i'm doing a survey regarding derivatives as part of my study. pls cooperate.?
Being an MBA student, i'm doing this survey called "investors awarness of derivatives". THis is part of my summer training.
IF u r investing in stock market pls give me ur mail id so i will send u my questionnair.
if u dont invest in stock market, kindly give following details.
Your name, age, profession and
give main reason for not investing in stockmarket.
1) due to risks 2)Lack of funds 3) lack of knowledge 4) if other pls. specify.
(u can choose more than one reason)
Pls reply me as soon as possible as i don't have much time for my submission.
- 1 decade agoFavorite Answer
I think the crooks in Hong Kong and the US are probably cheated almost 500 billion US dollars in doing hedge and mutual funds. Both of these funds are invested into the stock shares, or equity funds. By using the ambiguos accounting and calculating statements, those fund managers in the US and Hong Kong can steal billions from the customers in US and Hong Kong. For instance, there are more than 400 fund mangers in the US are being prosecuted in the US and many from the Wall St. An American crook, Charles Lee Sehmitt, was just pledged guilty of 19 false accounting charges was sentenced to four years imprisonment in Hong Kong just a few days ago. He was a guy dealing with hedge funds in Hong Kong who cheated $ 4 billion HK d. and bought a single house in Hawii. The following clipped article gives you a general concept of what derivatives it is. If you want you can read more for your university paper in the following website. You are lucky, I am living in the International Capital scams of stock markets and real estate transactions. If not bad to learn the complexity of this so called reinsurance investment, be good and never use it to cheat the customers, just like many financial instituitions and stock brokers in Hong Kong than cheated billions of Hong Kong dollars every day.
Derivative contracts are a lot like reinsurance – which is Berkshire’s main business – in his words: In fact, the reinsurance and derivatives businesses are similar: Like Hell, both are easy to enter and almost impossible to exit. In either industry, once you write a contract – which may require a large payment decades later – you are usually stuck with it. True, there are methods by which the risk can be laid off with others. But most strategies of that kind leave you with residual liability. Another commonality of reinsurance and derivatives is that both generate reported earnings that are often wildly overstated. That’s true because today’s earnings are in a significant way based on estimates whose inaccuracy may not be exposed for many years.
the real problems, again in Mr Buffet’s words are:
“Parties to derivatives also have enormous incentives to cheat in accounting for them. Those who trade derivatives are usually paid (in whole or part) on “earnings” calculated by mark-to-market accounting. But often there is no real market (think about our contract involving twins) and “mark-to-model” is utilized. This substitution can bring on large-scale mischief. As a general rule, contracts involving multiple reference items and distant settlement dates increase the opportunities for counterparties to use fanciful assumptions. In the twins scenario, for example, the two parties to the contract might well use differing models allowing both to show substantial profits for many years. In extreme cases, mark-to-model degenerates into what I would call mark-to-myth.”
Of course, both internal and outside auditors review the numbers, but that’s no easy job. For example, General Re Securities at yearend (after ten months of winding down its operation) had 14,384 14 contracts outstanding, involving 672 counterparties around the world. Each contract had a plus or minus value derived from one or more reference items, including some of mind-boggling complexity. Valuing a portfolio like that, expert auditors could easily and honestly have widely varying opinions.
The valuation problem is far from academic: In recent years, some huge-scale frauds and near-frauds have been facilitated by derivatives trades. In the energy and electric utility sectors, for example, companies used derivatives and trading activities to report great “earnings” – until the roof fell in when they actually tried to convert the derivatives-related receivables on their balance sheets into cash. “Mark-to-market” then turned out to be truly “mark-to-myth.”
I can assure you that the marking errors in the derivatives business have not been symmetrical. Almost invariably, they have favored either the trader who was eyeing a multi-million dollar bonus or the CEO who wanted to report impressive “earnings” (or both). The bonuses were paid, and the CEO profited from his options. Only much later did shareholders learn that the reported earnings were a sham.
Another problem about derivatives is that they can exacerbate trouble that a corporation has run into for completely unrelated reasons. This pile-on effect occurs because many derivatives contracts require that a company suffering a credit downgrade immediately supply collateral to counterparties. Imagine, then, that a company is downgraded because of general adversity and that its derivatives instantly kick in with their requirement, imposing an unexpected and enormous demand for cash collateral on the company. The need to meet this demand can then throw the company into a liquidity crisis that may, in some cases, trigger still more downgrades. It all becomes a spiral that can lead to a corporate meltdown.
Derivatives also create a daisy-chain risk that is akin to the risk run by insurers or reinsurers that lay off much of their business with others. In both cases, huge receivables from many counterparties tend to build up over time. (At Gen Re Securities, we still have $6.5 billion of receivables, though we’ve been in a liquidation mode for nearly a year.) A participant may see himself as prudent, believing his large credit exposures to be diversified and therefore not dangerous. Under certain circumstances, though, an exogenous event that causes the receivable from Company A to go bad will also affect those from Companies B through Z. History teaches us that a crisis often causes problems to correlate in a manner undreamed of in more tranquil times
Charlie and I believe, however, that the macro picture is dangerous and getting more so. Large amounts of risk, particularly credit risk, have become concentrated in the hands of relatively few derivatives dealers, who in addition trade extensively with one other. The troubles of one could quickly infect the others. On top of that, these dealers are owed huge amounts by non-dealer counterparties. Some of these counterparties, as I’ve mentioned, are linked in ways that could cause them to contemporaneously run into a problem because of a single event (such as the implosion of the telecom industry or the precipitous decline in the value of merchant power projects). Linkage, when it suddenly surfaces, can trigger serious systemic problems.
Beyond that, other types of derivatives severely curtail the ability of regulators to curb leverage and generally get their arms around the risk profiles of banks, insurers and other financial institutions. Similarly, even experienced investors and analysts encounter major problems in analyzing the financial condition of firms that are heavily involved with derivatives contracts. When Charlie and I finish reading the long footnotes detailing the derivatives activities of major banks, the only thing we understand is that we don’t understand how much risk the institution is running.
I would tend to believe that its transparency – in valuing, accounting & indeed disclosure – which derivative dealings require. As again, the accounting profession has stepped up, and introduced AS 30 for Indian companies – under which greater disclosure and transparency as to derivatives is expected – however, this AS is as of now only recommendatory and not binding. For Indian companies following US GAAP or IFRS, this is already mandatory (see http://icai.org/icairoot/announcements/icai_news_s...
What Indian derivatives markets doesn’t require is doubts as to legal correctness, validity, enforceability or indeed challenges in courts – it can have a chilling effect on dealings itself; pretty much the effect that sub-prime crisis has had - & which Fed intervention is trying to encourage – drying up of any fresh credit being given.
The chilling effect will deny those corporates and firms - desirous of derivatives as a tool for risk management / cost reduction / hedging / conversion of risk – at a time that they need most, given the turbulent times that the markets have entered, and make them the real victims of a different type of WMDs - welshers making a disaster.
You may wonder why Uncle Sam and Hong Kong still allowed these frauds to continue on a daily basis. It's only because of the f u c king monies to pay off the US military expenditures. Hong Kong get the highest pay civil servants in this world, Joseph Yam (chief of Hong Kong monetary Authority)
make about 10 million HK dollars in 2007, in comparison to your US Alan Greenspan was 1.38 million HK d in his final year service for US financial department. Our Hong Kong chief executive, Donald Tsang Yum-kuen a fascist is making exact four times as your former US president, Bill Clinton made. Hong Kong police wanted to crack down the off bettings of gambling in horse and soccer games only because they are compete with HK govt.. HOng Kong government is currently collecting 3 billions HK d per day in stock market and gambling bettings.
- 4 years ago
1. An important game is being played, however you already have agreed to meet your girlfriend/boyfriend on that day but your friends want you to go to the game, what would you do? a) Tell your girlfriend/boyfriend that you are ill and go to the game p i'd rather take my boyfriend to the game as well 2. You have an important exam tomorrow but your team are playing in the cup final today and you have not prepared for the exam, what would you do? - a) Quickly revise (10 minutes), and watch the match. 3. You live in an area far away from your team's stadium and you want to watch your team play in the stadium, what would you do? - b) Stay where you are but every home match, travel to the stadium (which could take 6 hours) 4. Your team are losing 4-0 in a cup final, it is now half time what would you do? - a) Stay for the whole match since you are a loyal fan 5. 5. You are walking around proudly wearing your teams shirt (costing £60). You are in an area where everyone hates your team, suddenly 5 men approach you and ask you to take your shirt off and rip it, what would you do? - a) Don't listen to them and end up getting beat up - if they'd beat up a girl