Case 10 - Case 10 Banking Industry Meltdown The Ethical and...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Case 10: Banking Industry Meltdown: The Ethical and Financial Risks of Derivatives Tiffany Watt Nov. 20, 2010 BA 373_E01 1) What are the ethical risks associated with derivatives? Derivatives are financial instruments with values that change relative to underlying variables, such as assets, events, or prices. There are a number of ethical risks associated with derivatives. For one, derivatives (especially swaps) expose investors to counter-party risk. Derivatives can also pose high amounts of risk for small or inexperienced investors as well. Because derivatives offer the possibility of large rewards, they are attractive to individual investors. However, the basic premise of derivatives is to transfer risk among parties based on their willingness to assume additional risk, or hedge against it. Many small investors do not comprehend this until they lose. As a result, a chain reaction leading to a domestic or global economic crisis can occur. 2) What is the difference between making a bad business decision associated with derivatives and engaging in unethical conduct using derivatives? The difference between making a bad business decision associated with derivatives and engaging
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 2

Case 10 - Case 10 Banking Industry Meltdown The Ethical and...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online