Mr MRV , i beg to differ...financial derivatives maybe dangerous but they have a purpose. People also lose money on Equity shares...isnt that a gamble ? would you then stop stock exchanges?
Use of exchange traded derivatives makes it very transparent compared to OTC derivatives. It would be infact very good for the Indian markets if exchange traded derivatives are used. also if ICICI lost money on derivatives, were u not happy when TCS used them to protect their margins against Re appreciation..
corporates have exposures to Forex risks and not using derivatives (not hedging) is also a gamble.
what needs to be ensured is that they donot indulge in speculation.(which is not their job). But its up to the boards to decide whether they allow speculation or not.Its a corporate governance and control issue.
I have traded copper derivatives in my previous job and it serves a purpose in managing the company risks...it helps to smooth ur profits and ensure u r protected against Currencies and Copper..
just because a few organisations go wrong, doesnt mean u throw out the baby with the bath water. One needs to be prepared for what is there rather than dig ur head into the ground like an ostrich hoping tht danger will pass away.
as far ICAI is concerned...i am not too sure how much they understand what they are dealing with anyway. I guess IFRS will give us a very good guidance as to what needs to be followed.( i dont rate ICAI too highly, its just an organisation pr
RE:i disagree
by Good_man on Mar 15, 2008 02:28 PM Permalink
In a turbulant sea however, shielding against a large wave out to sink you, with another large wave that 'you' have accumulated for yourself may not happen.
It may also happen that whole large 'ocean' is to a large measure nothing more than a big bubble. Apple may have as many tens of million iPhones unsold, as they may have sold, the purchaser (at usd 600) may have borrowed money from banks (credit cards) who them selves in turn would have invested heavily in Apple to 'buffer' themselves. The buyer of iPhone is also a share holder of Apple presumably. So in future if Apple reports losses, it will be difficult to know who will loose and how much.
The scenario can be complicated progressively, by including more dependancies and 'circular' involvement. Mathematical solutions beyond two or more 'dependency on dependencies' however will not be possible or dependable.
Catastrophic break down of systems is never predictable with much accuracy.
After the catastrophe strikes nobody cares either. Most participants perish with them.
The survivors were either not involved with them, or most often can do nothing more than pick up the rudiments and start building again.
Albeit at much much lower levels compared to those prevailing before the catastrophe hit.
RE:i disagree
by Good_man on Mar 15, 2008 02:03 PM Permalink
In a simplistic way, if a share is overvalued by a large factor, any body dealing in it has to be either a looser or a gainer.
By timing the rise and fall of 'sentiments' powerful holders will always sponge off the excess money pledged in these shares. They also harm wider participation.
It is a pure game of 'lure' and 'loot' and it is an unintended outcome of 'Share' market.
The intention of 'Share' market is to make available, capital from public to a venture, which 'must' ( with sound fundamentals etc it 'MUST' ) earn a fair profit, and give it back to the real owners 'the share holders'.
This simplistic view must always remain topmost in our analyses. If a 'share' or a 'sector' shows growth potential, and catches public fancy, and people vie to buy it from each other, it can be allowed to have a 'proportionately' higher than normal (strictly mathematically calculated) value.
It provides for good entertainment ( and very vital continued interest of the participant) when a successful investor 'thinks' his accumen got him some 'extra' profit.
Same mechanism should be used to generate interest in bringing public participation in shares of industry which is essential and beneficial for 'social living'. ( By preferred 'manipulation' of profitability through incentives etc.)
It so happens that at trillions of dollars 'worth', world economy is like an ocean. Buffering your positions through variations is like harvesting tidal energy of this ocean.
