In: Finance
1The Question
Barings Bank collapsed about two decades ago as a result of derivative trading. Identify any other high profile corporate bankruptcy attributable to derivative trading and.
2The Write Up
The write up should follow this outline:
There is a company other than barings bank who collapsed as a result of bankruptcy attributable to derivative trading is ENRON. It is an American company based in Houston, Texas.
(i) Difference: The Barings bank did not know the activities of the derivative system and the staff was not good at all in holding the derivative system whereas in case Enron, this was not the problem as everyone was well versed with the derivative system. So, here the system differs.
Similarities: a. The employees were not professional in Baring Bank so their activities were also not monitored. Moreover, Baring bank did not hold the license of the trading which made it easier to fo fraud because it didn't track. Same as with the Enron Company.
b. However, both the corporates also did a lack of supervision. and no one from both the company was responsible to take the accountability. The CEO of Enron also took advantage of his position which results in bankruptcy of the company.
(ii) Lessons that should be learned by the corporates from this case:
a. There should be ethical standards in each company. For a company, the code of ethics is very important because business lies in the hand of ethics. If you are doing ethical business, investors will gain trust and invest more in the future.
b. The workers in the company should be professional i.e. they should possess a genuine degree so that everyone must have the knowledge to handle every worse condition.