Financial Markets Harvard Case Solution & Analysis

Financial Markets

Articles discussion

Mr. Robert C. Merton, a Harvard Business School professor has been interview by Mr. David Champion. The article discuss the overall issues going on in the financial system. The discussion was entirely based on financial crisis and risk management in the industry and by acquiring what options, the best results can be ensured. In the case it has clearly been mentioned that the overall market place in derivatives has flourished in a fast manner and today in this very competitive environment the overall worth of outstanding contracts worth is more than $500 trillion. Mr. Robert denies the allegation of blaming the derivatives for the financial crises.Mr. Robert further added that a tool or instrument cannot be set responsible for the financial crises.

Recommendations and Issues

The current situation cannot be faced if the necessary changes and new software donot introduce on regular basis. He strictly denies the banning option for derivative and says that car cannot be banned to reduce the global warming issues, so why derivatives should be banned.Mr. Robert somehow citizen the option like those what about those loans which are not guaranteed. Mr. Robert moreover highlighted “convexity”, a financial concept.  In convexity the price of the original asset falls which multiplies the risk regarding guarantee. To overcome this issue Mr. Robert proposed an option of introducing the sovereign wealth fundwhich would be headed by individual managers. These managers would be responsible for making sure that government should get the exact or best possible deserving value for the assets additionally he recommends massive changes need to re-design the structure and rules execution process.Further all companies must report the actual value rather than quoting the book value. Central clearing system for over the counter derivatives has also been proposed for perfect standardization. Another step could be that the top management should play an optimistic role in development of understanding regarding the risk management systems and .....................................

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