Procter And Gamble Analysis

1337 Words6 Pages
During the early 1990s, many companies tried to increase profit by investing in risk taking derivatives. This led to the raise of financial advisors and risk management companies such as the Bankers Trust. However, although in the beginning, interesting rate are low and things are running smoothly, as interest rate begin to raise in 1994, investors, such as Procter and Gamble took a loss of $157 million dollars. Procter and Gamble claim that base on their knowledge, the loss should be less than what it appears to be. They begin to question the Bankers Trust. This incident led to a series of event which later uncover Bankers Trust’s fraud, unjust business practice. The Bankers Trust is a trust company invested by a collection of banks to perform trust services. In the early 1990s, the bankers trust focuses on specialized trade and become a big name in the risk management and derivative business. A derivative is a contract whose value is derived from any other asset such as, interest rate, currency, and commodity. In the early 1990s, business begins to see the advantage of derivative and uses it as a risk management tool and increases company profit. An example is an exporter wants to avoid currency exchange fluctuation; he would enter into a contract to buy currency at a fix rate, this way he will be free from the fluctuation. On the other hand, the counterpart will than sell the product when its price is high again, and earn the difference. In derivative business, there are two main types of derivative: simple and complex. Prior to the incident, Procter and Gamble is known to protect itself from international exchange rate and interest rate fluctuation by entering into low risk simple vanilla derivatives. Occasionally, the company will jump into option or future contract to hedge the company’s bet. Since these derivatives are simple and low risk; wrong bet

More about Procter And Gamble Analysis

Open Document