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 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
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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 natural gas each month
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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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This note was uploaded on 02/04/2011 for the course SOC 110 taught by Professor Powers during the Fall '07 term at Berkeley.

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

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