Picture yourself as the Chief Financial Officer (CFO) of a family-owned firm. You have one year in that position and you have earned the trust of the owners and the General Manager. Your analysis of the financial situation of the firm leads you to conclude that there is a $1 million surplus that you must invest in only one financial instrument and for a period of one year. These are your options: Bank A is a large, traditional commercial bank that serves loans to varied customers – oil and gas companies, real estate, retail, pharmaceutical companies and so on. It also provides loans to dozens of small manufacturers which employ thousands of workers and which produce parts for larger corporations of the defense industry. Bank A offers you a Certificate of Deposit that pays 8% a year. That is, after 12 months, you can redeem your certificate of deposit and collect $1,0
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Picture yourself as the Chief Financial Officer (CFO) of a family-owned firm. You have one year in that position and you have earned the trust of the owners and the General Manager.
Your analysis of the financial situation of the firm leads you to conclude that there is a $1 million surplus that you must invest in only one financial instrument and for a period of one year. These are your options:
Bank A is a large, traditional commercial bank that serves loans to varied customers – oil and gas companies, real estate, retail, pharmaceutical companies and so on. It also provides loans to dozens of small manufacturers which employ thousands of workers and which produce parts for larger corporations of the defense industry.
Bank A offers you a Certificate of Deposit that pays 8% a year. That is, after 12 months, you can redeem your certificate of deposit and collect $1,080,000.
Bank B is a smaller bank specialized in extending so called “green loans.” Its customers are small and medium sized enterprises wholly devoted to projects that protect the environment and regenerate the erosion of soils and fields that have been damaged by pollution. The clients also include small community projects that develop solar energy and other sources of eco-friendly energy.
Bank B offers you a Certificate of Deposit that pays 5% a year. That is, after 12 months, you can redeem your certificate of deposit and collect $1,050,000.
Questions:
Suppose you are paid a bonus that is tied to the financial results that derive from your decision. Suppose also that you are well informed about ecological issues in your community and in the world at large.
- In which of these two banks do you invest the $1 million? Please explain why.
- Say you prefer to invest the money in Bank B, but you face the opposition of the owners and General Manager who are unwilling to give up higher returns. How would you approach this situation? What would you do?
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