Part Three

(Choose ONE task from below and write in the following pages accordingly)
TASK 1 (Financial Disaster Involving Derivatives): A number of financial mishaps, i.e.,
scandals and disasters, took place during the last few decades, allegedly due to inappropriate use
of derivative instruments. Snapshots 37.1-2: Big losses by financial institutions in Hull’s book
(10th ed.) enlist few such cases (Snapshots 36.1-2 in 9th ed.). In addition, please find the
FinDisaster.pdf at NSU resource folder/google drive. Please choose ONE topic from the
following list and prepare a write up covering the following points:
 Explanation of strategies and transactions involved.
 What went wrong? How was the loss accumulated?
 Who was/were responsible for the disaster/mishap?
 What lessons are to be learned from the case/disaster?
List of Topics (Choose One): Metallgesellschaft/ Barings Bank/ Societe Generale/ Long Term
Capital Management/ Bankers Trust-Procter & Gamble

TASK 2 (Stimulus Package to Combat COVID-19 Crisis): Nations around the world declared
policy changes/stimulus packages to address COVID-19 crisis. These packages have similarities
as well as differences. You are required to prepare a report addressing the following questions
within the stated word limits.
 State the major points/parts of stimulus package adopted/planned by the USA.
 State the major points/parts of stimulus package adopted/planned by Bangladesh.
 Comment on the shortfall of the package adopted by Bangladesh in contrast to that of the
USA, i.e, what Bangladesh could have included and/or, excluded.
 Comment on challenges to the implementation of stimulus package adopted by Bangladesh.
Policy changes/stimulus packages are planned and updated around the world on weekly, if not
daily, basis. Let’s focus on updates as of the date of posting the assignment, i.e., May 18, 2020.

Additional Instructions:
 Word limit 600. (Times new roman, font size 12, line spacing double) and source –
secondary (Textbook/s, articles, news clips, and/or relevant internet sources).
 NO PLAGIARISM. Please include a list of references/URL at the end (APA style
preferred; word limit excludes the reference/s). Any standard format will be OK. Here’s a
link that may help you
FIN480.1: Financial Derivatives
Final Assignment
https://owl.purdue.edu/owl/research_and_citation/apa_style/apa_formatting_and_style_guide/general_format.
html
TASK 1 (Financial Disaster Involving Derivatives)
Topic: Societe Generale
Explanation of strategies and transactions involved.
For almost three years deceived the system and made around a thousand fabricated trades. Took

advantage of inadequate supervision, company rules of taking a vacation which was mandatory

was ignored instead of being imposed (Financial Disasters, 2018). The bank’s software had been

exploited and risky one sided speculation was done (Iskyan, 2020). The idea was to pull off

arbitrage profit and dodge past the bank’s risk surveillance system and placed only one half of

the arbitrage trade i.e. taking long position and offsetting them with short position that never

existed (Iskyan, 2020).Made a profit of almost $2bn by the end of 2007 and in 2008 the

following future contracts were longed, European stock index future contracts worth €30bn,

DAX futures worth €18bn and FTSE futures worth €2bn (Iskyan, 2020).

What went wrong? How was the loss accumulated?

Bullets had already been dodged about the previous suspicious activities but things started to fall

apart the day the €50bn bets were place which was more than the market value of the bank

(Arnold et al., 2020). This is when it came under the notice of a compliance officer that the trade

had crossed the bank’s risk threshold, upon investigating he found there was no offsetting trade

in place. Eventually the act was out in the open and the trader responsible was in the limelight

and soon lost his job due to the incident (Iskyan, 2020). The future contracts were worth $73bn

and selling them at such a short notice to recover from the deficit position, drove their value

down even further (Iskyan, 2020). Lastly SocGen were left with a loss amounting to $7.2bn this

was by far the greatest amount of money lost due to a single miscreant trader (Iskyan, 2020).

Who was/were responsible for the disaster/mishap?

FIN480.1: Financial Derivatives
Final Assignment
The person responsible for the mishap was a junior level derivatives trader called Jerome Kerviel

(Iskyan, 2020).

What lessons are to be learned from the case/disaster?

The lessons that are to be learned from the case is as follows:

 Individual traders whose previous few trade might seems suspicious should be monitored

closely.

 The IT infrastructure should have firewalls and alarm systems that trigger alarms to the

higher authority as soon as a set number of trades are cancelled by an individual and the

cancelled trades should be reviewed immediately.

 Newly hired managers should be adequately trained to take over control of the traders

from day one.

 High gross or net profit margins should be verified also unexpected profit & loss should

be looked into and the source should be thoroughly checked.

 To make it a regulation that employees must take compulsory holidays.

References
Iskyan, K. (2020). Here's the story of how a guy making $66,000 a year lost $7.2 billion for one
of Europe's biggest banks. Business Insider. Retrieved 26 May 2020, from
https://www.businessinsider.com/how-jerome-kerviel-lost-72-billion-2016-5.
Arnold, M., Larsen, P., Hollinger, P., O'Doherty, J., & Milne, R. (2020). How Kerviel exposed
lax controls at Société Générale. Ft.com. Retrieved 27 May 2020, from
https://www.ft.com/content/927fe998-d5b2-11dc-8b56-0000779fd2ac.
Kaplan. (2018). Financial Disasters (pp. 62-63).