In a previous blog post, I criticized a study by the economics consulting firm NERA purporting to measure the costs companies would face as the Dodd-Frank reform of the OTC derivative markets is implemented. NERA is working on behalf of a group of energy companies lobbying to avoid some of the law’s mandates. Last week, [...]
February 13, 2012 – 9:45 am
Speaking at GlaxoSmithKline’s annual results presentation last week, CEO Andrew Witty disclosed some of the strategies the company is employing to manage the risk posed by the Eurozone debt crisis: We sweep all of our cash raised during the day out of the local banks and send it to banks here in the U.K. which [...]
January 22, 2012 – 10:34 pm
The CFTC is working to finalize the rule defining swap dealers and major swap participants. Under the Dodd-Frank financial reform, the rules governing operation of the OTC derivative market operate in large part through codes of conduct imposed on these entities. As reported most recently by Silla Brush at Bloomberg, a number of companies are [...]
December 19, 2011 – 5:42 pm
Phil Izzo at the Wall Street Journal‘s Real Time Economics blog is focused on how the danger of contagion from the European debt crisis is raising the return on those cash hoards US companies have been stockpiling.
September 19, 2011 – 6:59 am
The corporate finance practice team at McKinsey & Co has joined the long line of people looking at the large cash hoard being assembled by corporations and asking “why?”. In an article in the McKinsey Quarterly, they suggest a surprising answer: One factor that might go unnoticed, however, is the surprisingly strong role of decision [...]
September 5, 2011 – 11:01 pm
We began this series of posts recapping the finding that a currency carry trade investment has historically produced high return relative to the low risk. This finding is not consistent with models in finance that focus on the correlation between an investment’s return and the return on some benchmark stock portfolio. Using these models, and [...]
August 29, 2011 – 11:01 pm
In our previous post in this series, we highlighted a line of research by Burnside et al. that explains the profitability of the carry trade as a “peso” problem. That is, the historical data doesn’t completely reflect all of the bad outcomes that may arise. The as yet unobserved bad outcomes are known as “peso [...]
August 28, 2011 – 11:01 pm
In a previous post, we reported on the evidence that the carry trade strategy – investing in currencies with high interest rates and borrowing in currencies with low interest rates – earns high returns with low risk. In this post we describe in more detail some of what is known about the risk and return [...]
August 24, 2011 – 12:01 pm
Holding cash is a key risk management tool, and corporations are holding more cash than ever. Where should the corporate treasury park that cash? In which currency should these balances be held–US dollars, Euros, Yen, Swiss Francs, Australian Dollars or what? The choice of the currency denomination of cash investments is the flip side of [...]
There was plenty of press last week when Apple announced it’s 3rd quarter earnings. Much of the attention was on the size of the cash pool Apple has accumulated. Here’s the balance sheet: Cash and other liquid securities total $76 billion and represent more than 70% of Apple’s book assets.
