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Case Study Orange County
Case Study Orange County
Assigned by:
Mr. Ashek Ishtiaq Haq
Course Instructor
FIN 508: Financial Engineering
Submitted by:
A. F. M. Jobayer Islam Bhuiyan
MBA Program
19th Batch
High betting on outliers like inverse floaters notes whose coupon falls as interest rates
rises.
Highly dependence on short-term interest rates expecting to be lower than mediumterm interest rates which can be said misallocation of risk and return.
Besides, he was not able to identify the problems and its effects.
Believing in the formula Cash would grow before spending, from their prior experience
of offsetting the eventual loss.
Reverse REPO agreements cyclical effect that calling for more collateral on declining
market value of original collateral.
Shifting policy of Federal Bank of raising interest rates had made the liquidity crisis
higher.
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Oversight committees
Internal auditing
Prohibiting borrowing for investment purposes like reverse REPOs, structured notes
and options.
Submission of monthly reports to investors and key county officers containing sufficient
information.
Settlement with Merrill Lynch by litigation. Merrill Lynch was respectful to laws and acted
properly and professionally regarding the settlement taken place.
Learnings:
One have to have knowledge about financial sophistication irrelevance of his/her long track
record.
Same strategy is not applicable always as market can change anytime.
Not to believe blindly The more the risk, the more the return.
Not to borrow short and invest in long-term at the same time, which create liquidity risk.
Financial Framework must be followed in every financial decisions.
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