Knowledge that Transforms

Rashmi B. Thakkar, Comment: "Dynamics of Corporate Debt Management, Decision Rules, and Some Empirical Evidence", The Journal of Financial and Quantitative Analysis, Vol. 9, No. 6 (Dec., 1974), pp. 1065-1066

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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 paper represents a remarkable effort to push outward the limits of static ratio analysis for the purpose of judging commercial loan applications. I found the task of reviewing this paper by Professor Altman and his colleagues from CESA (Center for Management Education) a very useful experience because it gave me an opportunity to reacquaint myself with an area of finance to which I had paid very little attention for some time. Hopefully, these comments are still useful despite my lack of recent experience.

Donald G. Simonson, Comment: The Predictive Content of some Leading Economic Indicators for Future Stock Prices, The Journal of Financial and Quantitative Analysis, Vol. 9, No. 2 (Mar., 1974), pp. 259-261

William Gibson has presented a useful analysis of the Administration's proposals for financial reform, and I have no difficulty concluding with him that they should be passed. But, I find myself in some disagreement with him on a number of matters of interpretation.

The authors, Hodges and Schaefer, of the preceding paper [2], taking up where my own article [3] left off, have contributed to a better understanding of the geometric mean index of stock price relatives. Their basic point is that, if in any practical situation a portfolio were managed according to a policy of periodic reallocation, the wealth relative of the portfolio would not be approximated by the geometric index. This is demonstrated through simulation, using randomly generated price sequences as well as empirical data. In addition, they have presented a verbal characterization of the hypothetical portfolio policy whose wealth relative is measured by the mth-order power mean of price relatives discussed in my paper. This policy, as I had stated, is not an intuitively simple one like “maintain equal dollar amounts at all times” or “buy and hold.”

The purpose of this paper is to survey monetary policy as it unfolded from the beginning of 1973 to the spring of 1974. This is, on the whole, a relatively uncomplicated period to discuss since there was, I would judge, rather less controversy about the aims and appropriateness of monetary policy over most of this period than is often the case. In brief, monetary policy focused primarily on producing a moderate degree of restraint, one that would relieve the excess demand pressures clearly evident during at least the first part of the period. The aim in doing so was to create a climate in which inflation could gradually be brought under control. This objective suffered serious competition only briefly, when, during the early stages of the oil boycott, the potential of that situation for creating economic weakness was still very unclear.

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.