Robert J. Saunders [4] has demonstrated that, because of the high degree of linear interdependence among many of the variables commonly used in banking studies, it may be necessary to interpret explanatory variables in a cross-sectional regression equation, not as representing individual influences but as representing more general factors. He attempted to demonstrate how principal component analysis might be used to isolate and identify some of these general factors.

Offering a significant revision of prevailing views, Professor Nelson examines the actual implementation of scientific management in industry and finds that it bore only a superficial resemblance to the system described by Taylor and his disciples. Rather than a “partial solution of the labor problem,” the Taylor system was a comprehensive answer to the problems of factory coordination, a refinement and extension of the earlier ideas known as systematic management.

We are grateful for the opportunity which Professors Gressis and Remaley's Comment [1] has afforded us to clarify our analysis of the relationship between Roy's Safety First principle and the Mean-Variance expected utility rule, which unfortunately they find misleading. In our original presentation we did not explicitly analyze situations in which Roy's criterion leads to an extreme corner solution; and G-R are perfectly correct in noting that if a riskless asset exists, a “Safety-Firster” will not invest in risky securities at all if the risk-free interest rate, r, exceeds the disaster level d. The reason for this is straightforward: such an investment strategy minimizes the risk of disaster. In fact in this particular instance the investor can reduce the probability of disaster to zero.

The mathematical difficulties encountered when attempting to express the internal rate of return (IRR) of a combination of two or more investments as a weighted algebraic sum of the individual investments' IRRs has been recognized in the financial literature for some time. However, in a recent issue of this journal, Professors Reilly and Wecker (hereafter R-W) [3] apply the well-known mathematical impossibility of expressing the root(s) of a polynomial as an algebraic combination of the roots of related polynomials to question the validity of the weighted cost of capital (kw) concept.

Rita Rodriguez's paper examines the factors involved in the decisions of foreign exchange management. It consists of four major parts: a) the concept and definition of foreign exchange risk, b) the finance function and foreign exchange management, c) management's attitudes towards foreign exchange risk, and d) the effect of differences in management's attitudes towards foreign exchange risk on the monetary system. The conclusions and results of the paper are drawn from surveys and interviews with over 50 multinational corporations in the United States.

Several titles reflecting different approaches to our subject matter were considered for the paper. An historical but somewhat pedantic approach to the teaching of investments might have been titled “Pedagogical Developments in Investments: Past, Present, and Future.” Another possibility was “Sex and the Single Investor,” a title which probably would have attracted a larger audience. “Beat the Dealer Versus Beat the Market” might well have been an appropriate title in view of our presence here in Las Vegas and also because of recent experience in the securities markets. We finally decided on simply “A Portfolio Analysis of the Teaching of Investments,” because this seems to better capture the essence of our viewpoint.

Much work on the term structure of interest rates has focused on comparing and testing opposing theories–expectations versus liquidity-preference versus hedging-pressure–using aggregated econometric models. This emphasis has resulted in a restricted view of the microeconomic behavior behind term-structure theory.

This paper investigates the relationship between interest-rate risk and liquidity premiums on U.S. Treasury bills. Interest-rate risk stems from uncertainty about the future general level of market interest rates.

The goal of American stock market reform is the establishment of a central market in which public orders are executed at the best price obtainable in an environment of competitive market makers. Among the measures needed to achieve this are: a consolidated tape, a consolidated quotation system, and competitive commission rates.

The problem of what to teach in investments courses can hardly have any one answerbecause teachers, students, levels, and purposes are too diverse. Even subject matter is debatable these days when one must make up his mind whether gold and antiques should be covered along with stocks and bonds, bills, and deposits. Thus what I offer here is one man's viewpoint, what seems most plausible to me out of 20 years' experience in brokerage and teaching: an opinion–no more, no less.

The purpose behind this review of recent research on financial decisions in the multinational corporation (MNC) has been, first, to further the discussion as to the appropriate normative framework applicable to financial decisions in the MNC, and second, to suggest directions for further research by pointing to open questions.

The analysis focuses on the major financial decision areas of the firm as well as on important new factors introduced by the international environment. Specific issues disussed are: capital-market segmentation, financing decision, financial structure and cost of capital, investment decision and exchange risk.

The principal conclusion presented as a basis for discussion is that the financial decision framework developed for the one-country firm can essentially be extended to the case of the MNC. This should hold true even if partial restrictions to capital flows exist. The only limiting requirement is that all subsidiaries be wholly owned, i.e., equity securities be issued by the parent firm only. A specific case in which the analogy to, the one-country firm breaks down arises when joint ventures are introduced.

A number of areas for further research are identified. Most prominent, perhaps, are (1) an operational concept of economic exchange risk exposure, i.e., measuring the impact of exchange rate changes on the value of foreign operations; (2) criteria for evaluating foreign investment projects consistent with the firm's cost of capital; and (3) empirical evidence on the extent to which MNCs are affected by capital-market segmentation.

In recent capital-market equilibrium theories it has been customary to entertain the assumption that corporate bonds are riskless. Attention has therefore been directed to the valuation of shares, since it is trivial to deal with the valuation of bonds under the assumption of riskless bond yield. In order to study the effect of leverage on equity and bond yields at the equilibrium while removing the assumption of riskless bonds, one must first deal with a valuation model for risky bonds. Consequently, one must face the necessity of making explicit the stochastic relationships between the risky bond returns and the risky share returns. To do this, each firm decides a dollar amount to be paid to the bondholders at the end of a period during which it generates random gross yields. The total return to bondholders is a random variable since it is possible that a firm's gross yield may be less than the dollar amount promised, a case of default. The total return to shareholders as a random variable is therefore conditional upon the choice of the promised amount to the bondholders. In other words, the explicit stochastic relationships between the bond returns and share returns will be conditional upon the choice of promised returns to bondholders by all firms. Employing the usual assumptions found in the capital-market equilibrium theories and the negative exponential utility function of final wealth, the model then generates conditional equilibrium prices of bonds and shares, and the resulting conditional equilibrium leverage and expected yields.

The purpose of this paper is to obtain some quantitative evidence of whether what has been said of the capital markets of Central Europe is also true for the West-German capital market: that they lack depth, breadth, and resiliency; that they react strongly or even excessively to changes in demand and supply; and that they are vulnerable to adjustments in bank liquidity.

Recently, there has been no shortage of proposals for reforming the U.S. financial system. Proposals have been offered by the Hunt Commission, the Administration, and several other groups. All these proposals contain many common elements, attesting to the difficulty of obtaining comprehensive financial reform. The analysis here focuses primarily upon the Administration's 1973 recommendations.

This paper seeks to document some simple and not-so-simple facts. My thesis is that, to an unprecedented degree, Federal Reserve (F.R.) Board Chairman Arthur Burns has engaged himself and the System in political action. Burns' leadership has contributed to politicizing the monetary control process, the dialogue concerning the nature and effects of that process, and perhaps even F.R. decisions themselves. These tactics have reduced the Federal Reserve's power to resist external political influence, a power that Chairman McCabe “bled” for in 1951 and that over the next two decades Chairman Martin labored assiduously to consolidate. On the other hand, this behavior at least maintained and probably increased Burns' standing with President Nixon.