Here's the collection of Top 10 Geography mistakes caught on tape. I have seen some of these videos. It was great fun to laugh at them again!
Mike - the MBA blogger
Thursday, May 21, 2009
Tuesday, April 28, 2009
Notorious Pakistan
So Pakistan finally agreed that the lone terrorist, Kasab is a Paki. This is one thing the world never doubted and the Pakistan’s acceptance was a huge surprise for me. But Pakistan is again playing the game by its own rules. President Zardari attracted a lot of flak for calling Kasab, a terrorist. Afterall, he was fighting for Kashmir. How can anyone who fights for Kashmir, no matter how many lives you take, be a terrorist? I can see a lot of people jumping enthusiastically and aggressively to answer me. Relax, I would like to clarify your opinion does not matter. What matters is that of Pakistan! Some things never change!
Mike - the MBA blogger
Mike - the MBA blogger
Monday, April 27, 2009
Rising Giant - Russia
There is only one joy for us,
And this is all we need,
To wash our faces in the new oil,
Of the drilling rig.
Little wonder Russians are toasting oil: These are boom times. Global oil prices have increased tenfold since 1998, and Russia has pulled ahead of Saudi Arabia as the world's top crude oil producer. The Kremlin's budget now overflows with funds for new schools, roads, and national defense projects, and Moscow's nouveau riche are plunking down millions of dollars for mansion-scale "dachas." Oilers' Day, an annual holiday, honoring the hard labor of the oil workers, is perhaps celebrated only in this part of the world. The pumping heart of the boom is western Siberia's boggy oil fields, which produce around 70 percent of Russia's oil—some seven million barrels a day.
But the opportunity presented by oil could slip through the region's fingers. Despite the remarkable surge in oil prices, oil production in western Siberia has leveled off in recent years. Output barely rose from 2004 to 2007—a period when the rulers of the Kremlin, a cold-eyed and control-oriented crew, seized choice fields once held by private oil barons. The oligarchs, as they were known, were rapacious sorts who jousted among themselves for spoils. But they also heavily invested in the fields in order to maximize production and profits. The Kremlin, by contrast, aims to exploit oil not only as a source of national wealth, but also as a political tool for making Russia a great world power once again. Its heavy-handed tactics have made foreign investors wary and could undermine the boom—and with it Khanty-Mansi's chances for a brighter future.
When Siberia's oil lands came under development, native people were forcibly herded into villages and cut off from their hunting and fishing grounds. Following the breakup of the Soviet Union, the nomads won legal status as "aboriginal people," with the right to roam the oil fields. Rural Russia is also being depopulated by the flight of young people to Moscow and other cities.
To counter these trends, Filipenko has implemented ambitious plans to turn Khanty-Mansi into a place young people will choose to live in rather than leave. And this effort, he boasts, is working. He notes that Khanty-Mansi has the third highest birthrate among provinces in Russia, and unlike the country as a whole, whose population is in decline, Khanty-Mansi's has increased 18 percent since 1989, from a combination of births and immigration.
Oil composes 90 percent of the capital's economy, which is not surprising given the surge in oil prices. But it points to a problem shared by all resource-dependent economies: At some point the resource will be exhausted, and new sources of prosperity will have to be found.
Mike - the MBA blogger
And this is all we need,
To wash our faces in the new oil,
Of the drilling rig.
Little wonder Russians are toasting oil: These are boom times. Global oil prices have increased tenfold since 1998, and Russia has pulled ahead of Saudi Arabia as the world's top crude oil producer. The Kremlin's budget now overflows with funds for new schools, roads, and national defense projects, and Moscow's nouveau riche are plunking down millions of dollars for mansion-scale "dachas." Oilers' Day, an annual holiday, honoring the hard labor of the oil workers, is perhaps celebrated only in this part of the world. The pumping heart of the boom is western Siberia's boggy oil fields, which produce around 70 percent of Russia's oil—some seven million barrels a day.
But the opportunity presented by oil could slip through the region's fingers. Despite the remarkable surge in oil prices, oil production in western Siberia has leveled off in recent years. Output barely rose from 2004 to 2007—a period when the rulers of the Kremlin, a cold-eyed and control-oriented crew, seized choice fields once held by private oil barons. The oligarchs, as they were known, were rapacious sorts who jousted among themselves for spoils. But they also heavily invested in the fields in order to maximize production and profits. The Kremlin, by contrast, aims to exploit oil not only as a source of national wealth, but also as a political tool for making Russia a great world power once again. Its heavy-handed tactics have made foreign investors wary and could undermine the boom—and with it Khanty-Mansi's chances for a brighter future.
When Siberia's oil lands came under development, native people were forcibly herded into villages and cut off from their hunting and fishing grounds. Following the breakup of the Soviet Union, the nomads won legal status as "aboriginal people," with the right to roam the oil fields. Rural Russia is also being depopulated by the flight of young people to Moscow and other cities.
To counter these trends, Filipenko has implemented ambitious plans to turn Khanty-Mansi into a place young people will choose to live in rather than leave. And this effort, he boasts, is working. He notes that Khanty-Mansi has the third highest birthrate among provinces in Russia, and unlike the country as a whole, whose population is in decline, Khanty-Mansi's has increased 18 percent since 1989, from a combination of births and immigration.
Oil composes 90 percent of the capital's economy, which is not surprising given the surge in oil prices. But it points to a problem shared by all resource-dependent economies: At some point the resource will be exhausted, and new sources of prosperity will have to be found.
Mike - the MBA blogger
Wednesday, April 8, 2009
Some Politics!
Part of my MBA coursework is a subject Global Political economy. Let me tell you, I thought it was one of the most boring and theoritical subjects. I was so wrong! Now lets interpretate how India and Pakistan have acted/ behaved with each other.
I request every reader to lose your sense of nationality and read the rest of this post, unbiasedly.
The Indian Angle:
The Partition meant India and Pakistan as two separate entities and then India had to deal with a fearful neighbour, Pakistan, which shared borders on both sides. East Pakistan was a worry for India and India used the native sentiments, sentiments of neglect by West Pakistan that led to a growing resentment and sense of separation. And our actions will be remembered, until India gets paid by the same coin! Afghanistan war though condemned by India, especially the enormous innocent lives lost, helped India to protect itself by weakening the Taliban-Pakistan nexus along with securing the border with Afghanistan. News is, India has set up its administrative offices along the Pak-Afghan border lines, just to secure the region. Pakistan has never been cramped for space.
The Pakistan angle:
Kashmir. Kashmir is a 90% Muslim occupied place and Pakistan could not tolerate Kashmir under India. And when Jinnah couldn't get access to his beloved tourist place in his last days, he felt hurt. And so did Pakistan. Ever since India freed East Pakistan as Bangladesh, Pakistan has intensified its activities on Kashmir. Now who is to blame! The war on terror on Afghanistan has radicalized Pakistan community. The pressure on Pakistan has led to poor spending on education. This inturn meant, drop-out ratio is very high. And poor quality schools has forced the students to madrasas, religious schools. Its no secret that a high percentage of this crowd join Taliban, to fight against US forces. Afghanistan and the Pakistan tribal areas has become the breeding place of the world's terror network!
The Neutral view:
Kashmir cannot go to India completely. Kahsmir cannot go to Pakistan completely.
Kashmir cannot be an independent country. If so, any change in demography would be seen by India (or Pakistan) as a strategy to forcefully occupy. Imagine, Kashmir becomes a neutral country, open to both. Millions of People, I bet and perhaps rightfully so, would move from Pakistan to Kashmir and breed. This would be seen by India as a occupying strategy and any imbalance in the region would lead to the never-ending blame game. So does it solve the problem, NO! How about this! US says, Kashmir is free and makes it like Taiwan. It guarantees security, in case of any attack from India and Pakistan. A very good neutral response? True! Would India agree? Never! Would Pakistan agree? Never!
As long as Pakistan continues to send negative vibes and news to the world, India would be very happy to claim splitting Kashmir or accepting LOC would be a security nightmare. So if Pakistan wants any claim over Kashmir, it needs to follow peace. Not for 6months, not for a year but atleast, i am guessing, 5-6 years. And if there is no taliban activity or infiltration and bombs exploding, the pressure would then be shifted to India! Would any soul in Pakistan understand! hmmm....don't think so!
Mike - the MBA blogger
I request every reader to lose your sense of nationality and read the rest of this post, unbiasedly.
The Indian Angle:
The Partition meant India and Pakistan as two separate entities and then India had to deal with a fearful neighbour, Pakistan, which shared borders on both sides. East Pakistan was a worry for India and India used the native sentiments, sentiments of neglect by West Pakistan that led to a growing resentment and sense of separation. And our actions will be remembered, until India gets paid by the same coin! Afghanistan war though condemned by India, especially the enormous innocent lives lost, helped India to protect itself by weakening the Taliban-Pakistan nexus along with securing the border with Afghanistan. News is, India has set up its administrative offices along the Pak-Afghan border lines, just to secure the region. Pakistan has never been cramped for space.
The Pakistan angle:
Kashmir. Kashmir is a 90% Muslim occupied place and Pakistan could not tolerate Kashmir under India. And when Jinnah couldn't get access to his beloved tourist place in his last days, he felt hurt. And so did Pakistan. Ever since India freed East Pakistan as Bangladesh, Pakistan has intensified its activities on Kashmir. Now who is to blame! The war on terror on Afghanistan has radicalized Pakistan community. The pressure on Pakistan has led to poor spending on education. This inturn meant, drop-out ratio is very high. And poor quality schools has forced the students to madrasas, religious schools. Its no secret that a high percentage of this crowd join Taliban, to fight against US forces. Afghanistan and the Pakistan tribal areas has become the breeding place of the world's terror network!
The Neutral view:
Kashmir cannot go to India completely. Kahsmir cannot go to Pakistan completely.
Kashmir cannot be an independent country. If so, any change in demography would be seen by India (or Pakistan) as a strategy to forcefully occupy. Imagine, Kashmir becomes a neutral country, open to both. Millions of People, I bet and perhaps rightfully so, would move from Pakistan to Kashmir and breed. This would be seen by India as a occupying strategy and any imbalance in the region would lead to the never-ending blame game. So does it solve the problem, NO! How about this! US says, Kashmir is free and makes it like Taiwan. It guarantees security, in case of any attack from India and Pakistan. A very good neutral response? True! Would India agree? Never! Would Pakistan agree? Never!
As long as Pakistan continues to send negative vibes and news to the world, India would be very happy to claim splitting Kashmir or accepting LOC would be a security nightmare. So if Pakistan wants any claim over Kashmir, it needs to follow peace. Not for 6months, not for a year but atleast, i am guessing, 5-6 years. And if there is no taliban activity or infiltration and bombs exploding, the pressure would then be shifted to India! Would any soul in Pakistan understand! hmmm....don't think so!
Mike - the MBA blogger
Friday, March 27, 2009
Orlando and Disney's Love Affair
Orlando was the county seat of Orange County, but it wasn't citrus groves that prompted Disney's secret aerial reconnaissance. During his flyover, he focused on a wasteland southwest of Orlando where alligators outnumbered people. Porous limestone underlay the vegetal muck. What passed for dry land was speckled with shallow, brown-watered catchments, some the size of station wagons, others the size of suburbs.
Over the next two years, with the collusion of Orlando's top leaders, Disney secretly acquired more than 25,000 acres (10,000 hectares). People were glad to sell dirt cheap. This sludgy terrain was useless for agriculture. Who would want to vacation in such a place? Disney was certain most Americans would, once he worked his marketing magic on them. By the 1960s, all over America, suburbs were replacing old neighborhoods. Malls were driving Main Street out of business. There was hardly a new ranch home or split-level that didn't have a TV antenna on the roof. Disney realized that in the coming decades shows like The Mickey Mouse Club, not climate and geology, would determine what the majority of Americans would consider a safe and enjoyable place to take a family vacation. That day, flying over central Florida, Disney decided that he, not reality, would define what constituted the Magic Kingdom in the minds and spending habits of millions of Americans in the years to come.
The interstate highway system, started by the Eisenhower Administration as part of the Cold War defense effort against communism, was already crisscrossing America. Disney chose Orlando because it was at the confluence of two of the most important of these new thoroughfares, what today are Interstate 4 and Florida's Turnpike. There was also a deeply personal reason he located Disney World there—the same one that still lures people to Orlando today. In Florida's boggy, buggy, empty midsection, Walt Disney perceived a second chance.
His original theme park—Disneyland, in southern California—covered fewer than 300 acres (120 hectares). It soon was ringed with the suburban blight that its success inevitably attracted—motels, strip malls, copycat amusement parks. Disney never forgave himself for not making Disneyland big enough, but in Florida he hoped to rectify that mistake. He set out to create an Adventureland where nothing was left to chance. Arriving visitors would not be permitted to choose their own parking spaces; smiling Disney characters would do that for them. In this new, bigger, better Magic Kingdom, water could not be the tannic brown common in central Florida. So Bay Lake was drained, the sludge removed, and clear water pumped into the resulting lagoon. Even dry land would be turned into another Disney illusion: As you traverse the theme park, you are actually walking on the roof of an immense, underground control building from which the operation is run, staffed, and supplied.
Disney's new empire in central Florida would be marketed as Disney World. Its official name was, and remains, the Reedy Creek Improvement District. Thanks to a sweetheart deal with the state legislature, the lands Disney purchased were detached from the rest of Florida to form a Magic Kingdom, above and outside the law. Even now, Disney World's rides are exempt from state safety inspections. Democratic process is excluded, too. Power remains in the hands of a board of supervisors composed of Disney allies.
Mike - the MBA blogger
Over the next two years, with the collusion of Orlando's top leaders, Disney secretly acquired more than 25,000 acres (10,000 hectares). People were glad to sell dirt cheap. This sludgy terrain was useless for agriculture. Who would want to vacation in such a place? Disney was certain most Americans would, once he worked his marketing magic on them. By the 1960s, all over America, suburbs were replacing old neighborhoods. Malls were driving Main Street out of business. There was hardly a new ranch home or split-level that didn't have a TV antenna on the roof. Disney realized that in the coming decades shows like The Mickey Mouse Club, not climate and geology, would determine what the majority of Americans would consider a safe and enjoyable place to take a family vacation. That day, flying over central Florida, Disney decided that he, not reality, would define what constituted the Magic Kingdom in the minds and spending habits of millions of Americans in the years to come.
The interstate highway system, started by the Eisenhower Administration as part of the Cold War defense effort against communism, was already crisscrossing America. Disney chose Orlando because it was at the confluence of two of the most important of these new thoroughfares, what today are Interstate 4 and Florida's Turnpike. There was also a deeply personal reason he located Disney World there—the same one that still lures people to Orlando today. In Florida's boggy, buggy, empty midsection, Walt Disney perceived a second chance.
His original theme park—Disneyland, in southern California—covered fewer than 300 acres (120 hectares). It soon was ringed with the suburban blight that its success inevitably attracted—motels, strip malls, copycat amusement parks. Disney never forgave himself for not making Disneyland big enough, but in Florida he hoped to rectify that mistake. He set out to create an Adventureland where nothing was left to chance. Arriving visitors would not be permitted to choose their own parking spaces; smiling Disney characters would do that for them. In this new, bigger, better Magic Kingdom, water could not be the tannic brown common in central Florida. So Bay Lake was drained, the sludge removed, and clear water pumped into the resulting lagoon. Even dry land would be turned into another Disney illusion: As you traverse the theme park, you are actually walking on the roof of an immense, underground control building from which the operation is run, staffed, and supplied.
Disney's new empire in central Florida would be marketed as Disney World. Its official name was, and remains, the Reedy Creek Improvement District. Thanks to a sweetheart deal with the state legislature, the lands Disney purchased were detached from the rest of Florida to form a Magic Kingdom, above and outside the law. Even now, Disney World's rides are exempt from state safety inspections. Democratic process is excluded, too. Power remains in the hands of a board of supervisors composed of Disney allies.
Mike - the MBA blogger
Wednesday, March 18, 2009
Imran Khan - the Future of Pakistan
Another nice video, must see
http://www.youtube.com/watch?v=L9fW9jPnjgE
Mike - the MBA blogger
Monday, March 2, 2009
China vs India
In an article published in 2003 called “Can India overtake China?” Tarun Khanna of Harvard Business School and Steve Hamm argued that India’s domestic corporate sector – strengthened by the country’s rule of law, its democratic processes and relatively healthy financial system – was a source of substantial competitive advantage over China. At that time, the notion that India might be more competitive than China was laughed at. Few years later, India appears to have permanently broken out of its leisurely “Hindu rate of growth”– an annual gross domestic product increase of around 2 to 3 per cent – and its performance is beginning to approach the east Asian level. From April to June 2005, India’s GDP grew at 8.1 per cent, compared with 7.6 per cent in the same period the year before. More impressively, India is achieving this result with just half of China’s level of domestic investment in new factories and equipment, and only 10 per cent of China’s foreign direct investment. While China’s GDP growth in the last two years remained high, in 2003 and 2004 it was investing close to 50 per cent of its GDP in domestic plant and equipment – roughly equivalent to India’s entire GDP. That is higher than any other country, exceeding even China’s own exalted levels in the era of central planning. The evidence is very clear: China’s growth stems from massive accumulation of resources, while India’s growth comes from increasing efficiency.
Today as the world has gone into an economic crisis, India's Inflation which was a 8.5% a month ago, has slipped to 6.5% and the verdict is it might soon reach the controlled zone of 4 and less. When that happens, the world will know that India's potential in comparison to China is manifold. But what is stopping India from acheiving its potential. Strangely, Democracy! Is this good for the country? Strangely again, Yes! Why? Read on! India is a highly attractive destination for FDI but has it aggressively taken the direction as China has- No! The reason is, India is weary of the large number of its businesses which are independent entrepreneurial ventures. A deal between WalMart and Bharti to open retail shops was stalled by the Congress, as it feared it would flood the market and impede the growth of the Indian plaeyrs in the retail market. The advantage, the money is generated by Indians for India. What's different about this model? If one takes a closer look at China, we know why India is truly the country to look out for, it is steadily building a strong foundation. China has become the home for Manufacturers around the world! Why? It offers cheap labor, good infrastructure (aided by Chinese Government) and cheap resources. And "Made in China" labels is omnipresent. But "Made in China" is not necessarily "Made by China". If India needs to compete and win China, it has to improve its Infrastructure. An economic litmus test is not whether a country can attract a lot of FDI but whether it has a business environment that nurtures entrepreneurship, supports healthy competition and is relatively free of heavy handed political intervention. In this regard, India has done a better job than China. From India emerged a group of world-class companies ranging from Infosys in software, Ranbaxy in pharmaceuticals, Bajaj Auto in automobile components and Mahindra in car assembly. This did not happen by accident.The day is not long, when MNCs find an alternative to China. When that happens, China will be drained by much of its capital and its market, left to chinese players, will get very incompetent. This situation is never bound to happen in India. Every Industry, has one or more Indian player in the market. Thus India is building its economy towards becoming a self-sustaining growing economy whereas China is still busy, improving its foreign reserves and comfortable with the headstart it has over other economies.
Unless China embarks on bold institutional reforms, India may very well outperform it in the next 20 years. But, hopefully, the biggest beneficiary of the rise of India will be China itself. It will be forced to examine the imperfections of its own economic model and to abandon its sense of complacency acquired in the 1990s. China was light years ahead of India in economic liberalisation in the 1980s. Today it lags behind in critical aspects, such as reform that would permit more foreign investment and domestic private entry in the financial sector. The time to act is now.
Mike - the MBA blogger
Today as the world has gone into an economic crisis, India's Inflation which was a 8.5% a month ago, has slipped to 6.5% and the verdict is it might soon reach the controlled zone of 4 and less. When that happens, the world will know that India's potential in comparison to China is manifold. But what is stopping India from acheiving its potential. Strangely, Democracy! Is this good for the country? Strangely again, Yes! Why? Read on! India is a highly attractive destination for FDI but has it aggressively taken the direction as China has- No! The reason is, India is weary of the large number of its businesses which are independent entrepreneurial ventures. A deal between WalMart and Bharti to open retail shops was stalled by the Congress, as it feared it would flood the market and impede the growth of the Indian plaeyrs in the retail market. The advantage, the money is generated by Indians for India. What's different about this model? If one takes a closer look at China, we know why India is truly the country to look out for, it is steadily building a strong foundation. China has become the home for Manufacturers around the world! Why? It offers cheap labor, good infrastructure (aided by Chinese Government) and cheap resources. And "Made in China" labels is omnipresent. But "Made in China" is not necessarily "Made by China". If India needs to compete and win China, it has to improve its Infrastructure. An economic litmus test is not whether a country can attract a lot of FDI but whether it has a business environment that nurtures entrepreneurship, supports healthy competition and is relatively free of heavy handed political intervention. In this regard, India has done a better job than China. From India emerged a group of world-class companies ranging from Infosys in software, Ranbaxy in pharmaceuticals, Bajaj Auto in automobile components and Mahindra in car assembly. This did not happen by accident.The day is not long, when MNCs find an alternative to China. When that happens, China will be drained by much of its capital and its market, left to chinese players, will get very incompetent. This situation is never bound to happen in India. Every Industry, has one or more Indian player in the market. Thus India is building its economy towards becoming a self-sustaining growing economy whereas China is still busy, improving its foreign reserves and comfortable with the headstart it has over other economies.
Unless China embarks on bold institutional reforms, India may very well outperform it in the next 20 years. But, hopefully, the biggest beneficiary of the rise of India will be China itself. It will be forced to examine the imperfections of its own economic model and to abandon its sense of complacency acquired in the 1990s. China was light years ahead of India in economic liberalisation in the 1980s. Today it lags behind in critical aspects, such as reform that would permit more foreign investment and domestic private entry in the financial sector. The time to act is now.
Mike - the MBA blogger
Friday, February 20, 2009
A World lost
Walk through the bazaars in Kabul or Mazar-e Sharif and you'll see why, for more than two millennia, people have been calling Afghanistan the crossroads of Asia. One face looks Mediterranean, another Arab - or Indian, or Chinese, or eastern European. Eyes range from pea green to chestnut brown to something approaching orange. Successive invasions and influences wove a tapestry of ethnicities and left behind what the exhibition curator, Fredrik Hiebert of the National Geographic Society, calls "some of the most remarkable archaeological finds in all of Central Asia."
The recent story of Afghanistan is revealed looking at the girl's eyes. Land mines, a resurgent Taliban, suicide bombs, the searing memory of war - the obstacles bedeviling Afghans as they try to put their country back together are daunting. The biggest thing that's broken in Afghanistan isn't the buildings, or the roads, or even the electrical system. It's the broken psychology. "Twenty-five years of war is hell. Not only were tons of artifacts stolen, so was the Afghans' history, their heritage. Afghan children no longer know Afghan folk songs. How can they get their pride back?"
Mike - the MBA blogger
Sunday, February 8, 2009
Hedging
Lets talk about Hedging. So what exactly is Hedging? Hedging is the process of dealing with foreign exchange so that the owner gets maximum benefit. Example, an Education loan for International studies is at a Foreign Exchange risk. Imagine an Indian student taking a study loan of 20lakhs in Rupees in May 2008 and pays the same in Sep 2008. There would be a huge forex problem as Dollar was strengthened artificially and $ became equivalent to 46INR from 41.xx INR. This is a considerable loss. Now following are some of the hedging concepts.
Forward Contract: You agree to either buy or sell an amount of currency (or whatever else it is) in the future at a price decided upon today.
Spot Rate 3-Month Forward Contract Rate 3-Month Forward Forecasted Rate
1AUD = 1050MNT 1 AUD = 1000MNT 1 AUD = 1100MNT
1 AUD = 110 KZT 1 AUD = 105 KZT 1 AUD = 100 KZT
1 AUD = 5 BWP 1 AUD = 5 BWP 1 AUD = 5 BWP
1 AUD = 2 SRD 1 AUD = 4 SRD 1 AUD = 6 SRD
Anytime the 3-month contract rate yields more AUD than the 3-month forecasted rates, get a
forward contract. In this case, the Cat Empire will want to be in the short position for Forward Contracts
for the MNT and the SRD. To be safe, the Cat Empire may also want to use a Forward Contract for the
BWP as well.
Foreign Currency Futures: An agreement to deliver to another a given amount of a standardized
commodity or financial instrument at a designated future date. This is the same thing as a forward contract, but a futures contract can only be in a set increment (kind of like a bank note), such as $100,000 (which is the most common denomination). So you can buy, say, 5 futures contracts worth $500,000.
Henry Avery, a pirate that has spenth is life pillaging and plunderingt he westernh emisphere,w ants to
retire and buy a condominium in Bangalore in I year. The anticipated price on the condominium is
expected to be INR 3 million. The 1 year future price is IUSD = INR 40. The cost of a round turn per
contracti s usD 75. Each Indian Rupeef uture contractr epresentsIN R 500,000.
How many USD will Henry need if he were to secure this position?
Condo’s worth USD: INR 3,000,000 / 40 (spot) = $75,000
Round Turn Cost = No of Round turns * Cost of each contract = 3000000/500000 = 6 x $75 = $450
Total Cost = $75450
Foreign Currency Options: You pay money to be guaranteed the right to buy something at a certain price in the future. You don't have to buy it, but you could if you wanted to.
• Exercise price: price at which you can buy the underlying security
• Call Option: Right to buy a financial instrument at a specific price. (Call me the money!)
• Put Option: Right to sell a financial instrument at a specific price. (Put the money away!)
• American Option: May exercise at anytime,( but you usually don't)
• European Option: Exercise only at a specific date
• Long position: You have the currency you need to do something with. You got money.
• Short position: You don't have the currency you need to do something with. You don't got money.
• Writer: Must stand behind obligation bound if buyer demands.
Tunnel Forwards: This is essentially a forward contract, but instead of negotiate a range of where your exchange rate could fall.
Foreign Currency Loan: You take out a loan in a foreign currency and convert it to your currency today. you have to pay the loan back with interest in the future.
Kumar Sangakkara, a cricket player from Sri Lanka, has been offered a new job during the off-season as a little-league cricket coach in India. The job lasts for three months, but he won't get paid his 500,000
Rupees until the end of his contract. To pay for his living expenses during those three months, Kumar is
considering taking out a foreign currency loan. The loan could be made at 3% above the present Indian
prime rate of 8% plus an arrangement fee of .2%. The Sri Lankan prime rate is currently 10%, and
Kumar will not pay a spread above that or an arrangement fee because he is a superstar in Sri Lanka. If
the spot rate is currently 1 Sri Lankan Rupee (SLR) = .35 Indian Rupees (INR) and the 3-month forward
rate is 1 Sri Lankan Rupee= .30 Indian Rupees should Kumar take the foreign currency loan?
Answer: No! Kumar's best choice would be to convert enough SLR to bring 500,000 INR with him to
India - when he gets paid in 3 months, his contract will be worth more than he paid for the 500,000 INR,
Thanks to depreciation of the INR against the SLR. His second best choice would be to take out a loan in
Sri Lanka for enough SLR to bring 500,000 INR and then pay back the interest when he returns to Sri
Lanka - again, depreciation of the INR against the SLR makes the 500,000 INR contract worth a lot more
in three months. It would be better not to pay a loan back in INR.
Step One: How much is the 500,000I NR worth to Kumar today? 500,000* 11.35= 1,428,571 SLR
Step Two: How much will the 500,000 INR be worth in 3 months? 500,000 * ll .3 = I.666.666 SLR
Step Three: what are the costs associated with the foreign currency loan?
Total Interest Paid: 500,000 x (.08 + .03) = 55,960 INR
Total Arrangement Fee: 500,000 * .002 = 1,000 INR
Amount that Kumar would receive today: 500,000- (55,000+ 1,000=) 444,000INR
What is this worth in SLR: 444000 * 1/.35 = 1268571 SLR
Total Paid in 3 Months: 1,428,517 * 1.1 = 1,571,428 SLR
Pre-sale of a Foreign Contract:
You're expecting to collect on a contract in the future. Instead of waiting for your money,
you sell your contract to a third party and get your money today.
Mike - the MBA blogger
Forward Contract: You agree to either buy or sell an amount of currency (or whatever else it is) in the future at a price decided upon today.
Spot Rate 3-Month Forward Contract Rate 3-Month Forward Forecasted Rate
1AUD = 1050MNT 1 AUD = 1000MNT 1 AUD = 1100MNT
1 AUD = 110 KZT 1 AUD = 105 KZT 1 AUD = 100 KZT
1 AUD = 5 BWP 1 AUD = 5 BWP 1 AUD = 5 BWP
1 AUD = 2 SRD 1 AUD = 4 SRD 1 AUD = 6 SRD
Anytime the 3-month contract rate yields more AUD than the 3-month forecasted rates, get a
forward contract. In this case, the Cat Empire will want to be in the short position for Forward Contracts
for the MNT and the SRD. To be safe, the Cat Empire may also want to use a Forward Contract for the
BWP as well.
Foreign Currency Futures: An agreement to deliver to another a given amount of a standardized
commodity or financial instrument at a designated future date. This is the same thing as a forward contract, but a futures contract can only be in a set increment (kind of like a bank note), such as $100,000 (which is the most common denomination). So you can buy, say, 5 futures contracts worth $500,000.
Henry Avery, a pirate that has spenth is life pillaging and plunderingt he westernh emisphere,w ants to
retire and buy a condominium in Bangalore in I year. The anticipated price on the condominium is
expected to be INR 3 million. The 1 year future price is IUSD = INR 40. The cost of a round turn per
contracti s usD 75. Each Indian Rupeef uture contractr epresentsIN R 500,000.
How many USD will Henry need if he were to secure this position?
Condo’s worth USD: INR 3,000,000 / 40 (spot) = $75,000
Round Turn Cost = No of Round turns * Cost of each contract = 3000000/500000 = 6 x $75 = $450
Total Cost = $75450
Foreign Currency Options: You pay money to be guaranteed the right to buy something at a certain price in the future. You don't have to buy it, but you could if you wanted to.
• Exercise price: price at which you can buy the underlying security
• Call Option: Right to buy a financial instrument at a specific price. (Call me the money!)
• Put Option: Right to sell a financial instrument at a specific price. (Put the money away!)
• American Option: May exercise at anytime,( but you usually don't)
• European Option: Exercise only at a specific date
• Long position: You have the currency you need to do something with. You got money.
• Short position: You don't have the currency you need to do something with. You don't got money.
• Writer: Must stand behind obligation bound if buyer demands.
Tunnel Forwards: This is essentially a forward contract, but instead of negotiate a range of where your exchange rate could fall.
Foreign Currency Loan: You take out a loan in a foreign currency and convert it to your currency today. you have to pay the loan back with interest in the future.
Kumar Sangakkara, a cricket player from Sri Lanka, has been offered a new job during the off-season as a little-league cricket coach in India. The job lasts for three months, but he won't get paid his 500,000
Rupees until the end of his contract. To pay for his living expenses during those three months, Kumar is
considering taking out a foreign currency loan. The loan could be made at 3% above the present Indian
prime rate of 8% plus an arrangement fee of .2%. The Sri Lankan prime rate is currently 10%, and
Kumar will not pay a spread above that or an arrangement fee because he is a superstar in Sri Lanka. If
the spot rate is currently 1 Sri Lankan Rupee (SLR) = .35 Indian Rupees (INR) and the 3-month forward
rate is 1 Sri Lankan Rupee= .30 Indian Rupees should Kumar take the foreign currency loan?
Answer: No! Kumar's best choice would be to convert enough SLR to bring 500,000 INR with him to
India - when he gets paid in 3 months, his contract will be worth more than he paid for the 500,000 INR,
Thanks to depreciation of the INR against the SLR. His second best choice would be to take out a loan in
Sri Lanka for enough SLR to bring 500,000 INR and then pay back the interest when he returns to Sri
Lanka - again, depreciation of the INR against the SLR makes the 500,000 INR contract worth a lot more
in three months. It would be better not to pay a loan back in INR.
Step One: How much is the 500,000I NR worth to Kumar today? 500,000* 11.35= 1,428,571 SLR
Step Two: How much will the 500,000 INR be worth in 3 months? 500,000 * ll .3 = I.666.666 SLR
Step Three: what are the costs associated with the foreign currency loan?
Total Interest Paid: 500,000 x (.08 + .03) = 55,960 INR
Total Arrangement Fee: 500,000 * .002 = 1,000 INR
Amount that Kumar would receive today: 500,000- (55,000+ 1,000=) 444,000INR
What is this worth in SLR: 444000 * 1/.35 = 1268571 SLR
Total Paid in 3 Months: 1,428,517 * 1.1 = 1,571,428 SLR
Pre-sale of a Foreign Contract:
You're expecting to collect on a contract in the future. Instead of waiting for your money,
you sell your contract to a third party and get your money today.
Mike - the MBA blogger
Friday, January 23, 2009
India trip
My trip to India was the most boring trip I have ever had. Coming to Chennai, I realized none of my friends are in India. Most of them are studying/working abroad, in US and my best friends gang are also wide and apart – Sada – UK, Balaji Chennai, Lava – Bombay-> Chennai, Anand – Hyderabad, Rahul – Dubai, Ananth – US, Jayram – Mumbai. With just two of my best buddies around, weekends were the only option. But then, without bike, meeting them turned out quite a task. At home, my only timepass was TV and my mom hates me whenever I switch I on. As usual, I never relented! Dad was asusual busy with his Sudoku. Thankfully, he found a part-time job to train Loan recovery Bank agents to fill his time and purse. I doubt if Chennai will ever be the same for me. Next time, I better come with loads of dollars and plan a family trip across India. Else, it’s quite boring to think of coming back.
Mike - the MBA blogger
Mike - the MBA blogger
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