1. What are the fundamental differences between the Nasdaq and the NYSE? Do firms and investors need these markets at all?
The Nasdaq is considered a dealer’s market, which means the buying and selling happens through a dealer. The dealer is matched with a seller electronically. The NYSE is considered an auction market, which means the buying and selling is happening directly. In the auction market, the highest bidding price is matched to the lowest asking price. The Nasdaq is also known as the more “high tech” market of the 2 and attracts technology based companies. NYSE, though seen as older styled, is seen as the more stable market and attracts many industrial companies. Together, these 2 markets make up a big portion of the global equities market, so there would be a huge collapse in the economy is one or both were to not exist
2. The WorldCom and Enron accounting scandal involved the firm classifying operating expenses as capital investments. Discuss the impact on Enron and WorldCom’s operating cash flow and their overall cash position. Did the financial statements contain any clues that could have warned investors of the fraud? Could the Enron debacle have Been Prevented? What actions could have been taken by auditors, regulators, and lawmakers?
Before the fraud was revealed, Enron was one of the largest corporations in the US and were able to trade shares at very high rates. The fraud made the company’s revenues inflate and caused the company’s cash position to seem massively larger than it truly was. The fraudulent activities could have been preventative if the SEC and credit rating agencies would have done their due diligence and not overlooked the problems found in the financial statements at the time. It was clear fraud was happening, but these top agencies did not do their job and it costs many people a lot of money. Even though this was a huge mistake on a large scale, it helped bring in stricter laws to prevent acts of fraud on this scale for the future. The Sarbanes- Oxley Act demands transparency to catch possible scandals before they get as out of control as Enron.