Consequences of increased risk (1 Viewer)

[mitch_f1]

Hey
I'm doing a project which looks at articles of our choice, on an economic issue of our choice. I have chosen environmental management as my issue, and my srtcile is about how lenders are not taking into account environmental damage being done by clients.

Part of the project is that I have to evaluate consequences of issue (in the article, so increased risk of investments) on individuals, firms, and government.

So far all I have is insecure investments, but that is pretty neurtal (it covers all of them), but I need more. Can someone please help. Preferably before tommorrow (9/6) as it's due then (a bit last minute I know, i know)

Thanks
Mitch

P.S. if you have a BRW collection, and want to read th article, it's called Winds of change, in April 27-May 3 2006 issue

 

[mitch_f1]

OK, let me rephrase:

How does lending to a cotton grower (who uses high amounts of water, and hence has a high environmental risk) affect the financial risk on the loan?


Thanks

Mitch

 

[gibbo67]

OK, let me rephrase:

How does lending to a cotton grower (who uses high amounts of water, and hence has a high environmental risk) affect the financial risk on the loan?


Thanks

Mitch

I don't remember how much i did about risk in the hsc economics course, but having almost completed my first semester of corporate finance, risk is a measure of the likelihood of an investment yielding something different from the expected outcome (e.g. default). In situations where this likelihood is less than optimal, lenders will demand a higher rate of return on their funds to compensate for this added risk. In this situation, this risk is partly derived from the fact that irregular water flows or water quality can affect the farm's future cash flows. Hence, banks and other lenders (e.g. debenture holders) will be somewhat forced to raise the rates on these farmers if the risk of default is more likely than other areas of the economy.

Hope this helps.

 

[mitch_f1]

it does, thanks heaps

Mitch

 

[mitch_f1]

One more thing. I was thinking of mentioning something about the Australian Prudential Regulatory Authority, as part of consequences on the government. So, what I was wondering is, if APRA knows that the lenders are not accounting for environmental risk, what can they do to stop it, and if they are to late, and the lender is forced to close, does APRA pay out investors who have lost money, if so, does APRA draw money from government revenue?

Thanks
Mitch