Barings Bankruptcy and Financial Derivatives

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World Scientific, 1995 - Business & Economics - 166 pages
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This is the first systematic source which tries to explain how and why the 233-year old and the World's oldest merchant bank went into bankruptcy in a few days. It includes three parts with 10 chapters. Part I first describes what happened, then traces back the birth and historical glory of the Barings bank and family, and finally describes how it was sold to the Internationale Nederlanden Groep (ING). As many terms of financial derivatives are used in the first part, we try to provide an easy and systematic way to clarify the related financial derivatives products in Part II. This part first gives a general discussion of financial derivatives and a brief review of the historical development, growth, and magnitude of the financial derivatives markets. It then concentrates on futures and options in two chapters. Finally, we explain the hedging and speculating functions of financial derivatives and how they can be used in combination to achieve particular objectives. Part III provides necessary information on the Japanese financial markets and then analyzes how a single trader could have so much power as to bring about Barings fall. Finally, we try to provide the lessons from this event.
 

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Contents

THE HISTORY OF A GREAT POWER
10
AN INTRODUCTION TO FINANCIAL DERIVATIVES
23
FORWARDS AND FUTURES
47
OPTIONS
71
FUNCTIONS OF FINANCIAL DERIVATIVES
103
GENERAL DISCUSSIONS AND LESSONS
121
GENERAL DISCUSSIONS
134
LESSONS FROM THE CRISIS
156
TABLE OF THE CUMULATIVE
163
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About the author (1995)

Dr. Peter G. Zhang is the senior associate of the fixed-income derivatives and swaps department at the Union Bank of Switzerland, New York branch.

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