I-PORTFOLIO MANAGEMENT 

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Here we going to be presenting portfolio-management as a GFC subject in ENCGT, I believe this is an
important subject for students interested in finance to learn, as it teaches them valuable skills for
personal finance and investing. In this part, we will define portfolio management, discuss its
importance, and take an insight over this subject’s content, and then we will finish with some case
studies illustrations.

1-WHAT IS PORTOFLIO MANAGEMENT?

1.1-PORTOFLIO MANAGEMENT: what is it?

Portfolio management is the process of managing a collection of investments, such as stocks, bonds,
and mutual funds, to achieve a specific financial goal. The goal may be to maximize returns, minimize
risk, or achieve a balance between the two. Diversification, or spreading investments across different
asset classes and industries, is a key aspect of portfolio management. This helps to reduce the impact
of market fluctuations on the overall portfolio.

1.2-PORTFOLIO MANAGEMENT: outcome and importance as a subject

There are several benefits to teaching portfolio management in schools. First, it provides students
with practical skills for managing their personal finances. By learning how to create and manage a
portfolio, students can make more informed decisions about their own investments and retirement
planning. Second, it can help students to develop critical thinking and problem-solving skills. Portfolio
management involves analyzing data, evaluating risks, and making decisions based on available
information.

2-DEEP INSIGHT ON THE SUBJECT’S CONTENT:

This subject’s content is built around an understanding of basic concepts of portfolio management as
profitability, yield, risk, duration and diversification

Then it goes deep to explore various portfolio management strategies and models.

2.1-BASIC CONCEPTS OF PORTOFLIO MANAGEMENT

2.1.1-Profitabilty:

The profitability of a security is a measure of the financial performance of an investment. It

represents the gain or loss realized on an investment and is usually expressed as a percentage.

Profitability is calculated by comparing the purchase price of a security with the selling price or
current value of the security. If the selling price or current value is higher than the purchase price,
there is a capital gain and the profitability is positive. If the selling price or current value is lower than
the purchase price, there is a capital loss and the profitability is negative.

Profitability can be used to evaluate the performance of a security or investment portfolio over a
specific period. It allows investors to compare the performances of different securities or portfolios
and make informed investment decisions. However, it is important to note that past profitability
does not guarantee future profitability and that investments always carry risks.

2.1.2-Yield:

The yield of a security is the profit that the investor realizes on their investment in that security. Yield
can be expressed as a percentage or in monetary units and is calculated by dividing the income
generated by the security (such as dividends for stocks or coupons for bonds) by the purchase price
of the security.

Yield can be calculated for a specific period (such as a month, quarter, or year) or for the entire
holding period of the security. It is often used to evaluate the performance of a security or
investment portfolio. Investors can compare the yield of different securities or portfolios to make
informed investment decisions.

2.1.3-Risk:

The risk of a security is the measure of the probability or volatility of a financial loss associated with
an investment in that security. Investors face several types of risks when investing in securities,
including market risk, credit risk, interest rate risk, currency risk, political risk, and liquidity risk.

Market risk is associated with the volatility of security prices and the fluctuation of financial markets.
Credit risk is associated with the probability that the issuer of a security will not be able to repay its
debt. Interest rate risk is associated with the fluctuation of interest rates on bonds and other fixed-
income securities. Currency risk is associated with the fluctuation of exchange rates between
currencies. Political risk is associated with political and regulatory changes that may affect
investments. Liquidity risk is associated with the ability to sell a security quickly without losing value.

It is important for investors to understand the risk associated with a security before making an
investment decision. Securities with higher risk may offer higher returns but also come with an
increased risk of financial loss. Investors should therefore assess their risk tolerance before making
an investment decision.

2.1.4-Duration:

Duration is a measure of the sensitivity of a fixed-income security to changes in interest rates. It

represents the weighted average of the recovery periods of all future cash flows associated with a
security. In other words, duration is a measure of the economic life of a security.

Duration is an important measure for bond investors because it allows them to evaluate the interest
rate risk associated with a bond investment. Investors can use duration to compare the sensitivity of
different securities and construct bond portfolios that are balanced in terms of interest rate risk.

2.1.5-Diversification:

Diversification is a risk management strategy that involves investing in a variety of assets, industries,
and geographic regions in order to spread investment risk and reduce the impact of any one
investment on a portfolio. By diversifying, investors can potentially increase returns and reduce risk
compared to investing in a single asset or a small number of assets.

Diversification can be achieved in several ways, including investing in different types of assets such as
stocks, bonds, real estate, and commodities, investing in companies across different industries, and
investing in companies located in different countries or regions. For example, a diversified stock
portfolio might include companies in different industries such as technology, healthcare, and
consumer goods, as well as companies located in different countries or regions such as the United
States, Europe, and Asia.
 2.2-PORTFOLIO MANAGEMENT STRATEGIES

Portfolio management strategies are techniques used to manage and optimize a portfolio of
investments. The goal of portfolio management is to maximize returns while minimizing risk, and
there are many different strategies that can be used to achieve this goal.

2.2.1-The stock index strategy:

The stock index strategy, also known as passive investment strategy, is a portfolio management
strategy that involves investing in index funds that replicate the performance of a specific stock
index. Index funds are designed to track the performance of a benchmark index, such as the S&P 500
or NASDAQ Composite, by investing in a basket of securities that reflect the composition of the
index.

The stock index strategy is considered a passive management approach because it does not require
frequent buying and selling of individual securities. Instead, investors can simply buy and hold shares
of an index fund that tracks the benchmark index. This approach offers several advantages, including
lower management costs, automatic diversification, and exposure to the entire market.

2.2.2-The immunization strategy:

The immunization strategy, also known as the matching strategy, is a portfolio management strategy
that aims to protect an investor against interest rate fluctuations by aligning the duration of their
portfolio with the duration of their future liabilities or obligations.

The primary objective of the immunization strategy is to minimize interest rate risk, which can have a
significant impact on the value of fixed-income securities. Immunization is achieved by selecting
fixed-income securities that have durations that match the investor's future liabilities or obligations,
so that fluctuations in interest rates have a minimal impact on the overall value of the portfolio.

2.3-PORTFOLIO MANAGEMENT MODELS:

Various portfolio management models can be used to construct and manage investment portfolios.
In our case, we only study two:

2.3.1-Modern Portfolio Theory (MPT):

Modern Portfolio Theory (MPT) is a portfolio management model developed by Harry Markowitz in
the 1950s. It is based on the idea that by diversifying across a range of assets with different expected
returns and risks, an investor can construct a portfolio that offers a higher expected return for a given
level of risk, or a lower level of risk for a given expected return, compared to a portfolio that is not
diversified.

The MPT model assumes that investors are rational and risk-averse, meaning they prefer portfolios
with lower risk for a given expected return. It also assumes that asset returns are normally
distributed and that investors make investment decisions based on the mean return and standard
deviation of a portfolio.

MPT provides a framework for constructing an efficient portfolio by calculating the expected return
and risk of individual assets and combining them in a way that maximizes the expected return for a
given level of risk, or minimizes the risk for a given expected return. The efficient frontier is the set of
portfolios that offers the highest expected return for a given level of risk, or the lowest level of risk
for a given expected return.
One of the key benefits of MPT is its emphasis on diversification, which can help reduce the overall
risk of a portfolio. However, MPT has some limitations, including the assumptions of normality and
rationality, which may not hold in real-world situations. Additionally, MPT does not take into account
the impact of taxes, transaction costs, and other factors that can affect portfolio returns.

2.3.1-Capital Asset Pricing Model (CAPM):

The Capital Asset Pricing Model (CAPM) is a portfolio management model that provides a framework
for understanding the relationship between risk and return in financial markets. It was developed by
William Sharpe in the 1960s and is based on the idea that investors demand higher returns for taking
on higher levels of systematic risk.

In the CAPM, the expected return of an asset is calculated as the risk-free rate plus a risk premium
that compensates the investor for the systematic risk of the asset. The risk premium is calculated as
the product of the asset's beta (a measure of its systematic risk) and the market risk premium (the
difference between the expected return of the market portfolio and the risk-free rate).

The CAPM assumes that investors are rational and risk-averse, meaning they prefer portfolios with
lower risk for a given expected return. It also assumes that asset returns are normally distributed and
that investors make investment decisions based on the mean return and standard deviation of a
portfolio.

The CAPM is widely used in finance as a tool for estimating the expected return of an asset or
portfolio and for determining the appropriate discount rate for investment projects. However, the
model has some limitations, including the assumptions of normality and rationality, which may not
hold in real-world situations. Additionally, the CAPM only considers systematic risk and does not take
into account unsystematic risk or other factors that can affect asset returns.

3-PORTFOLIO MANAGEMENT AS A CAREER:

Portfolio management can be a rewarding career for individuals who have a passion for finance and
investment management. A portfolio manager is responsible for overseeing investment portfolios on
behalf of clients or organizations, and their main objective is to maximize the returns on the portfolio
while minimizing risks.

Some of the key skills required for a successful career in portfolio management include a strong
understanding of financial markets and investment principles, analytical and problem-solving skills,
excellent communication and interpersonal skills, and the ability to work well under pressure and
meet tight deadlines.

To pursue a career in portfolio management, individuals typically need to have a bachelor's degree in
finance, accounting, economics, or a related field. A master's degree in finance or an MBA may also
be beneficial for career advancement. Additionally, obtaining professional certifications such as the
Chartered Financial Analyst (CFA) designation can demonstrate expertise and credibility in the field.

Career opportunities for portfolio managers can be found in a wide range of industries, including
investment banks, asset management firms, pension funds, and insurance companies, among others.
Portfolio managers may also work as independent consultants or advisors for individual clients or
small businesses.
Overall, portfolio management can offer a challenging and dynamic career path for individuals
interested in finance and investment management, with the potential for high earning potential and
career advancement opportunities

4-PORTFOLIO MANAGEMENT: Case study examples

4.1-CASE STUDY: investments firms

Company X is a large investment firm that manages the portfolios of several institutional and
individual clients. One of its clients, ABC Pension Fund, has an investment portfolio consisting of
stocks, bonds, and alternative investments, with a total value of 100.000 MAD

The portfolio is managed by a team of portfolio managers who are responsible for making
investment decisions on behalf of the client. The team uses a mix of fundamental and technical
analysis to identify investment opportunities and manage risks.

In order to optimize the portfolio's performance, the team conducts a thorough analysis of the
client's investment objectives, risk tolerance, and investment constraints. Based on this analysis, the
team develops a customized investment strategy that is aligned with the client's goals.

The team also employs a variety of portfolio management techniques, such as diversification, asset
allocation, and rebalancing, to ensure that the portfolio is well balanced and aligned with the client's
investment objectives.

Over time, the team monitors the performance of the portfolio and makes adjustments as necessary
to ensure that it continues to meet the client's objectives. For example, if the market conditions
change or if there are significant changes in the client's investment objectives or risk tolerance, the
team may adjust the portfolio's asset allocation or make other changes to optimize its performance.

Through the use of effective portfolio management techniques and strategies, Company X is able to
help its clients achieve their investment goals and manage risk effectively.

4.2-CASE STUDY: Building a Diversified Portfolio

Assume that you have recently received an inheritance of 1.000.000 MAD and are interested in
building a diversified investment portfolio. Here is how you could go about creating a portfolio that
balances risk and return:

Determine your investment goals: Before investing, it is important to determine your investment
goals, such as how much risk you are willing to take and what your target return is. For example, if
you are planning to retire in 20 years, you may want to focus on long-term growth with a moderate
level of risk.

Assess your risk tolerance: Understanding your risk tolerance is critical when building a portfolio. If
you are risk-averse, you may want to invest in more conservative options such as bonds, while if you
are willing to take on more risk, you may choose to invest in stocks.

Consider diversification: Diversification is an important principle of portfolio management as it helps

to reduce risk by spreading your investments across different asset classes. A diversified portfolio
should include a mix of stocks, bonds, and other assets such as real estate or commodities.

Research individual investments: Before investing in any individual stocks, bonds, or funds, research
each investment to evaluate their potential returns and risks. Consider factors such as the company's
financials, management team, and overall market conditions.
Invest in low-cost index funds: Index funds offer a low-cost way to invest in a diversified mix of stocks
and bonds. They typically have lower fees than actively managed funds and have historically
outperformed many actively managed funds.

Rebalance regularly: Over time, the asset allocation in your portfolio may shift as some investments
outperform while others underperform. Regularly rebalancing your portfolio can help ensure that
your asset allocation stays in line with your investment goals.

By following these steps, you can build a diversified portfolio that is designed to meet your
investment goals while minimizing risk. Keep in mind that investing involves risks, and there is no
guarantee that any investment strategy will be successful. It is important to do your research,
understand your risk tolerance, and seek professional advice if needed.

5-CONCLUSION

In conclusion, this insight on portfolio management has highlighted the importance of effective
management of investment portfolios to achieve optimal returns while managing risks. We have
learned about various portfolio management models such as Modern Portfolio Theory (MPT) and
Capital Asset Pricing Model (CAPM), as well as strategies such as diversification, index tracking, and
immunization.

We have also seen that a successful career in portfolio management requires a strong understanding
of financial markets and investment principles, as well as analytical, communication, and problem-
solving skills. Pursuing a career in portfolio management can offer a challenging and dynamic career
path with high earning potential and opportunities for career advancement.

Furthermore, the case study presented has illustrated how effective portfolio management
techniques such as asset allocation, diversification, and rebalancing can help achieve investment
objectives while managing risks.

Overall, we tried to provide valuable insights into the world of portfolio management and its
importance in achieving investment goals. It has also highlighted the need for continuous monitoring
and adjustments to ensure that portfolios remain aligned with investment objectives and risk
tolerance levels.

II-INTERNATIONAL FINANCIAL MANAGEMENT (IFM):

1-WHAT IS INTERNATIONAL FINANCIAL MANAGEMENT?
1.1-IFM: what is it?

International financial management (IFM) is a field of study that focuses on the financial activities of
companies, organizations, and governments that operate on a global scale.

IFM deals with financial issues that arise from globalization and the interconnection of international
financial markets. It covers a wide range of topics, including exchange rates, international capital
markets, foreign direct investment, and management of currency and credit risks, international
financing strategies, international financial regulations, and tax policies.

International financial managers must be aware of the differences between financial systems and
business practices in different countries. They must also understand the risks associated with
currency fluctuations and regulatory changes that may affect international investments.
 1.2-IFM: outcome and importance as a subject

Firstly, with the increasing globalization of businesses and financial markets, it is becoming
increasingly important for businesses to have a good understanding of international financial
management in order to successfully operate and compete on a global scale. This means that
individuals with a strong understanding of international financial management are in high demand in
the job market.

Secondly, international financial management is essential for businesses and governments to

effectively manage their financial resources and investments across borders. This includes managing
currency and credit risks, optimizing financing strategies, complying with international financial
regulations, and navigating complex tax policies.

Thirdly, studying international financial management can provide students with a strong foundation
in finance and economics, which can be applied to a wide range of careers in business, finance,
consulting, government, and non-profit organizations.

Overall, studying international financial management in college can provide students with valuable
knowledge and skills that can be applied in a wide range of professional settings, while also preparing
them for a rapidly evolving global economy.

2-DEEP INSIGHT ON THE SUBJECT’S CONTENT:

The content of the International financial management is all about the understanding of different
international financial markets as:

2.1-SPOT MARKET

2.1.1-WHAT IS A SPOT MARKET :

A spot market is a financial market where financial instruments or commodities are traded for
immediate delivery or settlement. In other words, it is a market where assets are bought or sold for
cash or cash equivalents, with delivery of the asset occurring shortly after the transaction is
completed.

In the spot market, prices are determined by the forces of supply and demand. Buyers and sellers
negotiate the price of the asset at the time of the transaction, based on prevailing market conditions.
The spot market can be contrasted with the futures market, where contracts for future delivery of an
asset are traded.

The spot market is used for a wide range of financial instruments, including currencies, stocks, and
commodities. For example, in the foreign exchange market, currencies are traded in the spot market,
where the exchange of currencies between two parties takes place at the current market exchange
rate.

The spot market is important for businesses that require immediate access to raw materials or other
commodities to fulfill their production needs. It is also important for investors who want to take
advantage of short-term market movements or hedge against market risks

2.1.2-IT’S CHARACTERISTICS:

1. Immediate delivery or settlement: The main characteristic of a spot market is that it provides for
the immediate delivery or settlement of the asset being traded. This means that once a
transaction has been completed, the asset is delivered and payment is made shortly thereafter.
2. Cash or cash equivalent transactions: Transactions in spot markets are usually made in cash or
cash equivalents, such as bank transfers, rather than through the exchange of physical assets.

3. Market determined prices: Prices in the spot market are determined by the forces of supply and
demand, with buyers and sellers negotiating prices based on current market conditions.

4. Low transaction costs: Since spot market transactions involve immediate delivery or settlement,
they typically involve lower transaction costs than futures or options contracts.

5. Short-term focus: Spot markets are generally used for short-term trading or for fulfilling
immediate needs for goods or services.

6. High liquidity: Spot markets tend to be liquid, meaning that there are usually many buyers and
sellers in the market, making it easy to buy or sell assets quickly.

2.1.3-CASE STUDY : simple

John is a traveler who needs to exchange his US dollars for euros in order to pay for his trip to
Europe. He goes to a currency exchange booth at the airport, which is an example of a spot market,
where he can exchange his dollars for euros at the current market exchange rate.

The exchange booth quotes a rate of 1 USD = 0.85 EUR, meaning that John can exchange $100 for
€85. John agrees to the exchange and hands over his $100, receiving €85 in cash immediately.

In this case, study, the spot market is used by John to exchange one currency for another at the
current market exchange rate. The transaction takes place immediately, with both parties receiving
what they need right away. This is a simple example of how spot markets are used in everyday
transactions.

2.1.4-CASE STUDY: complicated

Company X is a manufacturer of electronic goods that requires a steady supply of copper to produce
its products. The company typically purchases copper from a supplier in the futures market, which
allows it to lock in a price for future delivery of the metal.

However, due to a sudden increase in demand for copper in the global market, the futures price of
copper has risen significantly. Company X is concerned that it may not be able to secure a sufficient
supply of copper at a reasonable price in the futures market.

As a result, the company decides to explore purchasing copper in the spot market, where it can
negotiate prices directly with suppliers for immediate delivery of the metal. Company X's
procurement team identifies a supplier who is willing to sell copper in the spot market at a price that
is slightly higher than the current futures price.

Company X decides to go ahead with the purchase and makes payment to the supplier via bank
transfer. The supplier delivers the copper to the company's manufacturing facility shortly thereafter,
allowing Company X to continue production without any disruption.
This case study demonstrates how a spot market can be used to meet the immediate needs of a
business that requires a steady supply of raw materials. By negotiating prices directly with a supplier
in the spot market, Company X was able to secure a supply of copper at a reasonable price, despite
the volatility in the futures market.

2.2-THE OPTIONS MARKET

2.2.1-WHAT IS THE OPTIONS MARKET ?

The options market is a financial market where buyers and sellers trade option contracts. Options are
financial instruments that give the buyer the right, but not the obligation, to buy or sell an underlying
asset (such as a stock, currency, or commodity) at a specified price on a future date.

2.2.2-ITS CHARACTERISTICS

1. Standardized contracts: Options contracts are typically standardized, meaning that the terms
and conditions of the contracts are the same for all buyers and sellers.

2. Expiration date: Options contracts have an expiration date by which they must be exercised or
they expire worthless.

3. Premium: The buyer of an option must pay a premium to acquire the right to buy or sell the
underlying asset. The premium price is determined by the market based on the expected
volatility of the underlying asset, the time remaining until the expiration date, the strike price,
and other factors.

4. Right, but not obligation: The buyer of an option has the right, but not the obligation, to buy or
sell the underlying asset at the specified strike price. The seller, on the other hand, is obligated to
sell or buy the underlying asset if the buyer decides to exercise the option.

5. Option strategies: Investors can use a variety of option strategies to profit from different market
conditions, including buying and selling options, short selling, covered call options, and spread
strategies.

6. Risks: Options carry risks, including the risk of loss of the premium paid, the risk of fluctuation in
the price of the underlying asset, and the risk of non-exercise of the option before the expiration
date.

2.2.3-CASE STUDY:

Jane is an investor who believes that XYZ Company, a tech firm, is going to perform well over the
next six months. She decides to purchase call options on XYZ with a strike price of $50 per share.

Jane pays a premium of $3 per share for the option contract, which gives her the right to buy 100
shares of XYZ at $50 per share anytime within the next six months. This means that Jane is betting
that the price of XYZ shares will rise above $53 per share ($50 strike price + $3 premium) within the
next six months.

Six months later, XYZ's stock price has risen to $60 per share. Jane decides to exercise her call option
and buy 100 shares of XYZ at the $50 strike price, even though the market price is now $60 per share.
This allows her to make a profit of $7 per share ($60 market price - $50 strike price - $3 premium), or
$700 in total.

If XYZ's stock price had not risen above the $50 strike price during the six-month period, Jane would
have lost the $300 premium she paid for the call option contract. However, since Jane correctly
predicted that the stock price would rise, she was able to make a profit through options trading.

2.3-THE SWAPS MARKET:

2.3.1-WHAT IS THE SWAPS MARKET:

The swaps market is a financial market where participants exchange one set of cash flows for another
set of cash flows. Swaps are essentially agreements between two parties to exchange cash flows
based on a predetermined formula or benchmark.

The most common type of swap is an interest rate swap, where two parties agree to exchange cash
flows based on a fixed interest rate and a floating interest rate. In this type of swap, one party agrees
to pay the other party a fixed interest rate in exchange for receiving a variable interest rate based on
a benchmark such as LIBOR.

Swaps can also be used for currency exchange, commodity exchange, and other financial
instruments. The swaps market is generally used by institutional investors such as banks, hedge
funds, and pension funds, as well as large corporations.

The swaps market is an important part of the global financial system and plays a key role in managing
risk, hedging positions, and providing liquidity. It is also subject to regulation and oversight by
government agencies to ensure market stability and protect investors.

2.3.2-ITS CHARACTERISTICS:

1. Customization: Swaps are highly customizable financial instruments that can be tailored to meet
the specific needs of the parties involved. For example, parties can agree on the notional
amount, the underlying asset or benchmark, the payment frequency, and the duration of the
swap.

2. Over-the-counter (OTC) trading: Unlike exchange-traded instruments such as stocks and futures,
swaps are traded over-the-counter (OTC), which means that they are not traded on a centralized
exchange but rather negotiated privately between the parties involved.

3. Bilateral agreements: Each swap is a bilateral agreement between two parties, meaning that
there is no central counterparty or clearinghouse involved in the transaction.

4. Risk management: Swaps are commonly used for risk management purposes, such as hedging
against interest rate or currency fluctuations. They allow market participants to manage their
exposure to risk and reduce the impact of market volatility.

5. High volume: The swaps market is one of the largest and most active financial markets in the
world, with trillions of dollars in notional value traded each year.
6. Transparency: While swaps are traded OTC and lack the transparency of exchange-traded
instruments, regulations such as the Dodd-Frank Act have increased transparency in the swaps
market by requiring certain swaps to be reported to regulatory agencies and made available to
the public.

2.3.3-CASE STUDY: simple

Let's say that Company A is a manufacturing company that is highly exposed to fluctuations in
interest rates. In order to manage this risk, Company A enters into an interest rate swap with
Company B, a financial institution.

Under the terms of the swap agreement, Company A agrees to pay a fixed interest rate to Company
B, while receiving a variable interest rate based on a benchmark such as LIBOR. This allows Company
A to hedge against the risk of rising interest rates, as it can lock in a fixed rate and avoid the impact of
any increases in the variable rate.

Meanwhile, Company B benefits from the swap by earning a fixed rate of return on its investment
and taking on the risk of interest rate fluctuations.

Over the course of the swap agreement, Company A makes regular payments to Company B based
on the agreed-upon terms. At the end of the swap term, the parties settle any remaining payments
and close out the contract.

Overall, this simple case study illustrates how swaps can be used by companies to manage financial
risks, such as exposure to interest rate fluctuations. By entering into a swap agreement, Company A
is able to effectively hedge against the risk of rising interest rates and protect its financial position.

2.3.4-CASE STUDY: complicated

One notable case study related to the swaps market is the 2008 financial crisis. During this time, the
widespread use of complex financial instruments, including swaps, contributed to the financial
turmoil that ultimately led to the crisis.

One example of this was the use of credit default swaps (CDS), a type of swap that allows investors to
protect against the risk of default on a particular debt instrument, such as a mortgage-backed
security. In the years leading up to the crisis, CDS were increasingly used to hedge against mortgage
defaults, particularly in the subprime mortgage market.

However, the complexity and opacity of these instruments made it difficult for investors and
regulators to fully understand and manage the risks involved. Additionally, some market participants,
such as investment banks, were using swaps and other financial instruments to take on excessive
levels of advantage and risk.

As the crisis unfolded, the interconnectedness of the swaps market became apparent. As defaults on
subprime mortgages increased, investors who had purchased CDS began to experience significant
losses. This, in turn, put pressure on the financial institutions that had sold the CDS to cover their
obligations, leading to a cascading series of defaults and failures across the financial system.

In response to the crisis, governments and regulators implemented new regulations to increase
transparency and oversight in the swaps market. This included the Dodd-Frank Act in the US, which
mandated the reporting and central clearing of certain types of swaps.

Overall, the 2008 financial crisis serves as a cautionary tale about the risks and complexities of the
swaps market, and the need for careful risk management and regulatory oversight in this area.