Public Relations Of The Oberoi Hotel Mumbai Tourism Essay

Public Relations Of The Oberoi Hotel Mumbai Tourism Essay The marketing focus on the most fundamental requirment of companies to identify customer,research their need and prefrences. According to an American educator and writer Peter F. Drucker The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself. According to Al Ries Strategy and timing are Himalayas of marketing. Everything else is Catskills Marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. A marketing strategy should be centered on the key concept that customer satisfaction is the main goal The tourism consumer is the critical judge of successful marketing and public relations activities. In todays increasingly competitive marketing environment there has been a shift from traditional marketing techniques towards more aggressive and varied approaches to marketing and communication. The change from transactional to relationship management in marketing over the past fifty years has been marked by improvements in consumer satisfaction and client recommendation of repeat purchase of products and services. Brands today are often built with effective PR campaigns and then maintained through a blend of marketing and PR tactics. The impact of the Internet is having profound impact upon PR and Marketing practices enabling PR practitioners to conduct two way communications in order to maintain and enhance customer relationships MARKETING Marketing- according to CIM, marketing the management of process responsible for identifying anticipating and satisfying customer requirement profitably accord to hand out marketing is a way of thinking ,a philoslphy . the amrican marketing association define markettin as : The process of planing and executing the conception .pricing, promotion and distribution of ideas, good and service to create exchange that satisfy individual and oregnisational goal(bennett1995) the marketing function is the study of market forces and factors and the development of the companys position to optimise its benefit from them . acoord to Richard hall- The first golden rule of marketing is that nothing is imposible PUBLIC REALATION Public relations concern any organisation, commercial or non commercials .it exists whether we like it or not, you cannot decide to have or not have  public relations public relation consists of all .communications with all the people with whom an organisation has contact .an individual also experience public relation, unless he or she is utterly isolated and beyond human contact. So misunderstand is public relation that the last place to look for a satisfactory definition is in dictionary .let us examine there internationally respected definition which I are familiar to PR professionals.   According to- IPR (institute of public relations)   Ã‚  Ã‚   public relation practice is the planned and sustained effort to establish and maintain goodwill and mutual understanding between an organisation and its public . (As revised November 1987) According to  Frank Jeflcins  Definition Public relation consists of all forms of planned communication outwards and inwards between an anisation and its public for the purpose of achieving specific objectives concerning mutual understanding. The Mexican Statement following the world assembly of public relation associations in Mexico City in August 1978, this  statement was agreed. Public relations practices is the  art and social science of analyzing trends, predicting their consequences, counselling organisation readers, and implementing planed programmer of action which will serve both the organisations and the public interest. (public realation by franks jefkins ,page nom 7,8) ISBN 0712117O91. OBEROI HOTEL Location of the Oberoi Hotels: In India, these hotels include The Oberoi Rajvilas, Jaipur; The Oberoi Amarvilas, Agra; Wildflower Hall, Shimla in the Himalayas; The Oberoi Vanyavilas, Ranthambhore; The Oberoi Cecil, Shimla and The Oberoi Udaivilas, Udaipur. Overseas, the new hotels include The Oberoi, Lombok in Indonesia, The Oberoi, Mauritius and The Oberoi, Sahl Hasheesh in Egypt. The Oberoi Zahra, Luxury Nile Cruiser, Egypt was launched in 2007. The Groups commitment to excellence, attention to detail and personalised service has ensured a loyal list of guests and accolades in the worldwide hospitality industry.The hotel has hosted a long list of notable guests including The Beatles, Jacqueline Kennedy Onassis, Bill Clinton, Jacques Chirac, The King Queen of Norway, The Duke Duchess of Kent, The Duke of Edinburgh, The Prince of the wale , Roger Moore, Joan Collins, Mick Jagger, Deep Purple, Michael Palin, Hillary Clinton, Michelle Barack Obama as well as professional cricket teams on tour. History of The Oberoi Hotel : The Oberoi Group, founded in 1934, operates 28 hotels and three cruisers in five countries under the luxury Oberoi and five-star Trident brands. The Group is also engaged in flight catering, airport restaurants, travel and tour services, car rentals, project management and corporate air charters. The Oberoi Group Hotels was founded by Mr.Rai Bahadur M.S.Oberoi in 1934. They have two principal brands THE DELUXE OBEROI BRAND and THE FIRST CLASS INTERNATIONAL TRIDENT BRAND. It owns and runs thirty five luxury and first class hotels in seven countries. Five Oberoi Group Hotels are members of The Leading Hotels Of The World and eight are members of The Leading Small hotels Of The World. It employs about 12,000 people worldwide and they are the trend setter as they were first to introduce in-house laundry and to employ women in their hotel. Marketing Strategy of the Oberoi Hotels (Oberoi Group): The Oberoi Group, founded in 1934, operates 28 hotels and three cruisers in five countries under the luxury Oberoi and five-star Trident brands. The Group is also engaged in flight catering, airport restaurants, travel and tour services, car rentals, project management and corporate air charters. A distinctive feature of The Groups hotels is their highly motivated and well trained staff who provide exceptionally attentive, personalised and warm service. The Groups new luxury hotels have established a reputation for redefining the paradigm of luxury and excellence in service amongst leisure hotels around the world. Today, Mr.P.R.S.Oberoi is the Chairman of The Oberoi Group and his son; Mr.Vikram Oberoi and his nephew, Mr.Arjun Oberoi serve in the capacities of Joint Managing Directors at EIH Ltd and EIH Associated Hotels, the two major holding companies of The Oberoi Group. The Oberoi Group is committed to employing the best environmental and ecological practices in technology, equipment and operational processes. The Group also supports philanthropic activities that range from education to assistance for the mentally and physically challenged. The Group is also a keen contributor to the conservation of nature and of cultural heritage. STRATERGY ANALYSIS of The Oberoi Hotel Palace Hotel: SWOT ANALYSIS : Swot analysis is a strategy planning model which is stands for Strength, Weakness, Opportunities and threats involves in a business venture it involves specifying the venture of business and swot analysis is also identifying the internal and external factors which are suitable and unsuitable for achieve that objective. Strength : Characteristics of the business or team which are giving advantage over other in the hotel industry. Weakness : Weaknesses are external factor of the organization and disadvantage relative to others.The cost of land in India is high at 50% of total project cost as against 15% abroad. This acts as a major deterrent to the Indian hotel industry. The hotel industry in India is heavily staffed. This can be gauged from the facts that while Indian hotel companies have a staff to room ratio of 3:1, this ratio is 1:1 for international hotel companies. Opportunities: External chances of the industry to make greater sail and profit in the environment. Threats: External elements which can create a trouble for the business of hotel industry. Competitors: There are so many competitors around the business of Oberoi Group Hotel they have price war with each other they are providing same facilities like as Oberoi Hotel thus it has direct competition with following brands who are looking forwards to join the race such as: The Taj Mahal Hotel Marine plaza The orchid Le meridian. Acquisition Hotel Blue Diamond Pune Leela. Strategy Planning Model Strategy planning can be very benefit to the success of any hotel. However there is not only one strategy model for every business while choosing strategy planning model hotel industry need to take into account that which model is best for their business with what they are trying to accomplish. Various hotel business analysis techniques are using strategy planning including Swot analysis, pest analysis. Strategy planning is dealing with three question key: What business we are doing in? For whom we are doing it? How we can do it? Planning: Planning is a specification of goals the housekeepers and the means to accomplish by the managing department. Setting objectives: Determining desired results. Developing strategies: Deciding how and when to achieve goals. Programming: Establishing priorities, sequence, and timing of step to be taken. Budgeting: Allocating resources. Developing policies: Making standing decisions on important Vision: Oberoi Hotel wants to see the organization whichs dreams leadership in hospitality industry by understanding their guest, delivering products and services according to their expectations. They are also want to see their hotel as a responsive organization where decision making is encourage at all level of organization which accept change according to time. It will be responsible towards their guest and stakeholders. Their main vision about their business that Oberoi Hotel industry want to see multi skilled workforce, which consist team player who have pride of ownership, translating organizational Vision into reality. The Oberoi Hotel groups of hotels trying itself to the overall improvement of the ecological environment. Oberoi Hotel industry always recognizes that they are not owner but they are caretakers of the planet and they will stable it to their children and future generation of humankind. Their commitment encompasses all action related to their product, services, associate, vendors and community. Mission: The main mission of the Oberoi Hotel that they are committed to meeting and exceeding the expectation of their guest through their dedication to every aspect of services. They want growth, development and welfare of their society and they want to make it really. In their business they will create extra ordinary values for their shareholders. Values: Oberoi Hotel believe in the cultural diversity respect of the people, passion for excellence, sense of urgency in work accountability, social responsibility joy at work. Oberoi Hotel industry feels that their people and guests are a latest key of their success. They respect the diversity of people, their idea and honour the value individual in a team. They want to get perfection of their achieving and continuously try to improve the process of global bench market. They got success by exceeding the all expectation of their stakeholders and by protecting the interest of shareholders. They are encouraged innovation and supporting the growth through knowledge. Learning and by put the knowledge into the practice. Oberoi Hotel industry believes in fair environment because that provides equal opportunity, brotherhood, to attract develops and retains the best talent from others. Goals of The Oberoi Hotel: Oberoi Hotel has many goals such as promoting any big event happening in the country and they have Formula 1 special offer for their guest. Creating bonds and good relation with their training centre to develop their staff and business. They are providing car and buses facility to transfer their customer where they have parked. The goals of the Oberoi Hotel is to replace the system in which communicate department have work with the bolster security after 2008 at the Oberoi Hotel and tower. MARKETING MIX The marketing mix is the tactical toolkit of product, place, price and promotion that marketes manipulat in order to satisfy their customers and implement their target market stratergies.(marketing briefe by Dibbs simikin 2001 ,page num 165 ) Conclusion: In the overall observation I have found that the main purpose of the hospitality and tourism industry is entertainment and satisfaction of the customer. Oberoi Hotel is using swot analysis to run have defining the strength, weakness, opportunities which identifying the internal and external threats and professional housekeeper, teamwork and leadership are the strength point of Oberoi Hotel. Oberoi Hotel always offering a range of facilities and business services like as internet, fax machine. I have found that the managing risk of the Oberoi Hotel refers both internal and external risk including Training, Evaluating, delegating etc. In the end of all we can say that Oberoi Hotel is one of the best hotel in the world due to their Location, Facilities and Business services. Recommendation: The data which is discribe in this assigenment that all is very usefull to starting and runging in the new bussiness. . Before starting any business we have need to make strategy planning. Strategy mean planning like how we can manage our business and how we can fulfill the needs of customers and how we can run our business with very good planning. Every businessman should give focus on the customers need because this is first and very important thing in business. Before open any hotel we should know that which place is right for situated the hotel we can say that is good accommodation of the hotel. For example: Oberoi Hotel is situated on the very good place its on the gateway of India and near the many Airports of Mumbai and it helps the travelers from incoming flights to find the hotel immediately. Before starting any business we make any strategy then we can face less problems otherwise we have to face lots of problems like as: Terrorism, New government rules and regulation, Comp etitors etc. We should try to improve the weakness of our business and alert about the threats of our business. Terrorism is always very big problem for the OBEROI HOTEL because of its popularity that is always in the eyes of terrorist. Oberoi Hotel has always needed to be aware from the terrorist activities. Some time hotel industry have to face problem in the Swot Analysis its mean Strength, Weakness, Opportunities, Threats and in Pest analysis is stands on Political, Economical, Social and Technical factors. Hotel should have to select good staff for in managing and in housekeeping department and staff should be expert that how they can impress the customer and fulfill their need and satisfaction. Business man should run the Monitoring system with this they can check that how their employees are doing work and they can find the weakness of their business. Business men have need to providing good salary and facilities like as: Bonus to their workers. Managing risk is most important thing for the hotel industry it includes both internal and external risk such as coordinating, Selecting Employee, Training, Directing. Organization should arrange and delegating work for accomplishment of the objects coordination in in volves activities design to create a relationship among all organization efforts to accomplish their goals.

Stereotypes and Stereotyping - Stereotypical Female in Im Your Horse i

A Stereotypical Female in I'm Your Horse in the Night  Ã‚  Ã‚  Ã‚   Luisa Valenzuela's short story titled "I'm Your Horse in the Night" is a thought provoking piece of literature. The story is written in such a way that the reader must interpret what is meant by what is being said. Although it is easy to go into depth when describing the elements of this piece, the storyline is rather simple. The story contains an assortment of characters; with those characters being Chiquita, Beto, Andres, and several policemen. The time and location are unknown. The telephone tells us that the time period is of somewhat modern times, and the Spanish ethnicity would most likely relate to the setting being that of a Spanish colonization. The narration of the story is first person persona told by Chiquita throughout. Aside from the geographic location of the setting, it is the home of a woman who lives on her own. She is in love with a man who she calls Beto. The woman hasn't heard from Beto in months, but she practically fantasizes about him every night. One morning she is awaken by   a mysterious phone call. She thought it was a man she calls Andres, but then the man hangs up and she is left hearing that Beto is dead. Chiquita called the police. They showed up only to harass her and tear apart her house, asking questions about Beto, which Chiquita was unable to answer. The police conclude their search by taking Chiquita to jail. She is left to ponder what is going on with Beto, the man she loved. The short story summarized above illustrates the common stereotypical theme of a female wanting to be loved by a man who in turn only wants the woman for her sex. The characters in this short story would have to be... ...ng and complexities, making it into a complete literary piece. Certain areas of the story were open for interpretation, giving the story line more than one path to go by, making it an ambiguity within itself. Every sentence adds to what the reader is able to see and comprehend as far as this particular story goes. Overall the theme is clearly that of a female simply wanting to be loved, and a male wanting sexual pleasure. This piece just glorifies the common occurrence with the verisimilitude of the main characters making the story come to life for the reader. The main characters within the story are a good example of reality when it comes to seeing the differences between males and females during an event such as this. Valenzuela's story does a good job of taking a common theme, and turning it into an exciting, thought provoking piece to read. Stereotypes and Stereotyping - Stereotypical Female in I'm Your Horse i A Stereotypical Female in I'm Your Horse in the Night  Ã‚  Ã‚  Ã‚   Luisa Valenzuela's short story titled "I'm Your Horse in the Night" is a thought provoking piece of literature. The story is written in such a way that the reader must interpret what is meant by what is being said. Although it is easy to go into depth when describing the elements of this piece, the storyline is rather simple. The story contains an assortment of characters; with those characters being Chiquita, Beto, Andres, and several policemen. The time and location are unknown. The telephone tells us that the time period is of somewhat modern times, and the Spanish ethnicity would most likely relate to the setting being that of a Spanish colonization. The narration of the story is first person persona told by Chiquita throughout. Aside from the geographic location of the setting, it is the home of a woman who lives on her own. She is in love with a man who she calls Beto. The woman hasn't heard from Beto in months, but she practically fantasizes about him every night. One morning she is awaken by   a mysterious phone call. She thought it was a man she calls Andres, but then the man hangs up and she is left hearing that Beto is dead. Chiquita called the police. They showed up only to harass her and tear apart her house, asking questions about Beto, which Chiquita was unable to answer. The police conclude their search by taking Chiquita to jail. She is left to ponder what is going on with Beto, the man she loved. The short story summarized above illustrates the common stereotypical theme of a female wanting to be loved by a man who in turn only wants the woman for her sex. The characters in this short story would have to be... ...ng and complexities, making it into a complete literary piece. Certain areas of the story were open for interpretation, giving the story line more than one path to go by, making it an ambiguity within itself. Every sentence adds to what the reader is able to see and comprehend as far as this particular story goes. Overall the theme is clearly that of a female simply wanting to be loved, and a male wanting sexual pleasure. This piece just glorifies the common occurrence with the verisimilitude of the main characters making the story come to life for the reader. The main characters within the story are a good example of reality when it comes to seeing the differences between males and females during an event such as this. Valenzuela's story does a good job of taking a common theme, and turning it into an exciting, thought provoking piece to read.

Financial Derivative Case Studies Essay

INTRODUCTION Financial derivatives have crept into the nation’s popular economic vocabulary on a wave of recent publicity about serious financial losses suffered by municipal governments, well-known corporations, banks and mutual funds that had invested in these products. Congress has held hearings on derivatives and financial commentators have spoken at length on the topic. Derivatives, however remain a type of financial instrument that few of us understand and fewer still fully appreciate, although many of us have invested indirectly in derivatives by purchasing mutual funds or participating in a pension plan whose underlying assets include derivative products. In a way, derivatives are like electricity. Properly used, they can provide great benefit. If they are mishandled or misunderstood, the results can be catastrophic. Derivatives are not inherently â€Å"bad.† When there is full understanding of these instruments and responsible management of the risks, financial derivatives can be useful tools in pursuing an investment strategy. DERIVATIVES: A derivative is a contractual relationship established by two (or more) parties where payment is based on (or â€Å"derived† from) some agreed-upon benchmark. Since individuals can â€Å"create† a derivative product by means of an agreement, the types of derivative products that can be developed are limited only by the human imagination. Therefore, there is no definitive list of derivative products. Why Have Derivatives? Derivatives are risk-shifting devices. Initially, they were used to reduce exposure to changes in foreign exchange rates, interest rates, or stock indexes. For example, if an American company expects payment for a shipment of goods in British Pound Sterling, it may enter into a derivative contract with another party to reduce the risk that the exchange rate with the U.S. Dollar will be more unfavorable at the time the bill is due and paid. Under the derivative instrument, the other party is obligated to pay the company the amount due at the exchange rate in effect when the derivative contract was executed. By using a derivative product, the company has shifted the risk of exchange rate movement to another party. More recently, derivatives have been used to segregate categories of investment risk that may appeal to different investment strategies used by mutual fund managers, corporate treasurers or pension fund administrators. These investment managers may decide that it is more beneficial to assume a specific â€Å"risk† characteristic of a security. For instance, several derivative products may be created based on debt securities that represent an interest in a pool of residential home mortgages. One derivative product may provide that the purchaser receives only the interest payments made on the mortgages while another product may specify that the purchaser receives only the principal payments. These derivative products, which react differently to movements in interest rates, may have specific appeal to different investment strategies employed by investment managers. The financial markets increasingly have become subject to greater â€Å"swings† in interest rate movements than in past decades. As a result, financial derivatives have appealed to corporate treasurers who wish to take advantage of favorable interest rates in the management of corporate debt without the expense of issuing new debt securities. For example, if a corporation has issued long term debt with an interest rate of 7 percent and current interest rates are 5 percent, the corporate treasurer may choose to exchange (i.e., Swap), interest rate payments on the long term debt for a floating interest rate, without disturbing the underlying principal amount of the debt itself. RISK INVOLE IN DERIVATIVES: There are four risk associated with derivatives. * Market risk * Operational risk * Counter party credit risk * Legal risk Market risk: The risk to earnings from adverse movements in market prices. Operational risk: The risk of losses occurring as a result of inadequate systems and control, human error, or management failure. Counter party credit risk: The risk that a party to a derivative contract will fail to perform on its obligation. Exposure to counterparty credit risk is determined by the cost of replacing a contract if a counterparty (as a party to a derivatives contract is known) were to default. Legal risk: The risk of loss because a contract is found not to be legally enforceable. Derivatives are legal contracts. Like any other contract, they require a legal infrastructure to provide for the resolution of conflicts and the enforcement of contract provisions. CORPORATION: BARING: Barings PLC was the oldest merchant bank in Great Britain. Founded in 1762. With total shareholder equity of  £440 million, it was far from the largest or most important banking organization in Great Britain. Barings had long enjoyed a reputation as a conservatively run institution. But that reputation was shattered on February 24, 1995, when Peter Baring, the bank’s chairman, contacted the Bank of England to explain that a trader in the firm’s Singapore futures subsidiary had lost huge sums of money speculating on Nikkei-225 stock index futures and options. In the days that followed, investigators found that the bank’s total losses exceeded US$1 billion, a sum large enough to bankrupt the institution. STRATEGIES AND TRANSACTION: CONTEXT: In 1992, Barings sent Nicholas Leeson, a clerk from its London office, to manage the back-office accounting and settlement operations at its Singapore futures subsidiary. Baring Futures (Singapore), hereafter BFS, was established to enable Barings to execute trades on the Singapore International Monetary Exchange (SIMEX). The subsidiary’s profits were expected to come primarily from brokerage commissions for trades executed on behalf of customers and other Barings subsidiaries. Most of BFS’s business was concentrated in executing trades for a limited number of financial futures and options contracts. These were the Nikkei-225 contract, the 10 year Japanese Government Bond (JGB) contract, the three-month Euroyen contract, and options on those contracts (known as futures options). The Nikkei-225 contract is a futures contract whose value is based on the Nikkei-225 stock index, an index of the aggregate value of the stocks of 225 of the largest corporations in Japan. The JGB contract is for the future delivery of ten-year Japanese government bonds. The Euroyen contract is a futures contract whose value is determined by changes in the three-month Euroyen deposit rate. A futures option is a contract that gives the buyer the right, but not the obligation, to buy or sell a futures contract at a stipulated price on or before some specified expiration date. STRATEGIES: During late 1992 or early 1993, Leeson was named general manager and head trader of BFS. Leeson never relieved his authority over the subsidiary’s back-office operations when his responsibilities expanded including trading. Barings’s management understood that such trading involved arbitrage in Nikkei-225 stock index futures and 10-year Japanese Government Bond (JGB) futures. Both contracts trade on SIMEX and the Osaka Securities Exchange (OSE). Leeson soon embarked upon a much riskier trading strategy. Rather than engaging in arbitrage, as Barings management believed, he began placing bets on the direction of price movements on the Tokyo stock exchange. Leeson’s reported trading profits were spectacular. His earnings soon came to account for a significant share of Barings total profits; the bank’s senior management regarded him as a star performer. After Barings failed, however, investigators found that Leeson’s reported profits had been fictitious from the start. By manipulating information on his trading activity, Leeson was able to conceal his trading losses and report large profits instead. A major part of Leeson’s trading strategy involved the sale of options on Nikkei-225 futures contracts. The seller of an option earns a premium in return for accepting the obligation to buy or sell the underlying item at a stipulated strike price. If the option expires â€Å"out-of-the money,† the option premium becomes the seller’s profit. If prices turn out to be more volatile than expected, however, an option seller’s potential losses are virtually unlimited. Sometime in 1994, Leeson began selling large numbers of option straddles, a strategy that involved the simultaneous sale of both calls and puts on Nikkei-225 futures. TRANSACTION: Leeson’s trading losses from 1992 through the end of February 1995. By the end of 1992—just a few months after he had begun trading—Leeson had accumulated a hidden loss of  £2 million. until October 1993, when his losses began to rise sharply. He lost another  £21 million in 1993 and  £185 million in 1994. Total cumulative losses at the end of 1994 stood at  £208 million. That amount was slightly larger than the  £205 million profit reported by the Barings Group as a whole, before accounting for taxes and for  £102 million in scheduled bonuses. By January 1, 1995, Leeson was short 37,925 Nikkei calls and 32,967 Nikkei puts. He also held a long position of just over 1,000 contracts in Nikkei stock index futures, which would gain in value if the stock market were to rise. WHAT WENT WRONG? HOW WAS THE LOSS ACCUMULATED? Disaster struck on January 17 when news of a violent earthquake in Kobe, Japan, sent the Japanese stock market into a tailspin. Over the next five days, the Nikkei index fell over 1,500 points Leeson’s options positions sustained a loss of  £68 million. As stock prices fell, he began buying massive amounts of Nikkei stock index futures. By February 6, the Japanese stock market had recovered by over 1,000 points, making it possible for Leeson to recoup most of the losses resulting from the market’s reaction to the earthquake. cumulative losses on that date totaled  £253 million, about 20 percent higher than they had been at the start of the year but within some days market began to fall again making losses to multiply. Barings faced massive margin calls as Leeson’s losses mounted. While these margin calls raised eyebrows at the bank’s London and Tokyo offices, they did not prompt an immediate inquiry into Leeson’s activities. It was not until Feb ruary 6 that Barings’s group treasurer, Tony Hawes, flew to Singapore to investigate irregularities with the accounts at BFS. Barings had committed a total of  £742 million to finance margin calls for BFS. WHO WAS RESPONSIBLE FOR THE LOSS? Some observers blame this lack of communication on the rivalry between the two exchanges. Communication between SIMEX and the OSE was minimal, however this lack of communication not only helped make it possible for Leeson to accumulate large losses but also hampered efforts to contain the damage once Barings collapsed. The exchange’s attitude toward Barings was influenced in part by the bank’s strong international reputation, but its willingness to relax normal risk management guidelines also may have been attributable to its desire to attract business. Events surrounding the collapse of Barings have served to highlight weaknesses in risk management on the part of SIMEX and other futures exchanges. Barings’ collapse was due to the unauthorized and ultimately catastrophic activities of, it appears, one individual (Leeson) that went undetected as a consequence of a failure of management and other internal controls of the most basic kind. Management failed at various levels and in a variety of ways WHAT LESSONS ARE TO BE LEARNED FROM THE CASE/ DISASTER? HIGHLIGHTED WEAKNESS: (1) The lack of communication between securities and futures exchanges and regulators in different countries, and (2) Conflicting laws on the legal status of customer accounts at futures brokers and clearing agents in the event of insolvency. These weaknesses can be addressed only by increased international cooperation among futures exchanges, regulators, and lawmakers. * Management teams have a duty to understand fully the businesses they manage. * Responsibility for each business activity has to be clearly established and communicated. * Clear segregation of duties is fundamental to any effective control system. * Relevant internal controls, including independent risk management, have to be established for all business activities. * Top management and the Audit Committee have to ensure that significant weaknesses, identified to them by internal audit or otherwise, are resolved quickly. METALLGESELLSCHAFT: Metallgesellschaft AG (hereafter, MG) is a large industrial conglomerate engaged in a wide range of activities, from mining and engineering to trade and financial services. In December 1993, the firm reported huge derivatives-related losses at its U.S. oil subsidiary, Metallgesellschaft Refining and Marketing (MGRM). STRATEGIES AND TRANSACTION: CONTEXT: In 1992, MGRM began implementing an aggressive marketing program in which it offered long-term price guarantees on deliveries of gasoline, heating oil, and diesel fuels for up to five or ten years. The first was a â€Å"firm fixed† program, under which a customer agreed to fixed monthly deliveries at fixed prices. The second, known as the â€Å"firm-flexible† contract, specified a fixed price and total volume of future deliveries but gave the customer some flexibility to set the delivery schedule. STRATEGY: By September 1993, MGRM had committed to sell forward the equivalent of over 150 million barrels of oil for delivery at fixed prices, with most contracts for terms of ten years. Both types of contracts included options for early termination. These â€Å"cash-out provisions† permitted customers to call for cash settlement on the full volume of outstanding deliveries if market prices for oil rose above the contracted price. Its contracted delivery prices reflected a premium of $3 to $5 per barrel over the prevailing spot price of oil. MGRM sought to offset the exposure resulting from its delivery commitments by buying a combination of short-dated oil swaps and futures contracts as part of a strategy known as a â€Å"stack-and-roll† hedge. TRANSACTION: In its simplest form, a stack-and-roll hedge involves repeatedly buying a bundle, or â€Å"stack,† of short dated futures or forward contracts to hedge a longer-term exposure. Each stack is rolled over just before expiration by selling the existing contracts while buying another stack of contracts for a more distant delivery date; hence the term stack-and-roll. MGRM implemented its hedging strategy by maintaining long positions in a wide variety of contract months, which it shifted between contracts for different oil products (crude oil, gasoline, and heating oil) in a manner intended to minimize the costs of rolling over its positions. Had oil prices risen, the accompanying gain in the value of MGRM’s hedge would have produced positive cash flows that would have offset losses stemming from its commitments to deliver oil at below-market prices. As it happened, however, oil prices fell even further in late 1993. Moreover, declines in spot and near-term oil futures and forward prices significantly exceeded declines in long-term forward prices. As a result, contemporaneous realized losses. WHAT WENT WRONG? HOW WAS THE LOSS ACCUMULATED? Decline in oil prices caused funding problems for MGRM. The practice in futures markets of marking futures contracts to market at the end of each trading session forced the firm to recognize its futures trading losses immediately, triggering huge margin calls. Normally, forward contracts have the advantage of permitting hedgers to defer recognition of losses on long-term commitments. But MGRM’s stack-and-roll hedge substituted short-term forward contracts (in the form of short-term energy swaps maturing in late 1993) for long-term forward contracts. As these contracts matured, MGRM was forced to make large payments to its counterparties, putting further pressure on its cash flows. At the same time, most offsetting gains on its forward delivery commitments were deferred. MG reported losses of DM 1.8 billion on its operations for the fiscal year ended September 30, 1993, in addition to the DM 1.5 billion loss auditors attributed to its hedging program as of the same date. WHO WAS RESPONSIBLE FOR THE LOSS? MG’s board of supervisors fired the firm’s chief executive and installed new management. The board instructed MG’s new managers to begin liquidating MGRM’s hedge and to enter into negotiations to cancel its long-term contracts with its customers. This action further complicated matters. The actions of MG’s board of supervisors in this incident have spurred widespread debate and criticism, as well as several lawsuits. Some analysts argue that MGRM’s hedging program was seriously flawed and that MG’s board was right to terminate it. Others, including Nobel Prize-winning economist Merton Miller, argue that the hedging program was sound and that MG’s board exacerbated any hedging-related losses by terminating the program too early. WHAT LESSONS ARE TO BE LEARNED FROM THE CASE/ DISASTER? Considering the debate over the merits of MGRM’s hedging strategy, it would seem naive simply to blame the firm’s problems on its speculative use of derivatives. It is true that MGRM’s hedging program was not without risks. But the firm’s losses are attributable more to operational risk—the risk of loss caused by inadequate systems and control or management failure—than to market risk. If MG’s supervisory board is to be believed, the firm’s previous management lost control of the firm and then acted to conceal its losses from board members. If one sides with the firm’s previous managers (as well as with Culp, Hanke, and Miller), then the supervisory board and its bankers misjudged the risks associated with MGRM’s hedging program and panicked when faced with large, short-term funding demands. Either way, the loss was attributable to poor management. FINAL CONCLUSION OF BOTH CASES: The cases of Metallgesellschaft and Barings provide an interesting study in contrasts. Both cases involve exchange-traded derivatives contracts. In both cases, senior management has been criticized for making an insufficient effort to understand fully the activities of their firms’ subsidiaries and for failing to monitor and supervise the activities of those subsidiaries adequately. But while critics have faulted MG’s management for overreacting to the large margin calls faced by one of its subsidiaries, Barings’s management has been faulted for being overly complacent in the face of a large number of warning signs. If these two disparate incidents offer any single lesson, it is the need for senior management to understand the nature of the firm’s activities and the risks that those activities involve.

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