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In October 2008, in the midst of a financial crisis, Anthony Keating, investment manager at the Boston private bank Billingsley, Blaylock, and Montgomery, was searching for an investment strategy to recommend to his high-net-worth clients. Traditional investments in the equity markets were being decimated, and Keating’s clients would be looking to him for ideas. Inspired by the success of Paulson and Co., Keating began to explore the possibility of entering a trade that would profit as homeowners defaulted on their mortgages. The more Keating learned about the trade, the more he realized that he needed to know about mortgage-backed securities and credit default swaps. The case provides instructors with a chance to introduce these financial instruments, while at the same time providing lessons applicable to students interested in value investing or real estate finance.

After reading and analyzing the case, students will be able to:

• Explain how home mortgages are securitized into financial instruments that are traded in public markets

• Describe how credit default swaps can be used to speculate on the value of an underlying financial instrument

• Identify potential mispricing across related financial instruments

• Understand the potential risks and rewards of various financial investment strategies that look to capitalize on defaults on subprime mortgages

Explain how home mortgages are securitized into financial instruments that are traded in public markets

Describe how credit default swaps can be used to speculate on the value of an underlying financial instrument

Identify potential mispricing across related financial instruments

Understand the potential risks and rewards of various financial investment strategies that look to capitalize on defaults on subprime mortgages

Northern Textiles (NTL) used highly complex derivatives to hedge its currency risk, and these structured products have been profitable in the past. But in 2008, unanticipated movements in exchange rates have led to serious losses. Seth, the Chairman of NTL, has come to know about the losses on a specific deal, but the Treasurer has ensured that he is the only person who understands the derivative book in its entirety. Though Seth is not aware of how grave the problem is, he realizes that he must review NTL's risk management policies and perhaps even replace the CFO.

Jefferson County was in a financial crisis as the commissioners faced a decision concerning whether the County should file for bankruptcy. The County was under an EPA mandate to update an outdated and overrunning sewer system. Estimates to do the work ranged from $250 million to $1.2 billion. The situation led to graft, corruption, bribery and illegal activities. More than 20 people were prosecuted in association with the illegal activities involved in financing and construction of the sewer system and four of the five commissioners were sentenced for their involvement in the corruption. Five new commissioners were elected and had to determine what to do after the down-grade of the County's bonds and warrants; the reduced revenues; and the corruption had put the County in a situation where funds were not available to continue to operate the County and provide services to its citizens. Should they declare bankruptcy or choose other paths open to them?

Data sources – this case is based on field research and interviews with a commissioner, court documents and from many other public sources. Extent of disguise – the case is not disguised.

The case can be used in graduate or upper division undergraduate courses in accounting, strategy, public administration or finance. There are several topics in the case that could be addressed: governance; economics, government and political issues, ethics, accounting, financial instruments, and strategy.

In August 2007 the Mainsail II SIV-Lite was frozen by its trustee as a result of the ongoing credit crisis. The state of Maine held $20 million of Mainsail commercial paper in its Cash Pool portfolio, a short-term portfolio that puts temporary, excess state revenues to work. When word of the potential loss became public, the Treasurer came under attack. The case introduces the functions of a state Treasury department, with particular emphasis on the investment objectives and guidelines for the cash pool as well as its composition. The case reviews the events leading up to and including August 2007, the month when the credit markets first began to seize and when the financial crisis effectively began. It examines securitization, structured finance, and the Mainsail SIV-Lite structure in some detail.

The case is suitable for use in the topics related to the functions and roles of hedging and the Islamic derivatives/hedging instruments.

The case is designed for undergraduate students, taking courses in Islamic Banking, Islamic Finance and Risk Management for Islamic Banking Institutions.

This case describes the theory and application of Islamic Cross Currency Swap (ICCS) in the market. Having this understanding enables case analysts to understand the functions and roles of hedging and the Islamic derivatives or hedging instruments of ICCS comprehensively. The case begins with Yusof, the new finance officer of Al-Yemeni Sdn. Bhd to analyse the permissibility of hedging and derivatives to hedge against currency fluctuations from Islamic perspective. Yusof had to complete the report before the Board of Director's quarterly meeting, which was within a week. Having in mind that the company's mission was to be a Shariah-compliant stock by 2012, Yusof was responsible for ensuring that the company was administrated in an Islamic way. Besides, he also had to ensure that the company generated income and profit as planned. In doing so, he had to strategise all possible risk exposures that could be mitigated or hedged. This case ends by giving the case analyst information on ICCS offered by Al-Rizky Bank Berhad (ARBB). In this case, Yusof had to find out whether hedging is allowed in Islam. What are the Islamic derivatives? What are the different views of Shariah scholars on various types of derivatives? What is the modus operandi of ICCS? Is the ICCS offered by ARBB Shariah compliant? What are the possible risk exposures being hedged in ICCS?

To provide exposure on the concepts of hedging from Islamic perspectives; to provide exposure on the concepts of Islamic derivatives/Islamic hedging instruments; to stimulate understanding on the modus operandi of ICCS in ARBB; and to help case analysts understand what makes the Islamic hedging instruments become Shariah compliant.

Teaching notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.

This case examines issues surrounding the choice of financing arrangements for the acquisition of Radiologix in July 2006. The case follows Mark Stolper, the CFO of RadNet, as he considers how to raise the $363 million in funds necessary to finance the acquisition. When completed, the combined firms will be the largest private diagnostic-imaging provider in the United States. When Stolper joined RadNet in 2003, he confronted a company with “too much debt, and the wrong kind of debt.” His goal is to finance the acquisition in a way that further enhances the financial strength and operating flexibility of the company. Given the large size of funding required, the firm is unlikely to be able to fund the entire transaction with first-lien or bank debt. His financial advisors differ in their recommendations for how to raise the remaining funds—one suggests using second-lien debt, and the other, high-yield debt.

The purpose of the case is to familiarize students with frequently encountered types of debt financing that are used to finance mergers and acquisitions and other corporate transactions. The case provides information on the distinctions among first-lien, second-lien, and high-yield debt in relation to their price, availability, flexibility of covenants, repayment ease, and composition of likely investors. The case is designed for use in courses that cover corporate financing, M&As, and debt financing.

Management science, operational and financial risk of overseas enterprises.

This case is mainly applicable to international business course and project management course.

Since 1992, the Great Mekong sub-regional economic cooperation between China and ASEAN countries was officially launched and set free economic zone. Hydropower is starting to develop in recent years in Cambodia, and it is a good significance to Cambodia's industry. Furthermore, most of hydropower plants in Cambodia are built by Chinese companies. Thus, this paper will analyze the current risk and condition of Kamchay hydropower, as well as the development of Chinese enterprise for Cambodia economic and social development.

This case study provides students concepts on international business, project management, and operational risk of overseas enterprises. The principle of project contracting, labor cooperation, and project financial in international process are considered together with the implications they have for advancing understanding of the problem of the host country's government interests and the various risk of enterprises in international BOT projects.

Teaching notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.

“NTL suffered huge losses in its foreign exchange hedging activities as its highly complex leveraged structured products backfired badly in the wake of the Global Financial Crisis of 2007 and 2008. The CFO and the Treasury head have both been sacked, and Joshi, the new CFO, has embraced aggressive litigation as NTL's survival strategy to cope with the losses that threaten its solvency. In the meantime, NTL also faces tax investigations and whistleblower allegations of fraud, and it finds that the record-keeping of its derivative transactions was hopelessly incomplete and patchy. A complete reconstruction of the entire derivative transaction history is the only way to rebuild trust, and that task falls on Reddy, a seasoned derivatives expert brought in by the Board specifically for this purpose.

In this dire situation, Seth, the founder Chairman of NTL decides that NTL needs to put all this behind it and focus on rebuilding the business. The challenge for Seth, Joshi and Reddy is to go about doing this in an environment that offers very few rays of hope.”

In April 1992, this multinational consumer foods and beverages company is the focus of takeover rumors, which have prompted an assessment of the firm's returns. The student must choose among the principal methods of estimating the weighted-average cost of capital (WACC) for GrandMet and its three main business segments, and must then produce WACC estimates in order to evaluate the firm's performance.

At the end of 2011, one of the largest food retailers in Brazil, Grupo Pão de Açúcar, or GPA (a subsidiary of Companhia Brasileira De Distribuição, or CBD), was reviewing its accounts payable terms with suppliers in search of additional value. Manager of analytics Maria Cristina Santos was examining the trade credit terms GPA had with Oalem Ltda, a family-owned melon grower located in northeastern Brazil. Oalem, like most small family businesses, was financed with bank loans and equity that was held predominantly by the family. The case examines how accounts payable (trade credit) terms should be set or negotiated between a large retailer and a small supplier, especially when the bargaining power between the two may not be equal. The case demonstrates that trade credit terms can be as important as the terms of more traditional forms of financing.

After analyzing and discussing the case, students should be able to:

• Determine when it is efficient or value-increasing for one nonfinancial firm to borrow from another nonfinancial firm through trade credit, as opposed to borrowing from financial institutions (e.g., banks) or financial markets

• Understand how competition or relative bargaining power can influence feasible and optimal trade credit terms

• Explain why trade credit can be a cheaper form of financing than the alternative forms of financing available to small family businesses like Oalem Ltda

Determine when it is efficient or value-increasing for one nonfinancial firm to borrow from another nonfinancial firm through trade credit, as opposed to borrowing from financial institutions (e.g., banks) or financial markets

Understand how competition or relative bargaining power can influence feasible and optimal trade credit terms

Explain why trade credit can be a cheaper form of financing than the alternative forms of financing available to small family businesses like Oalem Ltda