, parties on the other side of the matched book, such as the economies with lower credit ratings including Greece and Italy, other banks and hedge funds postponed the issuance of new debt. Impact on Repo Markets In a repo, a borrower sells a security to a lender for cash and agrees to buy back the same security from the lender at a fixed price at a later date. This is essentially a collateralized loan. However, when Lehman filed for bankruptcy, all repos transacted through Lehman were terminated, and the lenders were left with the borrowers assets while the borrowers were left with cash. If the borrower posted collateral consisting of an asset that is desirable in distress environments, they would likely try to replace the asset from the market immediately. If the asset that was posted as collateral would not perform well in a distressed environment, the borrower can choose not to replace their exposures and simply keep the cash that was borrowed. However, the lender in a repo is probably looking to generate some short-term interest and is not likely to have the expertise or an economic interest in managing the asset for the long-term. Hence, the lender will likely sell any collate ral it owns from the termination of the repo to replace its cash position. As a result, the supply of all collateral assets would increase, but there would only be a flight to quality to the desirable assets. According to Dr. Huang, the above phenomena would be observable via the price of the undesirable assets falling relative to the price of the desirable asset. During periods of distress, both interest rates and the inflation rate are likely to fall. Hence, inflation-linked bonds are likely to be undesirable assets while fixed interest bond are likely be desirable. An inflation-linked bond can be converted into a synthetic nominal bond by shorting inflation rates using inflation-linked swaps. This synthetic yield should not have a significant spread over the nominal yield of a similar nominal bond under normal circumstances. However, when Dr. Huang charted the spread between the synthetic yield from U.K. inflation-linkers and the yield from nominal bonds, he discovered that the synthetic yield of the inflation-linkers traded at between 40 to 120 basis points above the yield of a nominal bond from the collapse of Lehman to December 5, 2008. This meant that the price of inflation-linkers fell relative to the price of nominal bonds, even after converting their real yields into synthetic yields. This observation lends credit to the hypothesis that the collapse of Lehman led to indiscriminate selling of collateral by lenders to recover their cash but only selective replacement of desirable assets by the borrowers. Dr. Huang added by saying that although matched book operations are risk-free for derivative dealers, sudden termination of matched book positions can lead to significant market dislocations as market participants replace long duration positions ahead of short duration positions in distress scenarios. Regulators trying to lower systemic risks should also be mindful of this fact when dealing with collapsing financial entities in the f uture. Furthermore, assets that are normally highly correlated with very similar cash flows, such as stripped inflation-linked bonds and nominal bonds, also diverged significantly in value. This has important implications for market risk management as regulators and arbitrageurs can make the markets more allocatively efficient and less volatile by buying up the undervalued assets and making price a better signal of value.  Ã‚  [18] In a credit crisis there is generally a ripple effect to the financial system of the country affected and indeed the world. This instigates that if there is a breakdown or a collapse of a financial conglomerate, which naturally has branches in major parts of the world, it will affect those parts. To ensure that other countries who suffer the punishment of reckless Banks do not suffer unjustly, there should be an information trickle system where updates about the goings on and major transactions of those companies are given to these branches. Thi s ensure they have a say in the make or break of the company that its collapse can potentially disrupt their economy. Furthermore, the fed needs put a holt on they bailouts in order to allow the economy got through its natural cause. Crisis should be allowed to occur and collapse of any company should be accepted as the US runs a free market. This is implicit to the fact that any company that has been reckless should be left to fact the consequences so other can learn. In addition, a limit of 4% of GDP or $600 in assets should a implemented as this will return banks to where they are in the 1900s when it can be said that the financial state of the country was fairly stable. This reduces or eliminates that too big to fail theory and provide more competition. At the moment there are about five organisations that dominate the derivatives market. If the number increase there could be more competition which would induce lower margins and better prices for customers.

An Introduction Of Cell Biology - 897 Words

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Essay on Shakespeares Macbeth is a Tragic Hero - 956 Words

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Impact of Evidence Based Decision Making

Question: Discuss about the Impact of Evidence Based Decision Making. Answer: Introduction This study has highlighted the impact of the evidence based decision making in case of the decision making of health service management executives. In this connection, it can be mentioned that the rise in the evidence based decision making in health care can highlight how the policymakers and the managers make decisions. As per the statement of Boyd, Vollenweider Puhan (2012), evidence based decision making is a procedure regarding the policy or practice, which is assumed to be relevant for the health care organisation. In this context, it can be stated that many proponents of evidence based decision making is depending upon the perceived development of the evidence based medicine. This type of decision making is also very important in order to taking of decision about structure and the finance health services. In the words of Jacobs et al., (2012), evidence based decision making is based upon the measurement of several cultural environment and on the decision making procedure of the clinical as well as the managers of the health care organisations. On the other hand, it can be mentioned that the evidence based decision making is required to translate for the sake of the managers. In this purpose, Rousseau (2012) added that the Centre for Health Management Research is necessary for connecting the managers and the executives of the health care organisation together. As a result, it can be stated that the evidence based decision making is able to promote the importance evidence in case of the managerial decision making process. According to Baker Welner (2012), it can be mentioned that it highlights the connection between the cause and the effects. Therefore, it can be predicted that the managers are highly confident about their decisions as these decisions will lead to the desired outcomes. On the other hand, it can be stated that the degree of structure evidence based decision making process will be helpful in order to analyse and create working environment. On the contrary, Rousseau (2012) argued that evidence based decision making is not always able to be measured completely; therefore, the analysis is not neutral always. Moreover, it can be mentioned that evidence based decision making is a higher time consuming activity and it also takes higher cost. In this purpose, Baker Welner (2012) put that due to the presence of law enforcers, this type of policy takes greater time. Furthermore, in order to accumulate information and conduct the research, it includes higher costs. Conclusion This study has highlighted the evidence based decision making process in case of the strategic decision making of health service management executives. This study has also discussed the pros and cons of the evidence based decision making process in this context. References Baker, B., Welner, K. G. (2012). Evidence and rigor scrutinizing the rhetorical embrace of evidence-based decision making.Educational Researcher,41(3), 98-101. Boyd, C. M., Vollenweider, D., Puhan, M. A. (2012). Informing evidence-based decision-making for patients with comorbidity: availability of necessary information in clinical trials for chronic diseases.PloS one,7(8), e41601. Jacobs, J. A., Clayton, P. F., Dove, C., Funchess, T., Jones, E., Perveen, G., ... Deshpande, A. D. (2012). A survey tool for measuring evidence-based decision making capacity in public health agencies.BMC health services research,12(1), 1. Rousseau, D. M. (2012). Envisioning evidence-based management.

Business Organisation

Question: Discuss the different areas of law that emerge from these facts. Be sure to explain who may take legal action and what remedies and penalties could be applied. Cases and statutes should be used. Answer: Every business organisation of the modern scenario performs operations within a composite regulatory and a legal framework. The legal as well as the regulatory requirements generally originate from certain key sources such as self-regulatory arrangements (Vickery and Flood 2011, p. xvi). One of these self-regulatory arrangements is compliance, which is defined as the capability to perform any action according to a sequence of rules, order or request (International Compliance Association n.d.). The fundamental concept behind compliance in business law lies in the fact that an organisation should meet applicable legal regulations and/or principles while performing its daily operational functions. This may support the organisation to minimise the risk of breaking the law and maintaining business goodwill for a longer span of time (Vickery and Flood 2011, pp. xvi-xvii). Based on the provided information, a seafood restaurant, operating in Sydney wishes to be named as the Great Catch. Therefore, in this essay, certain key areas of law and compliance in Australia will be analysed and discussed that will be highly significant in understanding the stated business operations of the restaurant. Key Areas of Law Compliance in Australia Business registration, licenses and taxation are certain key areas of law and compliance that need to be considered by an organisation while operating in Australia (Townsend 2003, pp. 26-28; NSW Government n.d.). A firm operating as a business name or a registered company in Australia is ought to comply with the corporate laws and adhere to norms mentioned in the Business Names Registration Act 2011. Depending on the nature of the businesses, organisations are required to acquire valid licenses under the above stated Act while performing a business in Australia (Federal Register of Legislation 2011). The organisations should meet various tax requirements such as business registrations, expenditures along with reporting incomes, operational records and payroll tax obligations when conducting a business within the boundaries of Australia (NSW Government n.d.). For instance, a business operating in Australia needs to follow the legal statute of Australian Business Number (ABN) Act for payment of taxes (Federal Register of Legislation 2011). The other key areas of law and compliance that may help a business in performing successfully in Australia are the possession of a registered office along with a principal business place. The disclosure of personal information related to the Directors in a detailed manner as per the legal authorities directives along with maintaining all the financial records and/or documents effectively are also certain legal perspectives to be adhered by the business entity. Apart from these, the other key areas of law and compliance that must be considered by a business while operating in Australia include the payment of relevant fees to the Australian Securities Investments Commission (ASIC), notifying them while making any sort of alternation in business such as transferring business ownership (ASIC 2016). Major Areas of Australian Law and Compliance in Relation to the Given Business Operations Certain key areas relating to Australian law and compliance are required to be covered in order to give a new name or call a business entity by a particular name. With regard to the already existing seafood restaurant, which is operating in Sydney, similar perspectives need to be considered. Initially, the restaurant business will have to inform ASIC for giving a new name to it i.e., the Great Catch. Based on the legal regulations of ASIC, a new business name after registration is available only if it is dissimilar to a name, which has already been registered to for some other body of business. Additionally, the new name will not be available to a business if it includes the words such as consumer, trustee or bank (1ASIC 2016). After selecting the name of the seafood restaurant i.e. the Great Catch, a meeting will be convened with the shareholders, wherein a resolution will be passed to give a new name to the stated business. The restaurant business is also required to lodge Form 205 (Notification of resolution) including every detail of the resolution by paying $366 as the lodgement fee (1ASIC 2016). The seafood restaurant falls under the criterion of food business, which deals with handling any sort of food that is suitable to eat and safe from any health hazard. It is the Food Act 1984, which stipulated that a food business such as the seafood restaurant should keep its food premises clean and ensure that the food products are prepared as well as sold to the customers safely. A restaurant operating in Bendigo, Australia was imposed with fines as a penalty for breaching the above stated Act and Food Standards Code as well (John Wiley Sons, Inc n.d.). The primary legal compliance of the seafood business operating in Sydney lies in following Chapter 3 of Standard 4.2.1, which determines suitability and safety of seafood from the pre-harvesting production phase to the retail sale stage. Under this particular Chapter and Standard, a seafood restaurant business should recognise potential seafood safety hazards and execute controls that successfully deal with these hazards. Clause 6 of the stated Standard sets out a major area of compliance, which is deemed to be highly significant to the operations of the seafood restaurant business (Food Standards Australia New Zealand 2006). Clause 6 of Standard 4.2.1 states that a seafood business operating in any mode should store seafood under adequate temperature control so that its safety as well as suitability can be maintained. On the other hand, Clause 8 of the stated Standard sets out the fact that a seafood restaurant business must comply with those packaging materials that are deemed to be fit for its intended use. It also depicts that the business should use the packaging materials that are not expected to cause seafood contamination, affecting the health of its consumers (Food Standards Australia New Zealand 2006). According to Clause 13 of Standard 4.2.1, a seafood restaurant business is ought to implement individual health as well as hygiene practices that are efficient enough towards mitigating risks of food safety and maintaining suitability of seafood. In order to ensure that the above stated practices are not affected, the stated business must ensure that the handlers of the food products possess the required skills in maintaining adequate standards of food hygiene and safety (Food Standards Australia New Zealand 2006). Conclusion From the above analysis and discussion, it is evident that the seafood restaurant business should comply with appropriate laws and compliances while operating in Sydney. For instance, it has to follow the legal guidelines, as mentioned in Business Names Registration Act 2011, for calling or changing the business name to Great Catch after registration. In order to fulfil the desire of calling the business by the stated name after registration, initially, it should be informed to the authoritative body of ASIC. The Food Act 1984 and various Clauses of Standard 4.2.1 are certain key areas of law and compliance that should be followed by the seafood restaurant in order to ensure suitability and safety of seafood served to the people. Overview A consumer is an individual who purchases goods and/or services that satisfy certain conditions including the cost of the goods and/or services amount to $40, 000 or less and purchase those goods and/or services for either individual or household purpose (Vickery and Flood 2011, p. 7). Based on the given scenario, both Manny and Bella can be regarded as a single consumer, as they together purchased a new pizza oven for $15,000 from Tuscan Ovens Pty Ltd for their restaurant business. However, after the delivery of the new pizza oven, Manny and Bella decided to refer it as the MB Oven rather than mentioning the real registered name i.e. Tuscan XX. Following the installation of the new oven, they discovered that the oven is unreliable, as it is not able to cook sufficient pizzas as promised by the dealer of the oven. In this situation, Tuscan is also not ready to discuss any complaint about the product from Manny and Bella. Therefore, in this discussion, the different areas of law, legal actions and possible remedies along with penalties that could be applied in the above stated case will be analysed. Areas of Law that Emerge From the Given Facts The distinct areas of law that emerge from the given facts include The Competition and Consumer Act 2010 (CCA), comprising of the Australian Consumer Law (ACL), Fair Trading Acts and Trade Practices Act 1974 (TPA) (Vickery and Flood, 2011, pp. 21-24). Under Fair Trading Acts and Trade Practices Act 1974 (TPA), businesses operating in Australia are not permitted to make incorrect statements or disclose facts that generate a fake notion. This rule is applied to the businesses during the time of advertising a product, packaging any good and information provided to the customers by the staff members. In precise, according to Fair Trading Acts and Trade Practices Act 1974 (TPA), any business operating in Australia should not make false claims regarding the style or the quality of a particular product and/or service, sponsorship of goods and the accessibility of spare parts or repair capabilities (ACCC n.d.). The fact mentioned in the given information clearly depicts that Manny and Bella who carry out a pizza business in the city have been involved in committing an unfair practice of creating a false and misrepresentation of the products brand name. This is because both Manny and Bella decided to refer the newly purchased pizza oven as the MB oven and not mentioning the real registered name i.e. Tuscan XX. These decisions of Manny and Bella primarily reflect making false or misleading representations about the stated product i.e. pizza oven in the area of standard or quality (Vickery and Flood 2011, p. 21). The above decisions of Manny and Bella clearly indicate breaching the regulations of Fair Trading Acts and Trade Practices Act 1974 (TPA) by generating a misleading impression in the customers mind (ACCC n.d.). Explanation about Taking Legal Actions and the Application of Relevant Remedies and Penalties According to the given information, Manny and Bella found that the new pizza oven is unreliable after its installation, as it can cook 12 pizzas only on an hourly basis, thereby not satisfying their requirements. It is obvious that Tuscan will not discuss any complaint from Manny and Bella regarding the unreliable nature of the product, as they decided to refer it as the MB oven and hiding its real registered name i.e. Tuscan XX. Under the regulations of Fair Trading Acts and Trade Practices Act 1974 (TPA), the above decisions made by Manny and Bella completely breached the law, as these created a false or a misleading impression on the end users. In this situation, Tuscan may take legal action against Manny and Bella for falsely referring the new pizza oven as the MB oven and hiding the real registered name of Tuscan XX. A similar case of Hartnell v Sharp Corporation of Australia Pty Ltd can be taken into consideration for discussing the issue wherein the company i.e. Sharp was convicted under the Trade Practices Act 1974 for fake representation. The representation as made by the company was that its microwave ovens have been experimented as well as endorsed by the Standards Association of Australia (Association for Consumer Research 2016). In the case of Hartnell v Sharp, Sharp was fined for $100,000 due to the conviction of false misrepresentation of the statement that its microwave ovens were tested and certified by the authoritative body of the Standards Association of Australia (Adams 2002, p. 28). Under the lawful regulations of ACL, any civil and/or criminal breach can result in imposing fines of up to $1.1 million for the business corporations. The remedies, as per ACL, that relate to the above stated context are creation of orders for corrective advertising and injunctions among others (Vickery and Flood 2011 p. 34). With regard to the case of Manny and Bella as well as Tuscan, monetary penalties could be applied and the amount may range from $0.5 to $1 million. Moreover, one of the remedies relevant to this case could be generating orders for corrective advertising so that false representation of advertising is avoided in further instances. The aforementioned monetary policies and remedies are applicable in the case of Manny and Bella and Tuscan based on the grounds of falsely advertising the new pizza oven by referring it as the MB oven and hiding the real registered name of Tuscan XX. Summary From the above analysis and discussion, certain law areas including Fair Trading Acts, ACL and Trade Practices Act 1974 (TPA) emerge from the facts mentioned in the case of Manny and Bella and Tuscan. The decisions made by Manny and Bella such as referring the new pizza oven purchased from Tuscan Ovens Pty. Ltd as the MB oven and not mentioning the real registered name of Tuscan XX apparently showcases their conduct of unfair practice in the form of false advertisement of the product. By referring to the similar case of Hartnell v Sharp, Tuscan can take legal actions against Manny and Bella wherein monetary penalties of minimum $0.5 million and the remedy of creating order for corrective advertising could be applied. This order of corrective advertisement may refrain Manny and Bella from advertising a product for a certain period of time, unless they correct the misleading impression created by them in the customers minds. References ASIC 2016, Compliance for small business - Small business-knowing your legal requirements-companies, Australian Securities and Investments Commission, viewed 6 June 2016, https://asic.gov.au/for-business/your-business/small-business/compliance-for-small-business/small-business-knowing-your-legal-requirements-companies/. 1ASIC 2016, Small business-changing a company name, Australian Securities and Investments Commission, viewed 6 June 2016, https://asic.gov.au/for-business/your-business/small-business/compliance-for-small-business/small-business-changing-a-company-name/. ACCC No Date, False or misleading claims, Australian Competition Consumer Commission, viewed 6 June 2016, https://www.accc.gov.au/consumers/misleading-claims-advertising/false-or-misleading-claims#creating-a-false-or-misleading-impression. Association for Consumer Research 2016, The role of standards authorities in consumer decision making in western Australia, ACR, viewed 6 June 2016, https://www.acrwebsite.org/search/view-conference-proceedings.aspx?Id=12110. Adams, M 2002, Essential corporate law: Second edition, Cavendish Australia, Victoria. Australian law reform commission No Date, 39. small business exemption, Australian Government, viewed 7 June 2016, https://www.alrc.gov.au/publications/39.%20Small%20Business%20Exemption/compliance-costs. Beaton-Wells, C Fisse, B 2011, Australian cartel regulation: Law, policy and practice in an international context, Cambridge University Press, Cambridge. Food Standards Australia New Zealand 2006, Division 2 Seafood safety requirements, Safe Seafood Australia, pp. 6-9. Federal Register of Legislation 2011, Registering a business name, Business Names Registration Act 2011, pp. 30-39. International Compliance Association No Date, What is compliance, ICA, viewed 6 June 2016, https://www.int-comp.org/careers/a-career-in-compliance/what-is-compliance/. John Wiley Sons, Inc No Date, Responsibilities created by local government, Legal Requirements of Small Businesses Offering Goods and Services, p. 246. Mattock, J 2014, Doing business in Australia for China: How to invest in Australia for Chinese, Australia China Business Alliance, Australia. Nolan, J L 1996, Australia business: The portable encyclopedia for doing business with Australia, World Trade Press, Lindberg. NSW Government No Date, Key compliance areas for small businesses, NSW Small Business Commissioner, viewed 6 June 2016, https://www.smallbusiness.nsw.gov.au/__data/assets/pdf_file/0007/82609/12321_sbc-fast-fact-sheet-key-compliance_v3.pdf. Townsend, P 2003, Small business and the law, Pascal Press, New South Wales. Vickery, R Flood, M A 2011, Australian business law: Compliance practice, Pearson Australia, Victoria.