The paper "Recent Instances in Australia of Margin Lending Disaster " is a great example of a finance and accounting case study. In terms of margin lending, one of the many investments funds in Australia is classified as managed funds. The client, Tony Bradfield is 47 years of age and wants to invest exactly $100,000 in a Managed Fund, with the specific goal of boosting his retirement savings, as he believes that he will not have enough in his retirement fund at 65 when he plans to retire. Financial research offers the best option to fill Tony Bradfield’ s investment temperament. A comprehensive overview of how margin lending works. There are many options to augment Tony Bradfield’ s retirement cash inflows.
The first option is for Tony Bradfield to invest his own savings of $100,000 on which he currently earns 4.5% before tax per year to invest in managed funds. The individual will earn $4,500 for one year for a total of $9,000 for the entire minimum requirement of two years of investment. This is the safest investment alternative - the investor is assured of the $4,500 cash inflow with no probability of losing the $4,500 a year unlike the other two options discuss in the next paragraphs (Haydock 2006; 91). Another investment option of the client, Tony Bradfield, is the use of a margin – lending facility.
An individual borrows money from the banks or other financing organizations to invest in a managed fund. The individual uses the loan to invest in a project generates more than enough cash inflows to pay for the principal amount loan and the additional interest component of the loan contract. In this scene, there is a strong probability that the invested money may not be enough to cover the loan amount and interest payments especially when adverse economic conditions.
In the same manner, an individual may enter into a legal contract between a broker and oneself where the individual may borrow money from the broker for investment reasons. The individual, Tony Bradfield, trades on margin with the broker that he will pay the margin call amount and other collectables when the time for payment arrives (CCH 2009;492).