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Financial Services and the Global Economy

Please read the articles that I attached and help me to solve the questions.

How JPMorgan Lost $2 Billion Without Really Trying
1. Describe how the operating strategy of the Chief Investment Office changed over the past five years.
2. What financial instrument created the losses for JPMorgan?
3. What were the flaws in JPMorgan's trading approach that exacerbated the losses?
4. Who was the London Whale?

Something's Rotten in Banking - and It's Not Just Barclays (editorial)
1. Why is an accurate LIBOR essential to the global economy?
2. What is your collective emotional reaction to the contents of the email exchanges included in the editorial?
3. Do you agree with the editorial's conclusion?

For Bankers, the Thrill is Gone
1. What insights should auditors in financial services take from this article?
2. Are you sympathetic to the traders' current plight?

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How JPMorgan Lost $2 Billion Without Really Trying
1. Describe how the operating strategy of the Chief Investment Office changed over the past five years.

Banks' Chief Investment Office had the responsibility of managing excess cash and some investments. Mission of the Office was to protect JPMorgan from banking risk inherent in the industry like interest rate risk and currency fluctuations. In 2011 JPMorgan had betted for credit conditions to worsen and profited from it. However situation changed in early 2012 when Chief Investment Office started making offsetting bullish bets by selling credit insurance using a markit CDX index. The index reflects the price of credit-default swaps on 121 companies that had investment grade ratings when the index was created in 2007. The Office sold insurance on the index using contracts that expired in 2017. It also bought insurance on index using contracts that expired in 2012. This was a good strategy as long as spread between prices of two contacts remained stable. However the volume in which transactions were done was so large that it was driving financial health of entire company. The strategy of making profit became so big that market was getting affected. Hence the strategy of the Office changed from being protective and making small bets to becoming moving the market through their activities.

2. What financial instrument created the losses for JPMorgan?
A series of derivative transactions including Credit Default Swaps were entered into by the bank as a part of its hedging strategy. CDS were responsible for financial crisis of 2008 and were originally used to hedge bank's exposure to other instruments it ...

Solution Summary

The solution discusses the financial services and the global economy.

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