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Foundations of Financial Risk. Apostolik Richard
Читать онлайн.Название Foundations of Financial Risk
Год выпуска 0
isbn 9781119106401
Автор произведения Apostolik Richard
Жанр Зарубежная образовательная литература
Издательство John Wiley & Sons Limited
EXAMPLE
The Crimean Crisis that started in February 2014 put Russia and the United States, along with the European Union on a collision course. While military conflict, although unfortunate, was largely contained, by late 2014 the crisis continued and its main theatre of operation moved to the international financial markets and banking and payment systems. A number of sanctions were imposed by countries around the globe on Russian individuals, businesses, and on the Russian State herself.
The sanctions ranged from travel bans, money transfer bans, bans on access to foreign bank accounts, reduced or denied access to raising capital in international financial markets, bans on correspondent bank activity in favor of identified individuals and companies, bans of imports from and exports to Russia of certain defined goods, including energy-related goods. The net effect of these sanctions was a slowdown of Russian business activity, reduction of personal freedoms, unavailability of international consumer products in Russia – and a collapse in the international value of the Russian ruble.
The ruble was valued at 32.6587 against the USD on January 1, 2014 – a value level it had held since the onset of the Financial Crisis in 2008 – and was still valued at 33.8434 on July 1, 2014 – a modest decline of 3.6 %. However, towards the end of October and early November, the ruble fell dramatically. On November 1, 2014 its value was 39.3519, and on November 7, 2014, it was valued at 45.1854, or a 38 % decline since the beginning of the year. These prices for USD/RUB were official Russian Central Bank prices, suggesting that the effective foreign exchange rate for Russian customers and companies were many times higher for real transactions. The effect on Russian businesses was an increase by at least 38 % in the price of foreign goods and/or a 38 % decline in earnings from exports to other countries.
Although designed to be a measure against Russia as a whole, and her leadership in particular, the measures were expected to impact small and medium-sized Russian companies much more than large corporations. So, although the currency movements were dramatic, at the end of 2014, it remained to be seen if any lasting impact on economic and commercial life in Russia would take place.
EXAMPLE
During the 1970s, two American businessmen, the Hunt brothers, accumulated 280 million ounces of silver, a substantial position in the commodity. As they were accumulating this large position – approximately one-third of the world's supply – the price of silver rose. For a short period of time at the end of 1979, the Hunt brothers had cornered the silver market and effectively controlled its price. Between September 1979 and January 1980, the price of silver increased from USD 11 to USD 50 per ounce, during which time the two brothers earned an estimated USD 2 to 4 billion as a result of their silver speculation. At its peak, the position held by the brothers was worth USD 14 billion. Two months later, however, the price of silver collapsed back to USD 11 per ounce, and the brothers were forced to sell their substantial silver holdings at a loss.
Market risk tends to focus on a bank's trading book. The trading book is the portfolio of financial assets such as bonds, equity, foreign exchange, and derivatives held by a bank either to facilitate trading for its customers or for its own account or to hedge against various types of risk. Assets in the trading book are generally made available for sale, as the bank does not intend to keep those assets until they mature. Assets in the bank's banking book (held until maturity) and trading book (not held until maturity) collectively contain all the various investments in loans, securities, and other financial assets the bank has made using its deposits, loans, and shareholder equity.
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