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Day+23-24+Enron+I+20-22+Oct+2010

Day+23-24+Enron+I+20-22+Oct+2010 - Instead centralize...

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Click to edit Master subtitle style 2/4/11 The Rise of Enron October 20th & 22nd, 2010 1. Why study Enron? 2. Enron Oil: “the canary in the coal mine” 3. the Gas Bank 4. mark-to-market accounting
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2/4/11 WHY STUDY ENRON? By revenue, Enron was one of the top 10 largest companies in the U.S. in 2000 and 2001 It is THE illustration of shareholder value run amok It will help us understand what it’s
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2/4/11 TRADING OIL FUTURES (Enron Oil) To protect themselves against future market volatility, companies enter contracts that guarantee a specified # of barrels at a specified price These contracts can be purchased and sold on the oil futures market
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2/4/11 “Making a bet” You think the price of oil at some specified future date will be say $100/barrel So you purchase contracts to supply someone with oil at $120/barrel (or something >$100/ barrel) on that date
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2/4/11 The Gas Bank The spot market: the last-minute frenzy of buying and selling of
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Unformatted text preview: Instead, centralize supply (depositors the producers) and demand (consumers) in one place, and fix everything ahead of time through 2/4/11 Hedging Lets say you enter a contract to supply (i.e., sell ) natural gas to Acme Utilities at $20/cubic foot If prices rise to $25, youre screwed, because youre contractually obligated to continue supplying Acme at $20 2/4/11 Mark-to-market accounting 1. Accounting of long-term contracts is adjusted to reflect current market conditions, not initial market conditions 1. You can book the entire estimated value of the long-term contract on the day you sign it 2/4/11 Issues If were talking about a 20-year contract, how on earth do you estimate the prices of natural gas 20 years from now??? Signing the contract ( booked revenue) vs. implementing it (and bringing in actual revenue)...
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