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It intends to help the learners assess the scenarios of volatility in the Indian capital market which was caused by unpredictable market forces. It also helps in understanding how analysts struggle to predict the direction of the market and what options strategies can be recommended to be deployed by the investors to maximize returns in such compelling scenarios.

This case study presents snapshots of high volatilities caused by the market and economic forces in the Indian capital market. It depicts how analysts struggled to predict the direction of the market; and how high volatility can put them in trouble. It also exemplifies as to how by selecting the apt strategies, investors maximize their immediate returns in a volatile period and can produce large returns in a short time.

The best time to discuss the case is during the completion of options strategies in the course of Derivatives or Portfolio/Investment Management.

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

CSS 1: Accounting and Finance.

Financial derivative and risk management.

The case is intended to be used for MBA and BBA programs in the elective courses such as derivatives and risk management, financial engineering, financial risk management and portfolio management, and for executives aspiring for the fund manager position in industry. The case could also be used in management development programs on financial risk management.

The case was based on the real life experience of a portfolio manager who was entrusted with the responsibility of maximizing return of the portfolio. With the backdrop of dismal performance of the portfolio, the portfolio manager is looking for opportunity in the context of declaration of result by Infosys Ltd, one of the constituents of the portfolio. So the team headed by Nirakar Chaulia was thinking of development and application of option strategies to exploit the result day (i.e. January 14, 2016) opportunity to improve the performance of the portfolio and also reduce the potential of stock price risk. Moreover, the case was designed to help the students develop and assess different option strategies based on their market intuitions. Also, students would be able to apply the option contracts for managing price risk associated with the underlying asset.

The case would prepare students to develop different strategies to be exploited in different market conditions and assess their performance. Especially, this case was designed to enable the students to understand options as a special kind of derivative in terms of trading and its payoff, how to initiate directional and volatility trading with options, how to apply options to generate income to enhance the portfolio performance and how to develop option strategies for different market conditions and assess their performance.

Teaching note is available for instructors only.

CSS 1: Accounting and Finance.

In April 2012, JPMorgan Chase & Company was struggling with large losses that had the potential to damage the reputation of the company, of its Chairman, Jamie Dimon, and of its Chief Investment Officer, Ina Drew. The losses arose from large credit derivative trades in the London office that Dimon described as “bad strategy … badly executed … poorly monitored”.

The main pedagogical objectives of the case are: illustrate how Latin American companies dedicated to the production and harvesting of commodities can be vertically integrated to gain a larger share of the value created throughout the production chain. Understand how futures and options contracts in commodities can be used to hedge price risk on long and short positions in the underlying products. Understand how option contracts add value by hedging risk in those contexts where the counterparty has optionality. Discuss the implications of Fair Trade for commodity traders and producers.

In the case, Hernan Arosamena, CFO of The Specialty Coffee Trading Co. (TSCT), faces the challenge of designing an effective strategy to hedge the price risk caused by the increasing demand of the so-called Fair Trade coffee. Hernan Arosamena decides to review how the company has typically managed the price risk in its business transactions using future contracts to then incorporate the additional elements that trading Fair Trade coffee may entail. The typical price risk hedging strategy involves the use of coffee future contracts in long and short positions to ensure that the company obtains the desired margin in its coffee trading negotiations. To hedge the exposure to the risk of fluctuations in the price of coffee when the company sells Fair Trade coffee requires the additional use of put options.

The case is appropriate for students enrolled in courses or specialization programs at both the undergraduate and graduate levels.

Teaching notes are available for educators only.

CSS 5: International Business.

Hedge fund Magnetar Capital had returned 25 percent in 2007 with a strategy that posed significantly lower risk to investors than the S&P 500. Magnetar had made more than $1 billion in profit by noticing that the equity tranche of CDOs and CDO-derivative instruments were relatively mispriced. It took advantage of this anomaly by purchasing CDO equity and buying credit default swap (CDS) protection on tranches that were considered less risky. Now it was the job of Alec Litowitz, chairman and chief investment officer, to provide guidance to his team as they planned next year's strategy, evaluate and prioritize their ideas, and generate new ideas of his own. An ocean away, Ron Beller was contemplating some very different issues. Beller's firm, Peloton Partners LLP, had been one of the top-performing hedge funds in 2007, returning in excess of 80 percent. In late January 2008 Beller accepted two prestigious awards at a black-tie EuroHedge ceremony. A month later, his firm was bankrupt. Beller shorted the U.S. housing market before the subprime crisis hit, and was paid handsomely for his bet. After the crisis began, however, he believed that prices for highly rated mortgage securities were being unfairly punished, so he decided to go long AAA-rated securities backed by Alt-A mortgage loans (between prime and subprime), levered 9x. The trade moved against Peloton in a big way on February 14, 2008, causing $17 billion in losses and closure of the firm.

This case analyzes the strategies of the two hedge funds, focusing on how money can be made and lost during a financial crisis. The role of investment banks as lenders to hedge funds such as Peloton is explored, as well as characteristics of the CDO market and an array of both mortgage-related and credit protection-related instruments that were actively used (for better or worse) by hedge funds during the credit crisis of 2007 and 2008.

Within 18 months of exiting bankruptcy, Kmart's position was sufficiently strong to launch an acquisition of Sears, once the nation's largest retailer and also a core holding of ESL. Looks at a number of compelling issues related to Kmart's bankruptcy, restructuring, and rebirth under the control of ESL, a large hedge fund. Presents some of the key metrics that Eddie Lampert, head of ESL, had available to him as he made two decisions: first, in 2002, to amass a controlling stake in Kmart's defaulted debt during the restructuring; and second, in 2004, to launch a takeover of Sears. The first deal illustrates the decision-making process for a financial buyer, including the downside protection of Kmart's real estate holdings, whereas the second deal represents a traditional strategic acquisition. Illustrates the innovative use of real estate as a “hedge” for ESL in the event that the retail combination does not produce the required financial results. Also focuses on the role of investment bankers and the increasingly important position that hedge funds and LBO funds have carved out in the M&A market.

To outline the explosive growth in assets and influence of alternative investment managers, particularly LBO funds and hedge funds, and the transition of some larger hedge funds from shorter term trading strategies to longer term plays on distressed debt, restructurings, and turnarounds.

What started as a FMCG distributor in 1967 in Kenya as Export Finance Company, is now a dynamic global conglomerate across 48 countries and 5 continents — Export Trading Group. ETG was taken over by the then CFO Mahesh Patel after exit of the founding stakeholders. It was then when the company shifted its focus to being a key regional player. In the next 35 years, the company grew systematically. Business focus evolved when Patel saw an opportunity in logistics in remote sub-Saharan Africa. This was followed by business expansion with supply chain diversification and significant infrastructure investments. All the different businesses amalgamated under a single group for better operations and ease of scaling up. They were later divided into six separate verticals for better management. Vamara (FMCG vertical) was launched in 2018 as the company moved towards digitalisation — externally and internally. ETG plans to focus on new business opportunities and continue to diversify across geographies and portfolios.

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

(i) To determine the push and pull factors for a developing country SME to internationalize via exports. (ii) To evaluate the use of social networks in the internationalization journey of Yew Chian Haw (YCH). (iii) To analyse how a developing country SME adapts to local conditions in order to sustain and grow the business in a foreign country.

Yew Chian Haw (YCH) was a small and medium enterprise (SME) producing herbal and healthcare products in Penang, Malaysia. This case study traced the company's internationalization journey, focusing on how the owner used his social networks based on common ethnic ties and language to penetrate the external markets by establishing trading companies in each of his export destinations, from Singapore to Hong Kong and later to Taiwan and China. These internationalization activities also helped him cultivate deeper local networks and enhance his business opportunities in each investment destination. The social network approach has important implications for SME firms such as YCH. The network strength helped to overcome entry barriers to foreign markets and enabled YCH to tap into local complementary resources such as local networks to sustain the internationalization process. Yew’s successful internationalization journey prompted him to focus on the external market for his company’s herbal soup products. But now he must decide whether to continue the internationalization journey in the existing external markets he has penetrated or to expand towards other markets such as Northeast Asian markets like Japan and Korea, as these countries have high income and purchasing power. However, Yew has no extensive social network in both countries, especially in terms of ethnic ties and common language. Yew therefore, had a dilemma: should he just continue expanding the existing external markets he has successfully penetrated, or should he move forward and seek to enter new markets where his current social networks may be weak or non-existent?

This case study is relevant for DBA, MBA, Master and undergraduate (International Business and Business Economics) students

Teaching notes are available for educators only.

CSS 5: International Business

This case reviews the financial performance of the Fidelity Magellan Fund up to mid-1995. In essence, the Magellan Fund has managed to “beat the market” over time under three different fund managers despite its enormous size ($51 billion at the date of the case). The tasks for the student are to assess the adequacy of this performance, evaluate its likely sources, and opine on its sustainability. The case affords the opportunity to consider the appropriateness of various possible benchmarks in a risk-return framework and to assess the reasonableness of the efficient-markets hypothesis. The case can be used in an introductory finance course to present general information about equity markets and the behavior of large, sophisticated money managers.