scroll to top
Stuck on your essay?
Get ideas from this essay and see how your work stacks up
Word Count: 1,038
This story begins with a former back office clerk being promoted to a derivatives trader for Barings Banks Singapore Branch and ends with the collapse of a 232-year old banking empire As we began researching this assignment we all asked the same question How does a 28 year old trader bring about the collapse of a 232-year old banking empire To understand how this debacle came about one must have a basic understanding of the nature of a derivative and what they are designed to do Initially derivatives were designed to provide an investortrader with a type of insurance against unexpected movements in prices which could devastate an investment portfolio These derivatives take the form of futures and optionsA future is an agreement for the future delivery of a certain commodityfinancial instrument at a price set at the time of the contractAn option gives the purchaser the right but not the obligation to buysella certain quantity of a specific asset at a fixed price at or before In this instance Nick Leeson a 28 year old trader at Barings Bank made a bet that the Nikkei 225 would not drop below 19000 During the morning of January 17 1995 the city of Kobe Japan was hit with a major earthquake As a result the Nikkei 225 plunged 7 in a week Unbeknownst to senior management Lesson had no hedge to protect the bank against an unexpected event such as this The losses resulting from these transactions resulted in the loss of almost a billion dollars and wiped out the capital of Barings Bank This event occurred through a mixture of corporate greed and a lack of internal controlsOne of the most unusual aspects of this case was the fact that Barings Bank allowed Nick Leeson to settle his own trades At most banks trading and settlement are handled by two people Allowing one person to handle both sides of the transaction was a recipe for
@Kibin is a lifesaver for my essay right now!!
- Sandra Slivka, student @ UC Berkeley
Wow, this is the best essay help I've ever received!
- Camvu Pham, student @ U of M
If I'd known about @Kibin in college, I would have gotten much more sleep
- Jen Soust, alumni @ UCLA