The most comprehensive educational resources for finance

Trade and Capital Restrictions

Trade Restrictions In many countries governments will impose trade restrictions that will restrict foreign companies from supplying goods to these countries. Below are the main reasons for imposition of trade restrictions. Protect new industries: The government may want to protect any new industry from competition till it grows to a certain level. National security: The

Ricardian and Heckscher-Ohlin Models of International Trade

There are several models that are used to analyze the dynamics of international trade. Two such models are Ricardian and Heckscher-Ohlin models. Let’s look at each of them in detail. Ricardian Model The focus is on comparative advantage. The model suggests that the countries specialize in producing goods and services that they can do best.

Comparative Advantage Vs. Absolute Advantage

In international trade, companies can have absolute and comparative advantage in producing goods and services over other countries. A country has absolute advantage in producing goods if it is able to produce goods at a lower cost in terms of resources compared to other countries. On the other hand, the country that can produce a

Benefits and Costs of International Trade

International trade clearly has more benefits than the costs for the economies as a whole. The key idea is that as different global economies specialize, nations can gain from trading with one another by creating abundances of those products and services that they do best.  The excess of one nation’s product can then be traded

Recommendations for Improving Control Environment at AIB/Allfirst

Below are the recommendations with respect to improving the control environment at Allfirst and AIB. The controls in AIB should be benchmarked against these to ensure consistency First, business strategy in the trading areas should be reconsidered, specially proprietary trading. The scope and location of all proprietary trading activity within the AIB Group should be

Control Deficiencies at Allfirst Treasury That Led to Fraud

There were many control deficiencies in Allfirst Treasury that made the fraud by Mr. Rusnak possible. The key control deficiencies are listed below: 1. The failure of the back office to attempt to confirm bogus options with Asian counterparties This is one of the most important control deficiencies in the Allfirst’s treasury. Even though they

AIB: Discovery of Fraud, and Magnitude of Losses

Discovery of the Fraud Mr. Rusnak’s fraud scheme started unravelling in early December 2001. This happened when the back office supervisor came to know that the option trades were not being confirmed and the back office employee explained to him that they did not require confirmation because they offset each other and were with Asian

AIB Currency Losses: John Rusnak’s Role and the Fraud

John Rusnak’s Role In July 1993, Allfirst hired Mr. Rusnak. The hiring process was led by the head of treasury funds management for Allfirst, Mr. Ray. Mr. Rusnak had extensive experience in currency trading. Mr. Rusnak promoted himself as a trader who used options to engage in a form of arbitrage, attempting to take advantage

Forward Exchange Rates

Forward contracts commonly trade at premiums or discounts to the spot rate and the presence of a premium or discount provides an analyst with insights into the market’s expectation for one currency’s appreciation or depreciation against another currency. Annualized Forward Premium =((F X-dom/Y-for – Spot X-dom/Y-for)/Spot X-dom/Y-for))*(12 / # of months to settle) * 100

Overview of Currency Markets

Spot market – the market where currencies trade for immediate exchange. Forward market – the market where currencies trade for future delivery. Understanding currency markets requires an understanding of direct and indirect currency quotation.  The example below illustrates the concept. Example: $1.62/£ This is a direct quote for the British pound sterling, in terms of