What do you mean by hedge fund, Financial Management

Assignment Help:

Q. What do you mean by Hedge Fund?

In the easiest strategy a hedge fund borrows Hong Kong dollars (HKD) and then sells them in the market against USD that is they short the HKD. Note that this will results the money supply to shrink. A reduce in money supply leads to an interest rates increase. Raise in interest rates have several effects on the stock market. First borrowing HKD to purchase stocks becomes more expensive.

2425_Hedge Fund have been playing a no-lose game.png

Therefore fewer investors would use margin. Second a raise in deposit interest rates will draw funds from stocks to deposits. Third interest rate raise are negative for businesses and their value will go down. Yet again stocks decline.

Alternatively higher interest rates lure more investors to park their money in Hong Kong boosting the currency. But they as well slam the stock market because rising rates hurt company's ability to borrow and expand.

However several of these Hedge Funds involved in the speculation didn't operate in the cash market. In its place they shorted the HKD in the futures markets. This doesn't require borrowing HKD. It is the counterparty who has to hedge the long HKD position that requires to borrow HKD from the banking system.

In the particular situation discussed here Hedge Fund managers believed that they were taking little risk

The hedge funds stake on the collapse of the peg. If the dowel breaks the HKD is expected to fall. Specified the psychology of those days the casual view was that the HKD was overvalued. The merely risk to Hedge Funds is that the peg holds.

Under these conditions their loss will be the dissimilarity between the initial cost of entering the trade to sell HKD in futures markets and the pegged rate. The reading proposed that this cost is low.


Related Discussions:- What do you mean by hedge fund

Define primary advantage to a corporation of investing, What is the primary...

What is the primary advantage to a corporation of investing some of its funds in working capital? By investing in working capital a firm acquires the liquidity it requirements he

Describe societys interests can influence financial managers, Describe how ...

Describe how society's interests can influence financial managers. Sometimes the interests of a business firm's owners aren't the same as the interests of society.  For illustr

Inverse floaters, Normally, floater coupon rate moves in the same dir...

Normally, floater coupon rate moves in the same direction as the reference rate. That is, with an increase in the reference rate, the floater coupon rate also increases

Calculate amount of first coupon payment your organization, Your firm has p...

Your firm has presently issued five year floating-rate notes indexed to six-month U.S. dollar LIBOR plus 1/4%.  What is the amount of first coupon payment your organization will pa

Define the term- profitability maximisation, Define the term- Profitability...

Define the term- Profitability maximisation Profitability maximisation would imply that a firm must be guided in financial decision making by one test; select projects, assets

Compute the interest, (a) These are merely the differences of the two pric...

(a) These are merely the differences of the two prices. Consequently the mark to market losses are given by { Q 1 - Q 0 ,Q 2 - Q 0 ,Q 3 - Q 0 ,Q 4 - Q

Factors determining dividend policy, Q. Factors Determining Dividend Policy...

Q. Factors Determining Dividend Policy? (1) Financial Needs of the Firm: - Financial requirement of a firm are directly related to the investment opportunities available to it.

What is an lbo, What is an LBO? What are the risks for the equity investor...

What is an LBO? What are the risks for the equity investors and what are the potential rewards? A leveraged buyout is a buy of a publicly owned corporation by a small group of

Define which is lower cost of debt or cost of equity, Which is lower for a ...

Which is lower for a given company:  the cost of debt or the cost of equity?  Explain: Ignore taxes in your answer . The cost of debt is all the time less as compared to the cost

Aligning financial reports, Aligning Financial Reports: The primary pur...

Aligning Financial Reports: The primary purposes of financial systems are to provide information to interested parties.  Any reports produced through the financial management p

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd