Financial practice and methodology

¶ … working on financial practice problems can help students to apply key concepts and principles.

Understanding various financial practice problems will help all students to ensure that they have a foundation for knowing how money and the world of finance works. This is important because, it will serve as foundation that will allow everyone to be prepared for: objectively evaluating their business, personal finances and investments. Once this takes place, it means that we can make more prudent financial decision by: avoiding common mistakes. As, these tools will help everyone in: identifying potential frauds and it will give us a sense of reality. This is the point that these ideas will prevent us from making critical errors that could have a dramatic impact upon: our net worth and the kinds of decisions that will have an effect on our future.

A good example of individuals who were never able to learn this lesson are those people who were the clients of Bernie Madoff. Prior to the discovery of this Ponzi scheme in 2008, he was considered to be one of the top investment managers on Wall Street. Evidence of this can be seen by looking no further than the fact that: he served as the chairman of the NASDAQ stock market. What made him so convincing for many affluent investors was that they were often referred to him by: various individuals that they met during a number of social events (i.e. cocktail parties). ("Madoff Used Multiple Compliance Techniques," 2010) ("The Madoff Affair," 2009)

During the 18 years that the fraud was occurring, these affluent investors would show how they were making better returns than the average money manager on Wall Street. This is despite the fact that Madoff only was taking on clients through referrals. At the same time, investors were forbidden from: questioning his activities and various mutual funds could not disclose the fact that he was one of the money managers they were using. ("Madoff Used Multiple Compliance Techniques," 2010) ("The Madoff Affair," 2009)

For most people, this seemed normal because they were basing their decisions on: social proof from: their friends and Madoff's ability to manipulate them. This is despite the fact that he had strict rules about disclosing who they were working with and questioning any kind of decisions that were made. When you put these different elements together, this meant that the fraud became more wide spread because: no one was using logic or financial problem solving to understand what was taking place. Over the course of time, this caused the number of individuals who were sending him money to increase exponentially. This is significant, because it is showing how if these people had some kind of experience in working with: various financial practice problems. They could have avoided, those mistakes that resulted in them becoming victims of the fraud. ("Madoff Used Multiple Compliance Techniques," 2010) ("The Madoff Affair," 2009)

As a result, understanding economic concepts and working with financial practice problems will help to improve our ability to use common sense as well as logic. This is the point, that we can avoid these common mistakes by: not becoming to arrogant and blindly following the crowd. If you look throughout history, you will find that these kinds of issues are a major cause behind the majority of the frauds that are committed against people. ("Madoff Used Multiple Compliance Techniques," 2010) ("The Madoff Affair," 2009)