Ethics Quiz - Hapter 4:the Institutionalization of Business Ethics - Finance: Loan Covenants

Business Ethics Quiz 2

(Worth 20 points, 2 points per question)

CHAPTER 4:THE INSTITUTIONALIZATION OF BUSINESS ETHICS

Finance: Loan Covenants

Holly is a young branch manager with a large bank. She has been directed to be aggressive in increasing loans and deposits, as well as promoting other services to increase customer relationships. Lombs' Co. is a $5 million dollar business client. Lombs' president wants a $500,000 mortgage loan for a new home. Mr. Lombs personal credit score has some issues therefore the interest rate would be at 9%. During the mortgage loan process, Holly informs Mr. Lombs of various business services. Mr. Lombs replied that his current provider of these business services is less expensive. Holly replies that she is confident that if the business services are added she will be able to negotiate a better interest rate for his personal mortgage loan. Mr. Lombs added the business services. Holly called him the next day and proudly informed him that his mortgage loan had been approved at 3.2%.

1. What are the risks associated with this ethical dilemma?

The total interest rate provided to each customer represents the amount of risk the bank encounters supplying each amount of money loaned. Holly, in her own interest assured Mr.Lombs a reduced interest rate if he were to abide by other services in the bank in which she must promote. The bank encounters greater liability and less profit in these types of mortgage transactions, Mr. Lombs is being under-charged.

2. How should the company avoid this ethical dilemma in the future?

The bank may form an examination process in which all loans, including mortgages and personal loans are carefully reviewed. Upon approval, examiners must look at previous interest rate quotes that may have been given to customers to verify that there are no loopholes, or employees throughout the branch assisting customers through relations.

Management: Environmental Protection

Paul, a recently hired product development manager is in charge of a new polymer-processing project that has a genetic component to it. The project has the potential for billions in revenues. The company has been dumping a variety of wastes into a nearby river. The EPA has checked the waste levels and has signed off on them, but Paul is still concerned. Because of the radical nature of the project and the EPA's unfamiliarity with the types of chemicals, genetic manipulations, and their properties, Paul and a few others feel that this could not only harm the environment but could cause the company problems in the long run. Paul is told by