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?

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