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1、LUBS1035 Foundations of Finance 2012/13 John Smith,Lecture 8: Coursework Briefing,Module Objectives,Skills outcomes On completion of this module you should be able to: Demonstrate problem solving, analytical and quantitative skills by applying current theory and appropriate analytical tools to simpl
2、e financial problems; Demonstrate written communication and critical thinking skills in the written parts of the summative assessment; and Demonstrate numeracy skills by applying core mathematical and statistical skills to answer a range of class questions,Assessment Reminder,Examinations: January 2
3、013 1 hour MCQs 20% May 2013 2 hours 50% Three questions from six Specimen paper next semester,Coursework Assignment: 1,500 words Report on current finance topic 30% of Module Mark Briefing in week 8 Submission on 11th March 2013 Feedback on draft,Libor in the News,What is Libor? The Libor, or Londo
4、n Interbank Offered Rate, is a global benchmark interest rate used to set a range of financial deals. It is also a measure of trust in the financial system and the faith banks have in each others financial health Why is it important? Libor is considered to be one of the most crucial interest rates i
5、n finance, upon which trillions of financial contracts rest, and the exposure of its rigging has shocked many beyond the world of finance. Libor is used to set a range of financial transactions worth an estimated $300 trillion. $300 trillion is equivalent to approximately four and a half times globa
6、l GDP $300,000,000,000,000,Libor in the News,How is Libor set? Every day a group of leading banks submit rates for 10 currencies and 15 lengths of loan ranging from overnight to 12 months. The most important is the three-month dollar Libor. The rates submitted are what the banks estimate they would
7、pay other banks to borrow dollars for three months,Barclays and Libor,June 2012 - Barclays fined 290m after it admitted it attempted to manipulate the London Interbank Offered Rate, or Libor - the interest rate at which banks lend money to each other Six more banks are under suspicion of colluding i
8、n similar attempted manipulation,http:/www.bbc.co.uk/news/uk-18620314,So how was Libor rigged?,In two ways: By traders for profit. Since the rates submitted are estimates not actual transactions its relatively easy to submit false figures. Traders at several banks conspired to influence the Libor by
9、 getting colleagues to submit rates that were either higher or lower than their actual estimate,Traders for Profit,“Coffees will be coming your way” “Dude. I owe you big time!.Im opening a bottle of Bollinger” “Ask for High 6M Fix”,Reputational Damage,So how was Libor rigged?,In two ways: By traders
10、 for profit. To protect the bank. At the height of the financial crisis in late 2007, many banks stopped lending to each other over concerns about their financial health with some banks submitting much higher rates than others. Barclays was one of those submitting much higher rates, attracting some
11、media attention. This prompted comment that Barclays was in trouble so Barclays began to submit much lower rates.,To protect the bank,Source: http:/www.bbc.co.uk/news,Truth and Consequences,Following the financial crisis of 2007/8, the reputation of banks and bankers is at an all time low The Libor
12、scandal has further undermined trust in banks. Paul Tucker, the deputy governor of the Bank of England called the Libor market a cesspit.,Truth and Consequences - Barclays,27 June: Barclays fined 290m by US and UK regulators for attempting to manipulate Libor rates 28 June: Barclays shares plunge 15
13、% 2 July: Barclays chairman Marcus Agius resigns and the government launches two inquiries into Libor and banking standards 3 July: Barclays chief executive Bob Diamond resigns,Truth and Consequences the money,While those paying interest on loans would have benefited from artificially low Libor rate
14、s, savers and investors would have lost out. Because Libor is used to set a huge range of financial transactions, the potential losses are huge. Lawsuits have been launched by US municipalities, pension funds and hedge funds,Truth and Consequences the world,The consequences are also global. Regulato
15、rs in South Korea are investigating alleged interest rate-rigging by at least four banks through certificates of deposit (CD), whose prices are used to set interbank lending rates in a similar way to Libor Regulators in Singapore and Japan are also making similar checks on their banks following the
16、Libor scandal Regulators in Canada, US, Switzerland, are also investigating rate rigging.,Your Coursework Assignment,You are a Financial Manager working for Barclays plc. The Bank has recently recruited a new Chairman, Sir David Walker, and he is keen to understand the implications of the recent Libor-fixing scandal for Barclays Bank. You have been asked to provide a 1,500 word briefing paper on the Libor scandal for Sir David in the form of a report. Prepare a report covering the followi
