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Speculation and Portfolio Diversification Strategies for Goldman Sachs - Term Paper Example

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This work called "Speculation and Portfolio Diversification Strategies for Goldman Sachs" focuses on the financial investment strategies of Goldman Sachs. The author shows the brief main points concerning financial risk management strategies. From this work, it is clear about its aspects, concept, keywords. …
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Speculation and Portfolio Diversification Strategies for Goldman Sachs
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Download file to see previous pages The aim of this dissertation is to look into how Goldman Sachs engaged in financial speculation as “its mortgage department made bets that securities backed by high-risk home loans would plunge in value. The well-timed move has generated nearly $4 billion in profits for the year ending on November 30” (Spence, 2007). The financial investment strategies of Goldman Sachs will be explored in this dissertation whereby financial speculation, hedging, and portfolio diversification policies will be examined. What this dissertation strives for is to prove that the timing and its impact on the financial strategies employed by Goldman Sachs and that of Citibank and Morgan Stanley are critical in managing financial risks. Using financial derivatives in itself is not enough if they are not carefully and timely executed. The dissertation wishes to examine firms in the financial sector with an emphasis on the following three:
It is necessary to compare the speculation, hedging, and diversification strategies employed by these three financial giants before, during, and after the subprime crisis at the end of 2007. No such thorough review exists at this time that looks and compares these three US financial institutions in relation to the subprime.
I intend to examine risk and the diversification and explore the implications in the light of efficient markets and market timing theory. There are some risks that cannot be diversified away like the market risk. This dissertation will focus on financial investment strategies – speculation, diversification, and hedging - specifically looking at the use of financial derivatives products. This dissertation will look into the company policies surrounding financial hedging and speculation and how it related to the timing of their investments in relation to the subprime crisis. Each firm will be researched by examining documents like the company’s annual reports for the past few years, press releases, government documents, and reports from international bodies like the BIS and the World Bank. Speculation, arbitrage, and hedging investment strategies employed by Goldman Sachs, Morgan Stanley, and Citibank will be compared. Timing and the use of specific instruments will also be recorded. In this regard, the theory and application of market timing are critical. Levy (2005, p. 890) stated that “market timing is an active investment strategy exploiting market inefficiency by moving into underpriced asset classes and out of overpriced asset classes”. I will be using secondary and third party documentation resources to look into the financial strategies employed by the three organizations and analyzing them within the context of market timing theory. This will help me understand the operational and organizational setups and how they played a part in the financial investment strategies of these firms. ...Download file to see next pagesRead More
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