Inside trading/Scrutinizinng assets/mutual funds and hedge funds, business and finance homework help
1. Which of the following are likely to land you in jail. Discuss EACH scenario individually. (use appropriate financial terminology to make your point)
a) You are friends with the VP of sales of PKM ShoeSource. You go out for a drink and each of you end up discussing your day. Your friend says that it is has been a tough day because he has had to deal with irate customers all day. His company just launched a high-profile shoe that has been advertised as a shoe with a rare spring. There is lot of hype surrounding the shoe but he has not been able to sell the shoes because the company has not been making enough number of shoes. He has had to send back customers all day saying that because of supply issues his company has only been manufacturing 500 pairs every week. You know that the key feature of the new shoe, the spring, is made of a rare metal found in Mongolia. You just came back from Mongolia where you were delayed for number of days because of landslides in the northwest region. These landslides have caused several mines to be shut and all roads have been rendered non-navigable. You determine that based on the extent of damage to the mines and roads the supply issues will have an irreparable impact on the company’s sales so you take a short position in the stock.
b) Your friend is VP of finance for AAPL and he knows that AAPL is not doing well. While visiting you for dinner the discussion moves to smartphones. You think that they are the best thing that happened to mankind and that the smartphone industry is going to grow by leaps and bounds for the foreseeable future. On the other hand, your friend thinks that the industry has already run its course. To support his argument he says that he knows that AAPL, the pioneer in this industry is going to announce its earnings tomorrow evening and that they are going to be well below expectations. Your friend continues to argue with you. The argument gets heated and you ask your friend to leave. The next day you call your friend and apologize for your behavior and take a sizeable short position in AAPL to show your friend that you value his opinion and patch up.
c) Your friend was in a conference with a company. There were five other stock anlaysts. The company just said that they had a blowout year and their earnings rose 700%. As soon as your friend heard that, he texted you and you took a large long position in the stock and made a killing.
2. What is the rationale behind securitizing assets?
3. Why do you think mutual funds are so heavily regulated while hedge funds are not?
4. If you want to have the most cost effective diversified portfolio what should you invest in?
