Conflict on a Trading Floor
The details of this transaction
In this case study, the action takes place on the trading floor when Poseidon Cruise Lines wants to finance the construction of a new cruise ship that will be built by a French shipyard. The shipyard required payments in francs which created currency risk for Poseidon. Linda, a top salesperson, was assigned this transaction. She had developed a close relationship with the chief financial officer and treasurer over a year and a half of Poseidon being a client of FirstAmerica Bank. She used their trust and exclusivity to manipulate this new transaction to benefit her greatly. It took over three months for Linda and the CFO of Poseidon to create a structure that would hedge the company from all currency exposure and to create the lowest possible all-in cost in dollars. The plan was for FirstAmerica and Poseidon to enter into a “cross-country interest rate swap” where the francs would be paid to the shipyard. Part of the plan was also for Poseidon to buy three “forwards” from FirstAmerica which would lock in the future exchange rates. Linda also convinced the CFO that the structure she created made the most sense because it would save on transaction costs by being fewer transactions. She discouraged Poseidon to shop for rates saying it would upset the market, and doing this allowed her to quote rates much higher than the normal rates would be for this customer. Linda used reasons for rates being high were things that did not have an actual price for the benefit, such as market liquidity and credit risk. Linda was charging $12.5 million to hedge their risk, and there was no lucid reason why Poseidon’s transaction would be so much. Using persuasion Linda guided Poseidon’s CFO to follow her opinion and reasoning, and further tried deceiving him by comparing the high rates she quoted to a situation where a 10% government withholding tax was involved but not stated in the sheet. This situation is not comparable because the same rate would not apply to an off-balance sheet transaction, which Linda already knew.
How serious is the writer's predicament?
The writer’s predicament is very serious. This single transaction is so large that it can affect not only Linda and himself, but also the entire bank. The more minor issues the writer finds himself with is contemplating where his loyalty should be. He feels indebted to Linda since she brought him into the company with no prior experience and there were more qualified candidates for the job. He also finds himself questioning his loyalty towards his client, Poseidon, since the information he was told to fax is misleading. If Poseidon discovers and proves that they received deceitful quotes that did not apply to their situation then it could result in multiple negative consequences. Poseidon could go public with the misconduct of FirstAmerica and its employees. This could ruin the reputation of FirstAmerica Bank and make them a less desirable company to work with for current and future clients. Ultimately, Poseidon could take the company to court for their actions and try to receive money back from losses incurred by the misleading information provided. This situation could result in the downfall of the company by having their reputation discredited, the loss of customers, and a lawsuit payout that could be millions of dollars.
How similar is business to poker?
Business can be very similar to poker in the methods or strategies used in conducting both. According to a business insider article, “many of the most famous names on Wall Street count poker as one of their favorite hobbies” (poker). The business men conduct their business in similar ways as they do when playing a game of poker. This shows that there is some relation between poker and doing business. Businesses have a business strategy in place in order to achieve specific objectives and goals. Poker players also have strategies that they use as well. Both...
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