Fin330 22 case of baring bank fin330 23 l nikkei 225

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Fin330 22
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Case of Baring Bank Fin330 23 l Nikkei 225 index:
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Fin330 24 Case of Barings Bank
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4. Liquidity risk is important Fin330 25
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Case of Long-Term Capital Management (LTCM) l LTCM was a large hedge fund founded in 1994. l Founded by star traders and academics (including Scholes and Merton). l LTCM’s main investors were UBS, Morgan Stanley, Merrill Lynch, etc. l Due to reputations of its managers, LTCM was able to raise huge funds in a short period. l LTCM's main strategy was to trade securities that were mispriced relative to one another, especially in emerging markets (e.g. Russia). Fin330 26
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Case of Long-Term Capital Management (LTCM) Fin330 27
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Case of Long-Term Capital Management (LTCM) l 17 August 1998: Russia declares a moratorium on 281 billion rubles ($13.5 billion) of its Treasury debt. l The result is a massive "flight to quality", with investors flooding out of any risky market into "risk-free" government bond market. Fin330 28
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Case of Long-Term Capital Management (LTCM) Fin330 29 l Russian Rubble exchange rate:
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Other big losses Fin330 30
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Fin330 Financial Institutions l Allied Irish Bank ($700 million) l Amaranth (6 billion) l Barings ($1 billion) l Enron’s counterparties (billions) l Kidder Peabody ($350 million) l LTCM ($4 billion) l Midland Bank ($500 million) l Société Générale ($7 billion) l Subprime mortgages (tens of billions) l UBS ($2.3 billion) 31
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Fin330 Non-Financial Corporations l Allied Lyons ($150 million) l Gibsons Greetings ($20 million) l Hammersmith and Fulham ($600 million) l Metallgesellschaft ($1.8 billion) l Orange County ($2 billion) l Procter and Gamble ($90 million) l Shell ($1 billion) l Sumitomo ($2 billion) 32
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