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Black swan event has markets in flap

The Australian share market has suffered its worst week since the global financial crisis as fear over the rapid spread of coronavirus wiped more than $200 billion from company values.

A week-long selling spree intensified yesterday as the nation’s key stock market benchmark, the ASX 200, plunged 3.3 per cent to 6441.2 points. The rout — the biggest one-day drop in 4½ years — wiped $65.1 billion from the value of the nation’s 200 biggest listed companies.

It took the week’s losses to $210.1 billion and plunged the market into an official correction. The market touched a record high of 7162.4 points late last week but has been sold off every day since, shedding 10.1 per cent in total.

This week’s fall is the biggest since October 2008, when the local bourse plunged by more than 15 per cent after the collapse of US investment bank Lehman Brothers sent a shockwave through the global financial system. Investors across the globe have hit the sell button this week as COVID-19 has flared in Asia, Europe and the Middle East.

“It’s been unbelievable,” Wilson Asset Management chair Geoff Wilson said. “The major question now is, are we heading into a bear market?” Mr Wilson, who manages $3 billion in funds, has increased his cash holdings from 12 per cent to 20 per cent this week by selling shares as a defensive measure.

Montgomery Investment Management chief investment officer Roger Montgomery said COVID-19 was a “black swan” event — a major global disruption that had blindsided investors at a time stock prices were at record highs.

The ASX 200 surged 18.4 per cent in 2019 — its best year in a decade — and jumped another 7.2 per cent this year before the virus sparked panic on markets.

Required

I. Montgomery Investment Management chief investment officer Roger Montgomery said COVID-19 was a “black swan” event’. Why do you think Covid-19 was labelled as a black swan event?

II. What accounting theories can be applied to the discussion reported in the article?

Part B

Ethical question Assume you are the manager of the accounts division and you are aware that all staff members of the division are working under workload pressure. Staff members are currently working from home due to the Covid Pandemic. Most of the staff members are single or married with no children. However, one junior staff member, Kathy, who is a single mum has two children of primary school age. Due to the recent lock down, the children are being home schooled. As a result, Kathy is missing some important meetings and cannot attend to her full workload. This has put additional pressure on other staff members’ workloads. This issue has been raised in a staff meeting by her colleagues, bringing more stress to Kathy. You understand that due to financial hardships Kathy has to work fulltime. What you should do?

Required

How do you think this situation should have been handled? Discuss the ethical dilemma presented by this case using the ethical decision-making framework (model) given below or another model that you know.

An ethical decision making framework using Utilitarian and Rights Theories

• Identify the ethical issue(s).

• Determine the affected parties and identify their rights.

• Determine the most important rights.

• Develop alternative courses of action.

• Determine the likely consequences of each proposed course of action.

• Assess possible consequences including an estimation of the greatest good for the greatest number.

• Determine whether the rights framework would cause any action to be eliminated.

• Decide on an appropriate course of action.

 
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