The American Dollar Against The Euro Finance Essay - Free Essay Example

Sample details Pages: 12 Words: 3612 Downloads: 8 Date added: 2017/06/26 Category Economics Essay Type Research paper Did you like this example? The Euro was launched on January 1, 1999, when 11 countries (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxemburg, The Netherlands, Portugal, and Spain) came together as one European Economic and Monetary Union (EMU) with a common currency Euro. After two years Greece joined EU. A common currency and monetary policy direct was created by the European Central Bank (ECU) after which all members of European Union fixed their currency in a specific rate against the  euro. Don’t waste time! Our writers will create an original "The American Dollar Against The Euro Finance Essay" essay for you Create order During the first few years of Euro existence, it was depreciating against USD, and from 2001 for a significant period the euro began to appreciate, and only interrupted in 2005 for a short period, and reached it record level in April 2008. Various schools of thoughts have offered differing explanations for the fluctuation of euro and dollar exchange rate trend. Before the euro had been introduced United States experienced structural improvements in productivity, which is affected by the high rate of return on capital. With the higher rate of return, foreign direct investments (FDI) flowed to the United States (see appendix, figure.1), which might explain 1990s appreciation of the US dollar by almost 40% over the euro (Schnatz et. Al., 2004). In fact, the dollar appreciated and reached 0.852 dollar per 1 euro in October 2000 (Chen et. Al., 2006). Neck (2001) explains depreciation of the euro at the first stages against the US dollar. He explains that the depreciation was due to the fact that euro introduced as a cash and coins only in the beginning of 2002, the demand of the investors portfolio for the euro was low due to lack of transparency of the new currency. Moreover, many other studies believe that appreciation of the dollar in 1999-2002 happened due to other factors. Meredith (2001) poised that as equity price increased in United States, the overall market capitalization reached its highest level. This has an effect on investment and consumption boost. He thinks as demand shock exists it causes long-term interest rates to increase, which is an effect on capital inflow, for this reason, appreciation of the US dollar. Many economists believe that strong oil price rebound effected on appreciation of the US dollar against the Euro. However, Meredith (2001) argues this approach, in his research shows that the oil price change has only minor effects on exchange rate fluctuation. He proved his approach by carrying out a research based on past experience of oi l price changes. His study shows that oil price volatility does not show high changes in fluctuation of the Euro Dollar trend movements as seen in 1999-2000. However, in mid 2001, euro started to rebound against the dollar and reached a historical highest point of 1.31 dollar per 1 euro in January 2005 (Sapir, 2005). The appreciation of the euro or depreciation of the dollar can be explained by the fact that from 2001 United States experienced a current account deficit (see appendix, figure.2), which reached 5.5 percent in 2004 (Sapir, 2005). Sapir (2005) explains that economists believe that the US deficit is a product of high level of US public and private consumption, which is financed by high public borrowing and low private saving, and reached 3 percent of GDP in 2005. The appreciation of the euro against the US dollar can be also explained by increasing Euro market share in total world export of goods (see appendix, figure.3), which are 16% and significantly higher that Uni ted States and Japan market shares (Shams, 2005). During the 1990s United States owned 12% of total world export of goods and decreased up to 9.7% in 2003 (Shams, 2005). In late 2001 companies such as Enron, World Com, Tycon and many others were involved in accounting scandals (Paul, et. al., 2003). Negative signaling news affected on falling investors confidence in US stock market, mutual fund market, and bond market, which has had an impact on the depreciation of the US dollar. Stage 2: 2002 2005 3 As the Euro became a denomination currency in 2002, it started appreciating for the next 2 years. Furthermore, US were making an attempt to curtail its international trade deficit by increasing exports thus leading to depreciation of its currency (Shams, 2005). During 2003 US dollar continued experiencing depreciation against the euro, many experts explain this down movement due to Iraqs war, which negatively affected investors confidence on holding  Dollars (Dougherty, 2004). In 2004 the dollar strengthened for the first few months. However towards September, the Dollar reversed course quickly. This reversal was caused by continued spikes in the cost of oil and Lack of confidence in the US economy which was aggregated by its heavy long term borrowing lead to the depreciation of the Dollar (Dougherty, 2004). Stage 3: 2005 2006 4 During 2005 USD/EUR trend is showing positive increase, appreciation of the dollar after four years of continues depreciation against the euro. There are many issues explaining the reason of dollar appreciation, but the main explanation of this issue is that interest rate in United States expected to grow continually. During the year interest rate increased from 2.25% until 4.25% (see appendix, figure.4). US economy was starting to show positive signs of economic growth leading to appreciation of the Dollar.  [5]  Due to high yield and growing economy, foreign direct investments increased proportionally. Stage 4: 2006 2008 6 However, in August 2006 US government combined with Federal Reserve agency stopped raising interest rate while in EU the interest rate continued to raise (Le, 2006). For international traders this decision was the perfect opportunity to sell off dollars and buy out euro, which soon affected depreciation of the US dollar and appreciation of the euro (Le, 2006).  In 2007 US dollar depreciated at a record level against the euro and reached the maximum low position. Depreciation happened due to US credit-market loss, in other words, Subprime crisis, and speculative attacks due to Federal Reserves prompted to cut interest rate (Bloomberg, 2007). Macdonald (2007) ascribes the weakness of the dollar in 2007 due to continued spending of the Unites States government on combat operations in Afghanistan and Iraq, and according to the Congressional Budget Office for the June 2007 US spent around 500 billion US dollars. Stage 5: 2008 2009 7 Appreciation of the euro against the dollar continued until year 2008 reaching the record peak 1.6037 dollar per 1 euro. The rapidly increasing oil price since the end of 2007 until beginning of 2008 is the reason behind strong depreciation of US dollar over the year (see appendix, figure.5). According to Bjorland (2008) oil importing countries exchange rates are negatively related to oil price shock. Higher oil price reduces the total usage of energy in production, because it becomes more costly for the company. Hence, the net quantity produced by the company decreases, which affects net revenue and this, is followed by reduction in consumption and investment spending. However, in the late 2008 dollar started to appreciate rapidly against the euro. One of the reasons of such movement is decreasing oil price until February 2009, as oil price and exchange rate is negatively related in oil importing countries. Economists also explain these changes as highly increased demand for US Tr easury bills as it is safety investment during the crisis period (McCauley, 2009). Furthermore US banks offered the highest yield, stimulating capital inflow and appreciating the local currency (McCauley, 2009). Stage 6: 2009 2010 8 After one year of appreciation of the dollar against the euro, dollar suddenly down turned against the euro in 2009. One of the reasons for continues depreciation of the dollar in 2009 is the hiked up price for gold (see appendix, figure.6). In 2009 gold price reached its record level of 1227.50 dollars per ounce (Gold Investing, 2010). As the dollar continued to depreciate and price for the gold increase, investors switched to safer alternative investments such as gold, this affected on continues pressure on dollar depreciation (Gold Investing, 2010). Stage 7: January 2010 February 2010 9 In February 2010, EU experienced economic downturn, as Greece suffered economic troubles (see appendix, figure.7). The European Central Bank announced that Greece experienced twin deficits and lost its export competitiveness, this also affected overall European export performance. Over the year European export decreased by $ 109.1 billion. This economic shock negatively affected exchange rate and the Euro depreciated against the US dollars. (Arestis, et. al., 2010). In conclusion, since 2001, the US dollar depreciated almost by 30% against major international currencies, and one of them is Euro. After launching on January 1, 1999, the overall trend Euro against US dollar is appreciating. However, from the chart it is possible to detect that US dollar is appreciated against Euro in some time period. On De Grauwe (2000) research paper explains a change in exchange rate fluctuation is due to news in the fundamental. Hence, appreciation and depreciation of the dollar or the euro lea d to positive or negative news. For example, when Federal Reserve announced that it wants to increase its interest rate, such news is a positive signal for the investors, and action is taken immediately, as seen later dollar appreciated against the euro in  2005. Apart from investor speculation, other major factors contributed to the exchange rate volatility. These factors include introduction of Euro cash and coins, US deficit, war in Afghanistan and Iraq, oil price shocks and current financial crisis. From a long-term view, dollar is losing its position against the Euro, and Euro is promising great potential in near future. Word count: 1,592 2. Hong Kong should dismantle its fixed exchange rate peg with US dollar. Instead it should peg its currency with the Chinese Renminbe (CNY) or allow its currency to float freely. In 1983 Hong Kong exchange rate system moved from a conventional floating rate to an unconventional fixed rate linked to the US dollar (Lui, et. al., 1989). New changes in exchange rate system attracted international interest, because Hong Kong has become one of the developed and largest financial centers in the world. There exists a continuous debate on whether Hong Kong should shift to a floating exchange rate regime or continue with its fixed peg to the US dollar. We show the pros and cons of both regimes using Hong Kong and Singapore as examples. The cause for the East Asia economic crisis is currency crisis. In mid 1997 the Thai baht was experiencing heavy pressure, this instability spread to the other East Asia country currencies, the Malaysia ringgit, the Indonesian rupiah, the Philippine peso, and even to Singapore dollar. In October 1997, economic crisis reached Hong Kong, Taiwan, Japan, South Korea, and affected countries even outside Asia. (Tsang, et. al., 1999). During the Asian crisis in 1997-1998, the Hong Kong dollar, which is pegged to US dollar, survived from speculative attacks by international hedge funds. This proved that Hong Kongs exchange rate regime struggled positively to the negative turmoil. However, many economists are doubtful whether the current exchange rate regime will prevent Hong Kong dollar from cyclical speculative attacks. (Lu, et. al., 1999) After the economic crisis in East Asia, Singapore experienced fast economic and financial growth. Economists explain this success due to managed floating exchange rate regime of Singapore, and offer a valuable lesson for Hong Kong exchange rate regime. (Lu, et. al., 1999) Hong Kong and Singapores economies and the way they are developing are close to each other in the East Asia area. Both economies are small and open, both were under British Empire and applied British common law regime, and in both economies domestic private sector and public services are well functioni ng. (Rajan et. al., 2002) However, during the Asian economic crisis, the Hong Kong exchange rate regime showed its vulnerability to negative shocks. Both Singapore and Hong Kong were affected by the crisis, but in different ways.  (Cheung et. al., 2002). Singapores economy was affected mainly because half of Singapores external trade is dealing with Southeast Asia countries such as: Malaysia, Thailand, Japan, Hong Kong, South Korea and Indonesia. After July 1997 all these countries suffered from economic distress. In contrast, Hong Kongs external trade involves dealing with countries such as: Taiwan, China, United States and Europe, countries not suffered from Asian economic crisis. As Honk Kong dollar was highly used in the Asian region and as other currencies fall all over Asia, Hong Kongs dollar was viewed as unsustainable. During the Asian crisis, Hong Kongs economy experienced difficult days, because of its local currency which was pegged to US dollar, and several speculative attacks on the HK dollar. In comparison with Singapore, Hong Kongs economy went into recession half year earlier, and experienced slower recovery rate. Even though, Hong Kong government continues to peg its currency to US dollar, and local business community supports this exchange rate regime. There are two beliefs why government and business community supports fixed rate. (Lu, et. al., 1999). Firstly, Hong Kong government believes that there exist long-term benefits from pegging Honk Kong dollar to US dollar. Government and business communities believe that current system was working well and can work now, during bad times any type of regime can be negatively affected by any crisis, and changing in the exchange rate regime would destabilize the economy and create panic. (Lu, et. al., 1999). Secondly Honk Kong government and business community worry about losing leading position of being the international financial center in East Asia.   They think, if Hong Kong dollar was not fixed to a strong currency like the US dollar, the unstable and weak Hong Kong dollar would discourage investors. Hong Kong may experience a capital outflow as they have an open economy. However, experience of Singapore and Taiwan is illustrative of expose above believes.   In 1997 Taiwan changed its exchange rate regime to floating; this did not discourage investors confidence in the economy, no capital outflow, and the economy became the most flexible in the Southeast Asia region during the Asian crisis. During the crisis, Singapores dollars depreciated more that 15% against the US dollar. These changes in the economy did not discourage investors confidence, continued to be a leader on regional financial center with future potentials.  These experiences show that floating exchange rate regime can protect itself from speculative currency attack. (Lu, et. al., 1999). By analyzing economic backgrounds of both Hong Kong and Singapore countries, bot h economies were the healthiest among other East Asian countries during the East Asia crisis. To be well performed for such a negative shock, government collected enormous fiscal reserves. Both economies have been lowest regional outperforming loan ratios, largest reserve funds and highest capital sufficient ratios. During the Asian crisis, Hong Kong and Singapore showed great flexibility in quick adjustments of labor market and property price volatility control. (Cheung et. al., 2002). If Hong Kong applied Singapores exchange rate system, it would be easier to defend the own currency from speculative attack, because for speculators it would be riskier to speculate on none preannounce exchange rate.   Under the floating exchange rate regime, the speculators would not have prior knowledge on how monetary authorities will respond on volatility of its own currency.  Having a strong reserve, the monetary authorities can easily minimize losses from speculative attacks, a nd Singapore exchange rate policy and speculative attacks on Singapores dollars in 1985 is a good example. (Lu, et. al., 1999). Changing from fixed up the floating exchange rate regime, Hong Kong should considerably boost business and investors confidence in the economy. As Singapore is almost similar as Hong Kong economy, it should be enough to convince Hong Kong to adopt a floating exchange rate regime, as did Singapore in 1973 and successfully experiencing economic growth. At the end of the last century Singapores currency moved from the position to be fixed on the pound Sterling and US dollar to floating, and now Singapore is a regional financial leader.  The Singapore case shows that, by having strong economic fundamentals, sufficient reserves and strong political objectives, moving from fixed up floating regime push the economy more forward, to more efficient way and safer position from speculative attacks. In present days, Hong Kong has the better position than Singapore in 1970s; hence changing exchange rate regime would be easier and safer. (Lu, et. al., 1999). Nevertheless, ignoring the factor that Hong Kong belongs to China and at the same time being one of the important trading partners, would be inappropriate. Due to cheaper land rent and cheaper employment availability, a large proportion of Hong Kong export manufacturing industries had set up their plants in China. China being one of the biggest and fast growing economies in present days, being an important trade partner, having lots of Hong Kong manufacturing industries, question arise here should have a Hong Kong repeg exchange rate regime from US dollar to Chinese Yuan? During the Asian crisis China protected Hong Kong from heavy crisis impact by having massive foreign exchange reserve of the HK dollar, and by subsidizing Hong Kong export manufacturing industries with credit supply and VAT repayments (Kueh et. al., 2002). Therefore, analysts are suggesting repegging to Chine se Yuan in order to gain economic and political advantages. Regardless of the high trade and economic relations between China and Hong Kong, Hong Kong government is not planning to repeg to Chinese Yuan. They are supporting their decision arguing that Chinese Yuan itself is de facto fixed to US dollar with similar objectives in order to maximize export earnings from United States and other foreign markets (Kueh et. al., 2002). However, according to Yues (2008) research re-pegging HK Dollar to Chinese Yuan is impractical due to the fact that HK Dollar is a fully convertible currency where as Chinese Yuan has yet to become a fully convertible currency. Furthermore, during the crisis Hong Kong dollar showed that it is very vulnerable to economic shocks and this instability may harm economic condition itself (Kueh et. al., 2002). In conclusion, changing Hong Kong regime from being fixed to US dollar to Chinese Yuan is inappropriate, as Chinese Renminbi itself fixed to US doll ar and pursuing similar objectives as Hong Kong economy. Another reason against pegging to Chinese Renminbi is that Chineses economy is not highly developed as Hong Kong economy, hence pegging to Chinese Renminbi will push back Hong Kongs economy. However, the stability of the Chinese economy and government decision made on not to devaluate the Renminbi, have attracted attention (Wei, et. al., 2000). Singapores case showed that floating exchange rate regime is more flexible during economic shocks as currency speculative attacks are less comparing with currency under fixed exchange regime. However, during the economic boom, both regimes show good performance and high future potentials. Suggesting changing exchange rate regime to new one or remaining with the current regime is an unclear, but floating exchange rate regime more promising. Word count: 1,518 References Altman, D., 2003. Dollar faces path of deeper slide. New York Times. Arestis, P., and Pelagidis, T., 2010. Greeces economic problems and euro threats are exaggerated. Guardian. Available at: https://www.guardian.co.uk/world/2010/feb/01/greece-euro-economic-problems Bjornland, H., 2008. Oil price shocks and stock market booms in oil exporting country. Norges Bank. Available at: https://www.norges-bank.no/upload/english/publications/working%20papers/2008/norges_bank_working_paper_2008_16.pdf Chen, h., Fausten, D., and Wong, W.K., 2006. Evolution of dollar/euro exchange rate before and after the birth of euro and policy implications. Social science research network. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=924525 Cheung, Y.W., and Yuen, J., 2002. Effects of U.S. inflation on Hong Kong and Singapore. Journal of Comparative Economics, Vol.30, p.603-619. De Grauwe, P., 2000. Exchange rates in search of fundamentals: the case of the euro-do llar rates. International finance, Vol.3, No.3, p. 329-356. Dougherty, C., 2004. Dollars fall lands hard in Europe. NewYork Times. Escape artist,. What has caused the Euro to fluctuate against the Dollar and what does the future  hold? Available at: https://www.escapeartist.com/OREQ18/USDEUR.html Gold Investing, 2010. Gold price pushed the U.S. dollar depreciation. Available at: https://webodigy.com/gold-prices-pushed-the-u-s-dollar-depreciation.html Harui, R., 2007. Dollar falls to record on concern losses to spur Fed rate cut. Bloomberg. Kueh, Y.Y., and Ng, C.W., 2002. The interplay of the China factor and US dollar peg in the Hong Kong economy. Cambridge University Press on behalf of the School of Oriental and African Studies, The China quarterly, No.170, p. 387-412. Le, A., 2006. US dollar drops against euro, pound, and yen. Available at: https://www.gocurrency.com/forex-news/2006/11/28/us-dollar-drops-against-euro-pound-and-yen/ Lu, D., and Yu, Q., 1999. Hong Kongs exchange rate regime: Lesson from Singapore. China economic review, Vol.10, p.122-140. Lui, Y.H., and Peasnell, K.V., 1989. Time series behavior, predictability and speculation in the Honk Kong foreign exchange market. Journal of business finance and accounting. Macdonald, S., 2007. Who gains when the dollar sinks?. Yale Global. Available at: https://yaleglobal.yale.edu/content/who-gains-when-dollar-sinks McCauley, R., and McGuire, P., 2009. Dollar appreciation in 2008: safe haven, carry trades, dollar shortage and overhedging. BIS quarterly review. Available at: https://www.bis.org/publ/qtrpdf/r_qt0912.htm Meredith, G., 2001. Why has euro been so weak? IMF Working Paper, Vol.1, No.155. Neck, R., 2002. The euro after three years. Atlantic economic journal, Vol.30, No.3, p. 236-243. Paul, J.A., and Quenemoen, M., 2003. Fall of the dollar. Global policy forum. Rajan, R., and Seregar, R., 2002. Choice of exchange rate regime: currency board Hong Kong. Australian economic papers, p. 538-556. Sapir, A., 2005. The euro-dollar exchange rate: facts and policy. What future for Europes economic and social model?, Issue 13. Available at: https://www.epc.eu/en/ce.asp?TYP=CELV=177see=yt=42PG=CE/EN/detaill=3AI=427 Schnatz, B., Vijselaar, F., and Osbat, C., 2004. Productivity and euro-dollar exchange rate. Review of world economics. Vol.104, No.1. Shams, R., 2005. Dollar-euro exchange rate 1999-2004 dollar and euro as international currencies. Review of world economics, Vol.321. Tsang, S., Sin, C., and Cheng, Y., 1999. The robustness of Hong Kongs linked exchange rate system as a currency board arrangement. Available at: https://sktsang.computancy.com/attrachment/esem99.PDF Wei, S., Liu, S., Wang, Z., and Woo, W., 2000. The China money puzzle: will devaluation of the Yuan help or hurt the Honk Kong dollar?. China economic review, Vol.11, p.171-188. Yahoo Finance, 2010. USD/EUR (USDEUR=X). Available at: https://finance.yahoo.com/echarts?s=USDEUR=X#chart3:symbol=usdeur=x;range=19990101,20100402;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on

First in the Fmaily A Fist Generation College Student on...

First in the Family: A First Generation College Student on College Across universities throughout the United States, the presence of first-generation college students is on the rise (Stephens 1). Students whose parents do not have a degree of higher education, are being given the opportunity to shape their future for the better as they embark on a journey to receiving a four year degree unlike their parents who were not given such an opportunity. With the number of first-generation college students on the rise from the past, I became interested in seeing how the views, relationships, and ideas of these students was unique, and how they differed from the average student attending a university; an average student coming from at least a†¦show more content†¦When asked about her time so far at UM she stated, â€Å"I don’t like it here. I just don’t like school and I think the people here are too different then back home.† Further expressing a concern that she feels very isolated while at UM, a contribution to Sarah’s poor grades may derive from the fact that she was too preoccupied with adjusting to an environment that is so new to her that it is a shock. The oddity of Sarah’s comment though is that she has already built strong relationships with many people at the university, including her roommate. Sarah states her roommate is most influential in making her feel as if she is not alone as she is always there to talk to and comfort her. This scenario is not uncommon among many college students, but it is especially prevalent among first generation college students because of the strong ties to family that are often seen with these type of students. Why else do the grades of this outwardly normal appearing girl suffer so much? A large reason comes from Sarah’s plain lack of motivation. Sarah clearly stated how she â€Å"hate[s] college† and when asked why, she stated that she does not like how hard it is and how much work is needed to learn the material. Sarah especially struggles in physics and calculus, and in a follow up question to the interview, Sarah revealed that her grades currently in calculus will not let her receive any

Evaluate Critical Thinking Free Essays

My perception of our team’s metaphors as a whole is that we all are capable of expressing our thoughts about things in our lives as we see them through metaphors. Each of our metaphors allowed others to identify with our thoughts by connecting words with our senses. The metaphors that my team members have written are descriptive and easy to understand. We will write a custom essay sample on Evaluate Critical Thinking or any similar topic only for you Order Now The metaphors that the team members have written were very good and descriptive in my opinion. Personal Barriers None of our metaphors seemed to have any thinking errors in them such as, egocentric thinking, polarized thinking, or over-generalizations. Personalized barriers such as, enculturation was present in some of our metaphors and did affect the way we critically thought them through. Because most of our metaphors were based on things in our lives it was not surprising that these sources produced metaphors with enculturation. I think everyone, especially myself, has to be careful not to allow personal barriers get in the way. By not allowing their personal barriers to get in the way they were able to create easily understood metaphors. I think that the team did a good job in doing this. Language The next tool is language I think that the way the team constructed their metaphors through the use of language was clear and interesting. I do not really understand how someone could accurately communicate using metaphors. We as a society do not communicate this way and I find that it would be tough to communicate in this manner. We are meant to speak a certain way in order to communicate accurately for instance in America we speak English and in Germany they speak German. It would be difficult to go to Germany and speak English and communicate effectively if they only understood a little English. I personally could not communicate using metaphors to communicate accurately. The language in which we write, talk, and think helps for the individuals listen understand the message that we are trying to convey to them. So we must be clear in the message and the wording that we use to get our message across. The team did this well when contrasting their metaphors. I was able to understand what they were saying in most of their metaphors. One example is from Stephens metaphor about family â€Å"Constant and Changing; Joy and happiness; Frustration and confusion,† The language that he used describes the emotions that a family goes through and the language describe it well. Feelings The majority of our metaphors reflected our feelings towards family, events, and places. Our feelings were put into our metaphors to help connect our words to their meaning. In my opinion this is where the metaphor becomes powerful. It seems to me that there is a lot of feeling in many of their metaphors. One can feel it as it is read. The next tool is creativity check I believe that most of the metaphors exhibited a lot of creativity while remaining clear. Like feeling I think that creativity plays a very important role in the metaphors. The next tool used is that of organization. Creative Thinking I feel that all of our metaphors were creatively thought through. We successfully transformed our thoughts into a language that everyone could understand and appreciate. From what I can tell most of the metaphors created exhibited some kind of order. The last tool was logic. I also feel that the team’s metaphors seemed to follow this well. I would say that over all the metaphors that the team created was very creative, and fun to read. I would also say that some seemed to contain a lot of feeling, which also made them more enjoyable to read. By putting their feelings behind the metaphors and made the metaphors originally and showed that creative thinking was utilized when writing the metaphors. How to cite Evaluate Critical Thinking, Papers

Accounting Finance Analysis Ethical Report â€Myassignmenthelp.Com

Question: Disuses About The Accounting Finance Analysis Ethical Report? Answer: Introduction Liquidation can be defined as an orderly process that is meant to shut down the company operations. It is basically a process of winding up a company operation because the company is considered to be unable to pay off its debt when due. The case arises when a particular company is unable to survive in the competitive market, and the owners or the shareholders decide to go for liquidation (Biondi, and Lapsley, 2014). In this case, after the company has gone into liquidation, all the assets and properties that the company owned are sold and the funds compensated to creditors, and if there are some surplus, the shareholders are entitled to the share. Liquidation can be classified into three types; creditors voluntarily, member voluntarily and through court. When a particular creditor seeks court direction to liquidate the company, the court may grant the creditor right to initiate the process of liquidation for the company (Owen, 2003). A creditor voluntary winding up is considered to be the liquidation process in which the company by itself decides to wind up its business operations while a voluntary member liquidation is the winding up the process when members of the company feel that there is no reason for the company to continue in its operations because of certain circumstances. Role of ethical governance in financial stress companies According to CPA Australia, ethics and governance are considered to be a core element of the skills and knowledge based on the contemporary professional accountants (Mills, and Marjoribanks, 2011). Diverse professional accountants should basically contain the required skills and knowledge of the content of regulatory regimes and how the governance tool is being applied. In accounting, it is significantly vital for accountants to ensure that they are performing their activities in accordance with the set rules and ethics. CPA Australia (2012), suggests that when individuals combine the social ethics and moral norms with the standard and principles of business, this aspect can be referred to as Ethics in Financial Accounting. Furthermore, Clarke, Dean, and Oliver (2003 pp. 30) emphasize the significance of governance and ethics by providing examples of World Com and Enron companies which are often important in the day to day company operations. The fall of ABC Learning Institution ABC Learning is considered to be an institution that offers early childhood education services in Brisbane, Australia and was established in 1988. The learning institution grew up steadily in its first twelve years of business then after the child care benefit introduction in FY2000, the basic demand for the child care blew up (ABC Learning Centers, 2016). During the same year, the institution grew up to be the largest health care provider in the whole of Australia and the world. The company share price increased by 300% in the market price and the company made a profit of AU$50 Million in the financial period of 2004-2005. In FY2001, the company stocks were floated on the Australia Stock Exchange at AU$2, and by 2006, its shares had a significant increase to AU$8.60. This aspect was chiefly because of the aggressive approach that the learning institution utilized to try to a dominant benefit in the child care business (Paul, 2007). Conversely, this growth strategy initiated the learning institution to pay extra for centers purchase thus resulted to huge debts from loans and other fund advances. A combination of intricate financial reports and doubtful business decisions for expansions were the key cause of the learning institution down fall (ABC Learning Centers collapse case study, 2011). Role of ethics and governance in ABC Learning Center According to this aspect, quality of education offered by the center was another cause of downfall because there were several students in the center than the number of teachers. The key issue with the ABC Learning Center was the failure of the company accounting standards such as assets treatment. When the learning institution purchased new centers, they were prized at the value of the business and premises and the cost of the childcare authorization. In FY2007, the acquired licenses were prized at AU$58.5 Million, and conversely, they were basically reported to have worth AU$700 Million under the belief that these licenses would generate more cash flow. Another unethical aspect was that thee reported good will was valued at AU$2.8 Billion while the actual value was AU$20.2 Million when purchasing other centers (Ashley and Daniel, 2008). This huge over valuation of assets fetched several question if fair value was a correct evaluation because the child care industry was already monopolized. Failure to emphasize on the main business capability to earn revenues during its growth was another problem. Proper ethics and governance should have been employed in this particular situation so as to ensure that the company carries out its business as per the set rules and regulations. The Government of Australian set up a directive on this aspect to ASIC. (Australian Securities and Investment Commission). ABC firm claimed that these particular authorizations were of high cost but in a real sense, the licenses had no value and when investors realized the accounting malpractice done by the ABC Company, its share prices decreased. The fall of HIH Insurance Company HIH Company was the largest insurance company in Australia that basically went bankrupt in 2001 with a significant loss of approximately AU$5.3 Billion. The company was founded in 1968 that introduced several types of insurance not only locally but also globally. According to its financial statements (FY2000), the company claimed that they had reached an approximately over AU$2.5 Billion in revenues and the value of its entire assets was about AU$8 Billion. In this case, poor management was considered to be the main reason that resulted in the downfall of the company where the company portfolio of about AU$8 Billion in assets was used to offset its debt and potential claims (Matten, and Moon, 2008). The portfolio dropped to only AU$133 Million as it was basically anticipated that even 1% variation in the assets cost would basically make the firm insolvent. HIH Insurance Company liquidation of was the largest surprise collapse of any particular corporate business. In 2001, NSW law cou rt ordered for the interim insolvency of the firm so as a proper audit of the company financial condition to determine its capability to continue in its operations. Ethics and governance role in HIH Insurance Company collapse HIH Insurance Company failure resulted in a Royal commission that was established so as to determine the main reason that led to the collapse of the insurance company. The commission found out that the company was basically not following corporate governance standards set up so as to ensure that the company operations are done in accordance to the Australian Cooperate governance (Rush, and Downie, 2016). According to the pointed out report, HIH Insurance Company directors were not performing their ultimate duties in accordance with the standard, and consequently, there was no balance check for the corporate governance model system that basically indicates how the company is going on and offering proper guidelines to the management. Because HIH Insurance Company was victimized by its management, no system could check the aspect of corporate governance model if it is working correctly or not so the management could control the condition. In this case, the role of ethics and governance in the company was that it had a responsibility to exercise their duties and powers with the diligence and care so all the resolutions must be taken with concern and they could be agreed by any rational individual. HIH Insurance Company culture was not that good because the senior management was unable to communicate vital facts in front of the board of management. The company board was not aware of the significant facts. Since the company initiation, it has been controlled by one CEO and that no individual member in the company could basically challenge the decisions of the CEO whether good or bad decisions were made (Tim, 2015). The company was not following its sound corporate model that basically caused the company downfall. HIH Insurance Company management performance failed to be monitored by the company boards since the panels did not carry out its duties appropriately that had no enough independence and capability to see the aspects that should be done. The aspect of transparency was also not present at HIH Insurance Company. Customers and public shareholders were deceived by the issues that HIH Insurance Company had grieved from inability after inability in the US and UK operations besides FAI purchase. The facts were also not confined to the general public because the financial statements drafted by the company were not reliable as they did not show a true picture of the company financial statements. The fall of One Tel Phone Company One Tel Phone Company was one of the largest telecommunication firm in Australia from 1995. The company operated as an Optus services reseller where Optus compensated One Tel Phone Company AU$120 for each registered and signed up sim card. During the first year of operation, the company signed up about 60,000 customers and basically posted a profit before tax of about AU$65 Million (Daniel, 2010). In the FY1997, the company floated its shares for AU$2 per stoke and a market value of AU$208 Million with this amount rising to AU$3.8 Billion in the FY2000. Conversely, the aspect of over-confidence and an unconcerned attitude towards internal control methods and corporate systems resulted in poor accounting applications particularly the treatment of bad debts that accentuated the failure of One Tel Phone Company to take profits from customers. One Tel Phone Company downfall was as a result of its inappropriate practices in its governance. When the company collapsed, its annual sales were about AU$650 and was operating in more than seven countries. The company had severe problems in their corporate governance structure since the company CEO had a significant influence on the company and that the chairman could not control anything in its business operations. Further research indicated that the other non-executive members did not have sufficient skills and knowledge to monitor the management and thus the company collapsed because of the two most influential CEOs who made wrong decisions. The biggest issues that led to its demise was the fast growth that the company did not adjust its internal control so as to satisfy for the increasing size (Westfield, 2015). It is apparent by the company system of billing that was designed for at least 60,000 70,000 clients and when the company customers grew up to about 760,000 clients, the company systems failed because of overload. The GST introduction in the FY2000 meant for more composite charging policy that was not adjusted for also led to the company down fall. Furthermore, the conducted audit demonstrated that the company one-third of accounts receivables were over 330 days old and that only 20% of the customers were actually paying while the other 80% were unaccounted for bad debts. In the end, the aspect of poor credit checking on the customers was one major factor that led to poor cash flow and thus resulted in the fall of the company. Ethics and governance role in One Tel Phone Company Basically the quality of the company financial statements usually enhances the credibility and customers confidence (Natasha, 2012). If the company annual report is made in accordance with the set guidelines, it can bring better facts and thus the report will be reliable as it shows a true and fair view of its operations. One Tel Phone Company financial statements were no doubts that it was full or malpractices, errors and contained a lot of missing core elements. The company had significant problems in its operations, financial reporting and inappropriate composition of board members. According to One Tel Phone Company financial statement (1998), the company had four members and John Greaves, and Rodney Adler were the two non-executive board members who ensured that no one challenged their authority and power that made them being the CEOs till the end of the business (Hamilton, 2016). The company collapsed because of its poor governance among its management team. Conclusion and recommendation Corporate governance and ethics were the key factors that basically resulted to the liquidation of ABC Learning Company, One Tel Phone Company, and HIH Insurance Company. The report indicates how significant the firms were before collapse because of not utilizing the set rules and regulations on proper ethics and governance. 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