The rise and fall of long-term capital management - Free Essay Example

Sample details Pages: 6 Words: 1943 Downloads: 3 Date added: 2017/06/26 Category Management Essay Type Analytical essay Did you like this example? Introduction Roger Lowenstein write the book â€Å"When Genius Failed† about the risk management of funds which collapsed the worlds financial market system along with his founders and PhD genius intelligence. Summary of the content The story of long-term business of bond trade started in 1979 when well-known trader at Solomons brothers whose name was Meriwether introduced it. The young and talented Meriwether after his graduation from the University of Chicago joins Solomons in 1970, s. In 1970,s, the bond market was more active as compared to 1960,s and more people were interested in bond trades, which made them to earn high returns. In addition, one of the main reasons behind the active bond market was the invention of new computers, which had over taken the classic image of trader who shouts for selling and buying the orders at the trading floor, the computer network help and made their accesses to all buying and selling price very easy and effective. The formation of arbitrage group in 1977 was the one main reason of Solomons evolution. Meriwether was making high profits from the bond trades because his trade had high risk taking abilities, which increased its value in long-term business. Due to Meriwethe r, the banks were ready to give him financing for long term at suitable terms because he was the famous figure at that time among bankers. Meriwether was consider the only known public figure behind the long term capital management but the heart of the funds were the PhD computer genius who were computers freaks to whom Meriwether hired. They developed the models, which could quantify the bonds and tell when the market would be efficient to invest. Meriwether was very happy with his people work and their models; he was confident that he hired smartest people and develop incredible close relationship with them to get most out of them but the 1987 crash in which Solomon had lost $120 million in one day which was great shock to every one and here the story of long term losses start. The Mozer scandal in which one member of arbitrage use unfair deals in getting unfair profits while ignoring the good will of Meriwether and its firm, and Meriwether failed to supervise the MOOZAR activi ties. After settling this scandal by court Solomons appointed Hilibrand and Rosenfiels as a heads of arbitrage and govt desk. At the same time J.M, introduces hedge funds as a business in 1990.Americans were very excited at hedge funds and this raises the stock prices in market, high return increases the investment activities in the bond market. And set the new records at that time. Many Americans became millionaire and were interested in re investing their money. Hedge funds were the private investment pools for rich and wealthy people. So it was easy for SEC to monitor. Due to high returns in 1990,s investors start considering the safest and less risky bond trades. Meriwether wanted to give bond trade a high relative value in market. Early in 1993, Merrill agreed to raise capital for long term on the request of Meriwether, soon at that time. J.Morgan, s old arbitrage group left the Solomon one by one. And J.M hired the Melton a good consultant to Solomons to justify his investo rs about the bond plan. He joined the long term with the intension of showing his theories and models that long term is not a capital but it is a finical intermediary which provide the liquidity to the market. At the end of 1993, Merrill made a partnership with foreign banks in long term because investors were not satisfied with J.M investment strategies. After its partnership Merrill start raising funds by feeder system which was a piece of paper or a earning statement issued by Solomons to spread the long term portfolio around the world with the help of good marketing strategies. Long term gained the unparallel access to international banks for their private funds. A long term with this raised the funds by net amount of $1.25 billion in 1994, which was a good start ever. Long-term trade was not easy trade and required the investment banks to lend money for longer period with safest terms. Due to attraction of long term, high profits investment banks itself involved in long term business and became the competitors of long term, so J.M revise its marketing strategies and made only specific deals with investment banks to get maximum return from the market than any one else could get. At that time on Wall Street, the long-term traders and operators were doing their best in earning high profits by their good collaborations and high skills and better knowledge of market and their models. As a result, their profits were much higher than their expectations. After bond market, crash in 1994 long term used the mortgage securities for the purpose of refinancing and generated capital of $ 2 billion. Long term also enters in Italian market for hedging the funds and they successfully capture the market and boost their returns. It was very important for investors to learn about the nature of long term because if they were making profits at one time they also could make looses at some other time. It was responsibility of traders to make their investors aware about the nature and trends of long term. It was difficult to quantify the risk of funds but history of funds helped to assess their bonds market risk. According to Black-Scholes formula, the nature of bond prices in the market was random and this could help the investors to understand the prices and sudden swing in the market. Different assumptions gave by traders to investors that how they could make their money more in efficient market. In addition, if market is efficient than there will be less volatility, less risk and investors could get benefits from that situation. In 1987, portfolio insurance was given to investors to minimize their looses.Many long term had low risk but none of them had no risk. The main problem with long term was its inherited uncertainty, nobody knew how the long term will react in future and stocks return was simply considered as random distributed that means that if long term was loosing money at one time their would be time that it could make profits as wel l and this all depend on market efficiency. In 1995, long term made profits of $ 1.66 billion and Italy contributed a lot in that profit. The derivative trade had the same risk of gaining and losing but the long term returns were high more than ones expectations and long term had high returns because it had high leverage power. As the financial risk involves in long-term trade so no body at that time could say that they will make this profits forever because the future was uncertain and every investors should kept them selves ready to face any kind of uncertainty in future. Long-term balance was 30% more than its capital and this mutual fund was the largest fund at that time on Wall Street. According to the J.M, the long term shows its result over the long periods and required not only the time but also the patience of investors for high returns. Due to the J.M, good strategies for long term it became the model of wisdom and caution in 1995. By the late 1990,s every investment bank involved in long term business due to its lure. Different stock traders developed partnership and formed the merger deals. Arbitrage business was making high returns in capital market. Long term business attracted the banks , individual investors towards itself who were making their money from millions to billions and finding them selves the smartest people because they were involve in the riskiest and highly lucrative trade of that time. Mertons and Scholes won the noble prizes for their economics models and formulas, which could quantify the market risk and help to gain high returns. They decide to join LTCM to earn money. Don’t waste time! Our writers will create an original "The rise and fall of long-term capital management" essay for you Create order The fall of long term The failure of long term was the volatility of banks which short the huge sum   of equity volatility. Equity volatility was considered the major trade of long term but its funds also destroyed. It was assumed that the equity volatility will remain consistent based on Scholes model but it did not happened in the case of equity volatility. Because of less liquidity the long term short and at this trouble situation there were no buyer who was willing to invest in long term. As storm hits the markets the swaps spread and long term losses its billion of amounts in Russia, Japan, Germany and USA. Meriwether wanted to raise the money but looses were high than leverages and bond market was simply vanished. After increasing risk of long term looses in various countries J.M asked his traders to keep close eye on every proceedings and required up to date reports on arbitrage, equities and swaps but there was fall in demand as no buyer was there and banks also strict their credit polici es towards long terms because of fear of looses. Due to continuous poor performance of bonds long term capital management had not enough cash for there payment to banks and declared as insolvent. At that time long term liquidate its trade and wanted to retain its existing investors and wanted to attract new ones but they were unable to raise money as no one was ready to finance long term because of high risk of loosing money in future. Analysis and evaluation of book The august was the worst month which destroyed the financial market of long term and was the month when there was no buyer, Mertons model was no more their, bond yield, swap spreads and equity all shrink and looses money and was the reason of close of bond market. The main reason of the tremendous looses of long term was the problem which was with the cash flow of long-term capital management after revealing this confidential information to investors they tried to get out of all this. It was suspected that if long term by any of its trade would not able to raise money than it could loose its repo line and would not survive in market.. The main flaws of long-term strategies were * Totally relying on the market models which were developed on the believe that the market fluctuation in past could help to determine the prices ,risks and returns of the securities in future without taking this concept under consideration that the future is highly uncertain no one can predict the future. Therefore, it was wrong to design the future models on past performances of the market. * Market are not always perfectly efficient, if securities are making money in good time there could be time when it face looses * There was no exit strategy for highly illiquid leverage trade of long-term capital management. * Shifting of long-term partners from bond market where they had skills, knowledge and experience, to equity market, which was new to them, was one reason of failure of long-term capital. Conclusion This story is about the failure of long-term capital management due to its care less and greedy traders. Moreover, the investors were not aware of the nature and strategies of long term and its total indebtedness. Banks gave funds to long term due to its brand name, which it had established with its famous partners. In conclusion and after combining all facts together this is a good professional and interesting book which tell us that for trade we need experience and trading is not about the risk management. It is also important to understand the dynamics of market.

Internship at Accounting Firm X A Personal Reflection

During my time at Accounting Firm X I learned many lessons that apply not only to accounting and the principles and practices associated with that subject, but also to life as a professional in a real world work setting. The purpose of this essay is to highlight my experiences at Accounting Firm X to shed light upon key learning experiences that can contribute to a holistic educational experience. In this essay I will first describe my goals and expectations. Next, I will go in to detail about my daily routine and how these exercises contributed toward the overall experience. I will then explore the overall lessons learned from my time spent at the firm. Typically, internships are professional experiences that students participate in to gain professional skills and experiences. In this particular experience at Accounting Firm X I did in fact gain substantial professional skill while participating in new and challenging experiences. Internships allow in- class material to come to life in a practical manner. My internship did do this but not in a way that I had planned. My goals for this experience were simple. My first and most important goal was to learn. More specifically I wanted to get a more general view about my chosen profession. I wanted to be exposed to the standard practices that an accountant would be subjected to. Calculating real examples of taxes, completing tax returns for customers and becoming familiar with real world problems in accounting were allShow MoreRelatedSkills Needed to Be an Effective Manager8864 Words   |  36 Pagesindustry. _____ 5.4 More on hands on activities related in Hospitality Management implemented by the school. _____ 5.5 apply appropriate knowledge and skills in a wide range of industry related situations. _____ 5.6 Requiring students to have internship in an industry setting as the final component of their degree. _____ 5.7 Develop the ability to apply the knowledge and skills they acquire from the subject to a wide range of contexts, and gain pre-employment experience in selected sectors ofRead MoreThe Analysis of Recruitment and Training System to Improve Employee Productivity at Pt Sentrainti Medan18297 Words   |  74 PagesFIGURES ...............................................................................................................ix LIST OF TABLES ..................................................................................................................x LIST OF APPENDIX.............................................................................................................xi CHAPTER I: INTRODUCTION ...............................................................................1 1.1 BackgroundRead MoreAirheads Business Analysis Essay34215 Words   |  137 Pages 101 Timeline Summary of Implementation for all the Recommendations 102 References 104 Appendices 114 Executive Summary Airheads USA, LLC is an indoor trampoline arena owned by Steve Johnston and Richard Heruska. This firm falls within the family entertainment center (FEC) industry and opened its first location in 2010. Currently, the business has three open locations: Tampa, St. Petersburg, and Orlando. It offers services specifically for trampoline usage but alsoRead MorePepsico17216 Words   |  69 Pagesadding up to total sales for that year of $50. Today, products of The Coca-Cola Company are consumed at the rate of more than one billion drinks per day in over 200 countries. In 1993, Coca-Cola was losing market share to the cheaper private label firms, but reacted quickly with a new marketing program, new technologies and packaging in 1994. The intense competition results in downward pressures on the price. Dr Pepper, the oldest major soft drink in America, continues its 125th Anniversary celebrationRead MorePepsico17225 Words   |  69 Pagesadding up to total sales for that year of $50. Today, products of The Coca-Cola Company are consumed at the rate of more than one billion drinks per day in over 200 countries. In 1993, Coca-Cola was losing market share to the cheaper private label firms, but reacted quickly with a new marketing program, new technologies and packaging in 1994. The intense competition results in downward pressures on the price. Dr Pepper, the oldest major soft drink in America, continues its 125th Anniversary celebrationRead MoreOverview of Hrm93778 Words   |  376 Pageslive. Organizations on the other hand depend on people, and without people, they would disappear. Factors Contributing to the Growing Importance of HRM a. Accommodation to workers needs Workers are demanding that organizations accommodate their personal needs by instituting such programs as flexible work schedules, parental leave, child-care and elder-care assistance, and job sharing. The human resource department plays a central role in establishing and implementing policies designed to reduceRead MoreA Study on Enhanced Employee Performance Through Soft Skills20707 Words   |  83 Pagespersons EQ (Emo tional Intelligence Quotient), the cluster of personality traits, social graces, communication, language, personal habits, friendliness, and optimism that characterize relationships with other people. Hard skills (part of a persons IQ), are the traits which are the occupational requirements of a job and many other activities whereas soft skills are personal attributes that enhance an individuals interactions, job performance and career prospects. Distinction Between Hard SkillsRead MoreStrategic Human Resource Management View.Pdf Uploaded Successfully133347 Words   |  534 Pages.................................... 622 SORTING THROUGH THE EVIDENCE....................... 627 SUMMARY............................................................. 631 NOTES.................................................................. 639 x STRATEGIC HUMAN RESOURCE MANAGEMENT Table of Contents SECTION SIX ..............................................................654 Human Resource Evaluation ...................................655 OVERVIEW OF EVALUATION ......................Read More65 Successful Harvard Business School Application Essays 2nd Edition 147256 Words   |  190 Pagesthe Class of 2009. We thank all the HBSstudents and alumni who kindly shared their personal es... says.We would also like to thank the staff of the Harbus, including Lauren Sullivan, Marianne Bakula, and Christie Cuthbert, for their encouragement and support. Lastly, we would be remiss if we did not express our gratitude for assistance from our agent, Katie Boyle, and our editor at St. Martins, Matthew Martz. x INTRODUCTION You are inspired, hopeful, accomplished, and eager. You seek perRead MoreWal-Mart: Strategic Management11571 Words   |  47 Pagesstores, automotive retailers, convenience/gas, home improvement stores, club stores and toy stores. All of these outlets are in greater competition for Wal-Mart trips.vi â€Å"The Wal-Mart Stores segment is the largest segment of Wal-Marts business, accounting for 67.3% sales during the fiscal year ended January 31, 2005 (fiscal 2005). The segment consists of three different retail formats, all of which operate in the United States. The Companys SAMS CLUB segment consists of membership warehouse clubs

Intro to Evidence Based Practice Nursing Free Essays

Research is: Formal, rigorous process to discover new knowledge or validate/refine existing knowledge Gathering of data, information, and facts for the advancement of knowledge Type of systematic activity (set of planned activities) Systematic process of investigation Formalized method(s) of obtaining information (data/knowledge) Nursing research is a systematic inquiry designed to develop new knowledge or validate/refine existing knowledge about issues related to nursing (e.g., provision of patient care; administration of nursing and health care services) Nursing Science: Body of knowledge unique to the discipline of nursing Scientific method is an approach to gaining new knowledge from a systematic collection of empirical data What is the importance of research in nursing? Nurses are responsible for assuming an active role in developing the body of nursing knowledge Nurses are expected to adopt an evidence-based practice (EPB) – defined as the use of best clinical evidence in making patient care decisions EBP is EVERY nurse’s responsibility, whether you are a user (consumer) of nursing research by reading research reports to keep up-to-date or a nurse who designs and conducts research Evidence Based Practice EBP is a problem solving approach to clinical practice that integrates the conscientious use of best evidence in combination with a clinician’s expertise as well as patient preferences and values to make decisions about  the type of care that is provided. We will write a custom essay sample on Intro to Evidence Based Practice Nursing or any similar topic only for you Order Now Resources must be considered in the decision-making process as well. Significance of EBP Collection, interpretation, and integration of valid, important, and applicable patient reported and research derived evidence Knowledge obtained from research evidence is transformed into clinical practice, culminating in nursing practice that it evidence-based Allows nurses to use the best research evidence in making clinical decisions Chapter Two – Fain Textbook Research Process Selecting/ defining the problem Must be significant to nursing Add to body of existing knowledge Problem areas from practice Review of literature provides background, rationale, and justification for study Develop research questions/hypotheses Selecting a research design Overall plan or structure for planning to answer research questions and/or test hypotheses Identify methods for selecting the sample, testing, and measurement Methods Data collection Organizing data for analysis Data Analysis Analyzing and interpreting results; arriving at conclusion Utilizing the Research Sharing the findings with colleagues Types of research Qualitative data: information collected in a narrative form such as transcript of an unstructured interview Quantitative data: organization and interpretation of narrative data with purpose of discovering important underlying themes, categories, patterns and relationships How to cite Intro to Evidence Based Practice Nursing, Papers