Answer to Question #117730 in Economics for yassir kks

Question

1. On April 2, 2020, Luckin Coffee Inc. and several underwriters were hit with a shareholder suit alleging the company made false and misleading statements that caused its stock price to be inflated. The company’s stock price dropped by 75% when an internal investigation in April 2020 found that millions of dollars in sales were fabricated.
Analyze the risks involved in the Luckin Coffee case and provide possible solutions for alleviating or eliminating these types of risks.


2. On April 20, 2020, the price of West Texas Intermediate for delivery in the month of May fell as low as minus $40.32 a barrel, becoming negative for the first time in history. This might have a huge impact on the oil futures trading.
Analyze the reasons why oil price might become negative and further elaborate the impact of the negative oil futures price on futures markets and futures trading mechanism.

Answer 1

1. In this case financial and operational risks involved in the Luckin Coffee. The possible solutions for alleviating or eliminating these types of risks are: to fix the situation with sales, provide correct statements, to find and start the investgetion concerning the persons who fabricated the sales, and make an appeal to shareholders with apologies and further steps about the fixing the situation.

2. The oil price might become negative because of the huge decrease in demand for oil and the limited possibilities to store large amounts of unused oil. Such negative oil futures price will have negative impact on futures markets and futures trading mechanism until the demand and supply of oil will change and new equilibrium occur.