Conflict on a Trading Floor
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
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