Financial Institutions and Markets

Question 1: First choose a recent IPO (within the last two years), research and discuss the success of the IPO, including the initial price offering and the subsequent stock prices. Answer: The wearable technology company, Fitbit valued at $4. 1 billion has raised astonishing $731 million for its IPO in June, 2015. Despite a competitive market with strong participants as Huawei’s TalkBand and the Apple watch, Fitbit that has offered $20 for its share, has opened at $30. 0 that is 52 percent above the asking price (Quittner, 2015).

July, the second trading month has still been successful for Fitbit as its share price has climbed up to $47. 60. James Park, the CEO of Fitbit, sounded promising to company’s shareholders when he stated that there is over $200 billion of consumer spending on health and fitness and as such this massive market can handle more than one dominant player. (Imbert, 2015). Yet, believes of Mr. Imbert were not fulfilled as of today, Fitbit is trading at $6. 24.

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So what has caused such a dramatic fall in performance over the period of 2 years and a change from the success story into a failure? It is stated that Fitbit has critically increased its spending on R&D to keep up the impressive growth rate and launch wider range of products (Green, 2017). This move has dramatically knocked down profitability of the start-up and has significantly declined its earnings. As a result, the revenues of the company were not growing fast enough to balance up and sustain the massive increase in spending. This circumstance is a primarily reason that explains the disappointment of investors and a poor position of Fitbit as of today.

Question 2: Has Globalization lowered or increased the financial risk of major financial institutions? Answer: Without doubt, globalization has a tremendous impact on global financial system and it influences all aspects of financial transactions that take place at any given point of time. This means that globalization directly and indirectly transforms the way financial institutions do business and deal with incorporate uncertainties.

When it comes to the topic of financial risk encompassed in all major financial institutions, I do not feel it is appropriate to solely support or oppose an opinion that globalization increases or lowers the financial risk. To support my answer I can state that globalization both embodies opportunities and risk simultaneously and as such the level of financial risk continuously fluctuates from high to low depending on the specific circumstances. Indeed globalization assumes a wide range of opportunities for financial institutions that mitigate and lower financial risk: new markets and customers, expanded resources of employees and partners.

At the same time globalization triggers an increase in financial risk: it comes from both political and economic changes, as well as from operational challenges of extended platforms, systems and products beyond the core markets (Burger, 2012). In other words, globalization promotes development of the ‘house of cards’ effect that can at the same time unite financial institutions, strengthen communication and relationships but also create a domino effect whereas one failure triggers a financial collapse at a tremendous scale due to interdependencies between global financial institutions.

References

https://www.inc.com/jeremy-quittner/what-the-2015-market-for-initial-public-offerings-really-looked-like.html

http://www.cnbc.com/2015/06/22/fitbit-stock-opens-up-more-than-10.html

https://www.fool.com/investing/2017/01/11/why-fitbit-stock-crashed-75-in-2016.aspx

http://www.banktech.com/data-and-analytics/bank-globalization-the-world-as-your-potential-market/a/d-id/1295162?

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