a) Why do so many shops pay hefty fees for the privilege of offering customers t

Question

a) Why do so many shops pay hefty fees for the privilege of offering customers the choice of paying by credit card? b) If higher leverage is associated with greater risk, why should anyone worry about deleveraging? c) What problem associated with asymmetric information was central to the Madoff scandal (investors were misled about the likely returns on their investments)? d) Under what circumstances would you expect a job applicant to accept an offer of a low base salary and an opportunity to earn commission over one with a higher base salary and no commission potential? e) Is the internet a solution to asymmetric information problems?

Explanation / Answer

a)

Company have led the way in charging hefty fees for the privilege of paying by plastic.It shows these "unjustifiable" charges are increasingly standard practice across a wide range of business sectors – from local councils and florists to dentists, dealerships and estate agents.

While the cost to companies for processing a payment by debit card is around 20p, and no more than 2% of the transaction value for a credit card,When it comes to convenience fees, different card processing networks have different policies.

However, tax payments don't have to meet all of those criteria. "While Visa regulations prohibit merchants from applying surcharges to normal transactions, we do permit our cards to be used for tax payments together with a convenience fee," says Ted Carr, a spokesman for Visa. The reasons for this distinction: Income taxes are government mandates, and federal statute prohibits the Internal Revenue Service from paying the costs associated with credit card acceptance.

B) While leverage allows a borrower to acquire assets and multiply gains in good times, it also leads to multiple losses in bad times. During a market downturn when the value of assets and income plummets, a highly leveraged borrower faces heavy losses due to his obligation to the service of high levels of debt. If the value of assets falls below the value of debt, the borrower then has a high risk to default.

However, precaution is not the most common reason for deleveraging. Deleveraging usually happens after a market downturn and hence is driven by the need to cover loss, which can deplete capital, build a less risky profile, or is required by nervous lenders to prevent default.

C) The Madoff fraud is an example of a moral hazard problem that arises from the absence of perfect monitoring. Investors with Bernard Madoff did not adequately monitor his behavior to insure that he was using their funds as they expected, perhaps assuming that earlier investors had carried out this monitoring and so they did not need to incur the cost, or that the oversight of the SEC was sufficient to safeguard their funds.

D) These are all valid fears, and there are plenty of circumstances where attempting salary negotiation isn't a good idea. Sometimes, however, you have to try or you risk hurting your long-term career prospects.

1. Economic security. In a job with a base salary, you know you'll always have a paycheck and paying your bills will never be an issue.

2. Stability. Along with the steady paycheck, most jobs offering a base salary generally expect you to stick around for the long-term. In fact, longevity of a potential salesperson is usually highly scrutinized during the job interview and selection process. They expect you to stay with them for at least a few years, and they assume that you view them as a long-term, if not permanent, employer.

3. Training. Part of the stability and structure typically offered with a salaried position is a training program. Nearly all salaried sales positions have a formal new-hire training process, and most provide valuable ongoing training. This training will not only help you improve in your current job, but will be considered highly valuable by any potential employers in the future.

4. Expenses. Most salaried positions provide basic expense reimbursement, usually mileage and cell phone at a minimum, with some providing more.

5. Benefits. With few exceptions, a salaried base + commission job will offer health insurance, possibly along with other fringe benefits.

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