JP Morgan Chase embarked on a derivate position that resulted in the loss of approximately $6 billion dollars (Farrell, 2012). The derivates positions were designed to hedge the firms portfolio against slower economic growth, but they proved too complex to manage. Examine these events and write a case analysis considering the following:
What were the derivates designed to do?
Where did the break-down in risk management techniques occur?
What was the resulting impact to the bank and what tools were put in place to prevent this from occurring in the future?
Are there other risks associated with the use of derivates?
A case analysis (study) is a short description of a real business situation. Analyzing case studies gives you the opportunity to apply those concepts to real business problems. Cases are generally written for several types of analysis. Usually, there is not a "right or wrong" answer. Rather, cases provide a vehicle for you to demonstrate your understanding and ability to apply course concepts. You must use appropriate sources (properly cited) to support your position. Check your analysis by assessing how well it demonstrates your subject knowledge. If your answer relies on your impressions of the topic prior to taking this course, it is likely that the analysis is not your best effort.
Simply answering the questions, which are part of the case, is not enough; consider the questions to be clues to the important concepts and facts. You are strongly encouraged to use the following outline, so that your analysis is organized appropriately:
Identify both the key issues and the underlying issues. In identifying the issues, you should be able to connect them to the business principles, which apply to this situation.
Discuss the facts that affect these issues. The case may have too much information. In your discussion, you should filter the information and discuss those facts most pertinent to the issues identified above.
Discuss your tentative solution to the problem and how you would implement your solution. What actions would you propose to correct the situation, based on the knowledge you have gained in this course? Be sure to support your recommendation by citing references in the text and in the supplementary readings. You should also draw on other references such as business periodicals and relevant journals. Remember that an analysis is more than simply a summary of the Case Study.
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