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

Capital Asset Pricing Model , What is Capital Asset Pricing Model? Please ...

What is Capital Asset Pricing Model? Please provide me report on Capital Asset Pricing Model. It is about 2000 words count report on topic Capital Asset Pricing Model.

Leverages, Leverages 'Leverages' are of prime importance in the analysi...

Leverages 'Leverages' are of prime importance in the analysis of a companies' risk. They give a good picture of the business, financial and the overall risk of a company's oper

Wha is asset turnover- performance ratios, Wha is Asset turnover- performan...

Wha is Asset turnover- performance ratios Asset turnover = Turnover/ Total assets or capital employed This demonstrates how much sales are generated for every £1 of capit

Brief the term directors and managers, Directors and managers While dir...

Directors and managers While directors and managers are in concentrate attempting to promote and balance the interests of shareholders and other stakeholders it has been argued

Types of rating - debt rating, Based on the period involved in repaym...

Based on the period involved in repayment of the debt obligations, the debt instruments could be classified into long-/medium-/short-term debt instruments.

Dd-aa model, a Suppose you are the TA of Econ 3602 and one student does not...

a Suppose you are the TA of Econ 3602 and one student does not know how to derive the DD schedule. Show this student how to derive the DD schedule. Support your answer with equatio

Explain and derive the international fisher effect, Explain and derive the ...

Explain and derive the international Fisher effect. Answer:  The international Fisher effect can be acquired by combining the Fisher effect and the relative version of purchasi

Commercial paper, Commercial Paper (CP) is a short-term unsecured pro...

Commercial Paper (CP) is a short-term unsecured promissory note issued in the open market. It also represents the obligation of the issuer. Normally, it is issued

Finance, a recent business school graduate, you work directly for the corpo...

a recent business school graduate, you work directly for the corporate treasurer. Your corporation is going to issue a new security plan and is concerned with the probable flotatio

Reform in a system, As the meaning of reform in a system, these reforms in ...

As the meaning of reform in a system, these reforms in corporate governance would make effective impacts over the process of audit in the context of auditor requirements and the cl

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