Risk Takers Related to Investment Strategies and Speculative Markets - Book Report/Review Example

"Risk Takers" related to Investment Strategies and Speculative Markets Part Lessons learnt From the work of Marthinsen, a lot can be learnt as the work provides the actual situation on how financial derivatives can either cause success or failure in an institution. The author also focuses on the uses of derivatives in everyday life such as the stick option in use. It is through this discussion that the reader can understand the many derivative decisions made by different companies. With this one can fill the gaps left by theoretical understanding of financial concepts with real life situations. Among the lessons that can be gotten from the book is that financial derivatives can either be bad or worthy. Through this, one can even relate the stories heard from various failure resulting from the financial derivatives. However, as the author puts is, the financial derivatives are not necessarily destructive as many people would assume (Marthinsen 84-98). If the financial derivatives are used well, then chances of it being a success is possible. It is at this point that one relates to the derivative scams in many companies that ultimately incurred huge losses. If the financial derivatives could have been applied practically then the companies would not have had losses. The book also gives a good insight on the trading strategies that different companies have adopted as a plan to succeed in the market. For instance, there is a discussion on the trading strategies of companies such as Banker’s Trust, Amaranth and even LTCM (Marthinsen 145- 241). This gives the reader an actual understanding of the existing market and how other trading partners have managed to survive through application of real life situations on the financial derivatives. Most interestingly, the author almost convinces the reader that failure cannot occur. This makes the reader get the basics of financial derivatives. For instance, at the end of every chapter, Marthinsen explains the causes of failures in the derivative market in such a way that it seems to have alternatives. At the end of the work, one is convinced that no failures have a place in the derivative market based in the formulae given by Marthinsen. The knowledge of the huge misuses of derivatives is indeed good knowledge for every reader. Most importantly, the author gives entails on the investments bankers under the rise of derivatives. Though Marthinsen does not put much emphasis on the derivatives and bankers, he explains that it is possible to minimize the risks that result from derivatives through devising ways in which they can be measured (Marthinsen 67-130). The work also helps the student comprehend the functionality of risk management systems and how they can be instrumental in solving the issue of losses especially when the company in question suffers an impromptu blow. The author gives practical examples of how the company can survive in the market during the tough times. It is clear that the risk management systems needs to be extremely strong and sustainable if the company has to be spared from financial disasters (Marthinsen 165-179). Decisively, Marthinsen explains that the positives of derivative result from their liquidity, convenience and control (180-181). It is these characteristics that make the derivatives attractive to investors and traders that aim at getting high returns through adopting strategies that are extremely risky. Derivative disasters have also been indicated to result from lack of an understanding of the strategies used by the concerned stakeholders and management in question. It is, therefore, important to understand the characteristics if the derivative disinters and make sure that an internal control system is designed to make sure that financial derivatives are well applied in the market. For instance, risk management techniques can be outlined through outlining the derivative positions taken. Generally, the author emphasizes that companies can come up with risk management systems that will help describe how the companies and financial institutions can prevent themselves from derivative disasters (Marthinsen 197-215). This explains that through a well-defined risk management policies and control systems, the company can completely do away with derivative disasters that may completely bring down a company. In the event that a company firmly designs disaster derivative measures, it is possible to end derivative disasters. This also explains that derivatives will be used correctly; thus, reducing significant losses as strategies to mitigate these the risk strategies will be reduced. Derivatives are, therefore, time bombs and companies cannot avoid them in their economic systems. Effective strategies are subsequently the best approaches of handling the situation. Part 2- Connection to the course, Investment Strategies and Speculative Markets Marthinsen’s 2008 book is greatly correlated with the course, Investment Strategies and Speculative Markets. Just as the book focuses on derivatives, the book also gives an insight on the basics of derivatives markets. The course emphasizes that derivative markets are extremely important and they are expected to change just as the financial markets evolve. Through the course, the manner in which the derivative securities function is also imminent in the work by Marthinsen who emphasizes on the need to understand the underlying principles of financial derivatives. These principles include pricing control that cause major impact on the company in question (Lecture Notes 2015). Most important, the book explains how significant it is for companies to design risk management policies that may save the institution in question from derivative disasters. The same is evident in the course since it aims at bringing out the lessons that were leant from previous derivative disasters. The course also prepares the learners on the best ways to use financial options in risk management in case of derivative disasters. In the same way Marthinsen talks about hedging, the course specifications also touch on the hedging strategies that may useful in the future of a company such as cross hedging and its basic risk (Lecture Notes 2015). Both works also focus on the realities of hedging in the financial markets. The pricing options are also a characteristic of Marthinsen’s work and the course material since pricing models have been termed as major key players in the financial markets. Work Cited Lecture Notes. Investment Strategies and Speculative Markets. 2015. [Word file]. Marthinsen, John. Risk Takers: Uses and Abuses of Financial Derivatives, 2nd ed. Boston: Pearson Prentice Hall, 2008.  Print. Read More