Asian Philosophies of Critical Thinking Essay -- Critical Thinking Essa

Asian Philosophies of Critical Thinking The research question of this extended essay came across at a very early stage in my life. Having been born and developed from a family with all its members being University instructors and professors, I was often involved in arguments related to the lack of critical thinking in Asian cultures. As I got older, having had the chance to emerge in different cultures, I started to develop my own viewpoints and answers. I started to wonder about the truth between the real differences of Asian and Western philosophies of critical thinking. This extended essay, intended to be a research and investigation, bearing the title  ¡Ã‚ §Asian Philosophies of Critical Thinking: divergent or convergent to Western establishments? ¡Ã‚ ¨ is in fact however merely just a summary of my viewpoints and answers which I have developed throughout the years. In the first section of the essay,  ¡Ã‚ §Logical Tradition in India and China ¡Ã‚ ¨ I will attempt to give evidence of critical thinking in two Asian cultures that I have chosen; namely India and China. In India, I will argue that critical thinking is clearly visible in historical texts such as the Caraka and Nyayasutra. This is presented as the well-known five-membered argument, a system of logical deduction, similar to the Aristotelian syllogism found in the west. In China I would focus mainly on the two schools of logical thought, the Mohists and the Logicians. For the Mohists I would argue that critical thinking is a vital element in the building of what they call  ¡Ã‚ §mental models. ¡Ã‚ ¨ For the Logicians, I would study deeply the writings of Hui Shih and Kungsun Lung, I would show that in fact both of them developed systems of logical and paradoxical thinking that could well serve as the foundations of modern science. If critical thinking is clearly presentable in these Asian cultures then why are there still concerns for introducing it to them? This is the question I intend to answer in the latter section  ¡Ã‚ §Needham's Grand Question and Fuller's Interpretation. ¡Ã‚ ¨ During this section, I would also show that discussions of modern science seem to enable us to see how the tradition of critical thinking arose and how they were promoted or discouraged. I would cover how Asian historical, economic, social and cultural factors have a big influence on their development of critical thinking. Lastly I woul... ...nusya: Journal of Humanities, 1 (forthcoming). Hostetler, Karl. 1991. Community and Neutrality in Critical Thought: A Nonobjectivist View on the Conduct and Teaching of Critical Thinking. Educational Theory, 41.1, 1-12. Matilal, Bimal Krishna. 1990. Logic, Language and Reality: Indian Philosophy and Contemporary Issues. Delhi: Motilal Banarsidass. McGuire, John. 1998. Is Critical Thinking Cultural Thinking?. Unpublished ms. McPeck, John E. 1991. What is Learned in Informal Logic?, Teaching Philosophy, 14.1, 25-34. Needham, Joseph. 1969. The Grand Titration: Science and Society in East and West. London: Allen & Unwin. Paul, Richard. 1993. Critical Thinking: What Every Person Needs to Survive in a Rapidly Changing World. Santa Rosa, CA: Foundation for Critical Thinking. Ronan, Colin A. 1978. The Shorter Science and Civilization in China: An Abridgement of Needham's Original Text. Cambridge: Cambridge UP. Sutton, Robert. 1995. Realism and Other Philosophical Mantras. Inquiry: Critical Thinking Across the Disciplines, 14.4, 18 pars., http://www.shss.montclair.edu/inquiry/summ95/sutton.html. Tscherbatsky, F. Th. 1962. Buddhist Logic. New York: Dover.

Writing Technology :: Writing Technology Technological Papers

Writing Technology One definition of writing is to form letters, words or symbols on a surface such as paper with an instrument such as a pen (www.dictionary.com). To many this is an obvious definition. We use paper, pens and pencils almost every day of our lives. It has become so much the norm that we take it for granted and don‘t give it a second thought. But in retrospect, writing can be looked at as a technology that has come a long way and that is more complex than we may know. When given the task to write 20 words or less by using something natural, I found it to be very difficult. I thought long and hard. Without using something that was created by someone such as a pen, I came up with very few ideas . Not only did I have to find the instrument to write with, but also the surface on which to write upon. What in the world around us today is truly natural? Not much is the conclusion I came to, and being as it is winter, a whole lot less with all the snow. At first I thought about using my nails and writing into a piece of fruit. However, I would have to go to the store to get a piece of fruit because of the season, and stores aren’t really natural. I really wanted to do this project with as little use of things unnatural as possible. Than I thought about doing something with fire and ashes, but I don’t know how to start a fire using only two sticks. There were plenty of matches around, but like the store, those aren’t natural either. My final choice was to use a stick to write in the snow with, since there was plenty of both around. However, I had difficulty getting a stick to break off the frozen branches of the trees. So, what I ended up choosing as my instrument was an icicle. The icicle was very cold in my hands, and very uncomfortable. I could feel it melting as I stood there thinking of what to write. So I thought quickly, and proceeded to write â€Å"hi† in the snow. I chose â€Å"hi† because it was a short greeting that is commonly known. As I etched my word into the snow, I found it very smooth to move through. At first I hadn’t written deep enough for the word to be readable, so I had to trace it over again , this time with my icicle halfway into the snow.

Ensuring Freedom by Preserving the Values of Trade Unions Essay

Ensuring Freedom by Preserving the Values of Trade Unions Thoughtful committed citizens are the only thing that have ever changed the world. —Margaret Mead Anti-union sentiment is increasingly pervading American culture. In fact, one critic says, â€Å"The United States in now on the verge of a risky experiment: to become the first parliamentary democracy in modern world history without a substantial trade union movement† (Lichtenstein 66). In addition to weakening bargaining power, the judicial system allows workers to resign in the midst of a strike and scab on coworkers. A huge number of professionals and supervisors were even deemed exempt from representation (Lichtenstein 66). Legislation and corporate wealth are eroding the power of organized labor and thereby obfuscating workplace democracy; extinguishing employee rights; eroding the living standards of working, working- poor, and middle class Americans; muting the voice of minorities; retarding environmental improvements; increasing corporate domination of politics; and auguring exploitation of workers throughout the world. However, a significant portion of freedoms, to which Americans have become accustomed, would be greatly diminished or non-existent without the social values that are embodied by organized labor. Evidence suggests that employers seldom behave democratically without the mandate of a higher authority such as the government or a union. It is no wonder that workplace dictatorships are becoming a widespread phenomenon as government regulations fail to adequately protect workers but enhance the power of employers: â€Å"Fear of being fired, downsized, laid off, of not making pension time, poverty in a new economy, of part-time and insecure, low-paid jobs, an... ...titute, 1997. Lawrence, Vince. â€Å"John Sweeney’s Militant Unionism.† The New Republic 6 Oct. 1997: 23 - 24. LeRoy, Greg. â€Å"The Terrible Ten.† The Progressive 28 May 1999: 27 - 30. Lichtenstein, Nelson. â€Å"Work Rights, Individual Rights.† Dissent Spring 1997: 66 - 72. Mantois, Gregory. A New Labor Movement for the New Century. New York: Monthly Review Press, 1998. Moberg, David. â€Å"Union Pension Power.† The Nation 1 June 1998: 16 - 19. Puddington, Arch. â€Å"Is Labor Back?† Commentary July 1998: 39 - 42. Shribman, David. â€Å"Big Labor Gets Its Act Together.† Fortune 29 Sept. 1997: 60 - 61. Silbiger, Stephen. â€Å"State of Unions.† National Review 26 Jan. 1998: 20 - 21. Smith, Peter. â€Å"The Fractured World of the Temporary Worker.† Journal of Labour 22.2 (‘1998): 414 -427. Wells, Don. â€Å"Labour Solidarity Goes Global.† Canadian Dimension 32.2 (1998): 33 - 39.

Companies and the education Essay

It is no denying the fact that globalization is evil, in the real sense of the word, for countries like India, Pakistan and many other developing countries. Globalization is good among the developed countries- like America, Canada, Europe etc. because here the competition is on equal terms. Globalization is also fair among the developing countries, like India, Pakistan etc. But it cannot be said that globalization or competition is fair and on equal terms between developed countries on the one hand and the developing countries on the other hand. It does not make sense that Pakistan will be able to compete on equal level with America. The outcome of this competition can be forecasted easily i. e. all the benefits will definitely go in the pockets of the multinationals of the developed world and the developing ones will suffer greatly in this bargain. It can be said that globalization is a modern method of enslaving the third world countries. In the name of globalization the Western world is dictating the developing countries to open their markets and reduce expenses on social causes, the likes of education and health, while on the other hand the developed countries themselves are subsidizing their farmers, multinational companies and the education. This kind of globalization does not make any sense. But yes it can be called as Westernization. Globalization is the modern face of colonization. In globalization the poor and developing countries are to provide cheap raw materials for the developed world in return for expensive manufactured goods. Thus the developing countries will never be able to produce goods as cheap goods as the all-pervasive multinationals will be producing. They will just provide cheap labor. The supporters of globalization say that globalization has actually decreased the global poverty. They say that no doubt most countries have seen lower income growth but the world’s two largest countries china and India have experienced the opposite. They also say that it is only those countries that increasingly integrate them with the world economy that have managed to grow fastest and reduce poverty the most. Thus it is suggested by them that only those countries who open themselves very much to the world can be benefited in this bargain. Now let us check these arguments of the supporters of the globalization. â€Å"Economists agonize about capital flows but often overlooks the social disruptions, cultural clashes and political changes that globalization brings. † (Mott. 2004. p. 33) It is no doubt that exports and foreign investment played integral role in China’s development. China is able to buy the capital equipments and the other modern tools for its modernization by selling its home-made products in the length and breathe of the world. The managerial and technical expertise of china is also increased by the increase in foreign investment. Now take a close look and we discover that china’s economic policies violated almost all the rules and regulations according to which the supporters of globalization want to play their game. China joined the World Trade Organization only a year or two back and they also did not liberalize their trade policies to a great extent. Their economic policies are the most protected policies in the world. China opens its financial markets to the world just a little time back. Chinese know that the solutions to their problems must be the one suitable to the local conditions. Thus they developed and progress immensely not by following the hard and fast rules of globalization but by will, dedication and nicely built policies suitable to the local environment. On the other hand many countries that open themselves up to the world without taking care of the local demands and conditions suffer financially and functionally. For example, Latin America followed the principles of globalization with great zeal and gusto in the 1990sis suffering from increasing inequality, low economic growth rates, and heightened.

Building construction for fire services

Steel is one of the important elements of construction industry because it is widely used in the construction of railways, roads and buildings. Steel provide numbers of advantage in the construction industry due to its special characteristics such as it is more stronger in respect to the wood, more eco-friendlily (because it is easily recyclable), not deteriorate, rot, warp, bed or twist, resistant to fire, hurricanes, tsunami and earthquakes, resistant to termites and insects, requires low weight interior walls and easily used in difficult building locations.As like other materials it has also some limitations such as it is, more expensive than wood and it requires skilled professional contractors for construction. Steel play a important role in fire fighting industry and also makes the job of fire fighter easier. Firefighter is trained person who save life, property, aid and assist during natural disaster. They used several equipments in their work for eg. Ladder trucks, pamper tru cks, fire house ad fire extinguishers which are all constructed of steel due to its light weight in handling and stronger than other metal, more durability.The well-coated steel pipes helps in continues flow of water and there by immediate control on fire. As steel provides number of advantages to fire fighters but it also creates hurdles in performing their task because it frequently react to environment and forms rust which result immediate linkage pipe and damage of pipe. Steel is very easily prone to fire because of its high melting point therefore; it is always advisable to use such material, which is in flammable to prevent smoke and damage or to limit the fire to small areas.Therefore, from above discussion, we can conclude that steel play a crucial role in the development of fire industry but it is affected by certain limitations. Therefore, it is advisable to use steel by acting appropriately then only it is most successful. The fire fighters should take appropriate steps t o successfully rescue their operation Reference: Referred to sites: 1. http://www. smart-homeowner. com/articles/9651/pros and cons of steel framing. 2. http://en. wikipedia. org/wiki/Firefighter/Fire fighter dated 1st July 2007

Learning from Failure Essay

Everyone strives for perfection, for most people failure is not an option. However, the reality is that failure is an unpleasant fact, each day, a person fails in his or her tasks, decisions and ideas and organizations fail in their strategies and policies. In this highly competitive and achievement oriented society, a failure in any aspect of a person’s life is construed negatively and stereotyped as a sign of weakness. Failures are indeed negative occurrences that involve the inability to carry out the desired objective or goal of the individual or organization (Cannon & Edmondson, 2005). Failures can be either large scale or small scale, and it can have far-reaching effects than mere criticisms. Small-scale failures are normal consequences of the individual’s actions and decisions form day to day, for example, not being able to come to work on time is a failure on the part of the employee. Being tardy is a negative behavior and failing to be punctual can directly affect the work performance of the individual; however, such tardiness can also have dire effects on the organization. Chronic tardiness results to missed hours of work per week and probably lesser output for the department or unit and the organization as a whole. Such a failure can be dissected and analyzed as a personal failure, but it has varied implications for the organization’s policies and performance. On the other hand, large-scale failures are highly sensationalized and have the potential to lessen the competitiveness and the trust that people have on their organizations (Nevis,   DiBella & Gould, 1995). F or example, Martha Stewart’s failure and fiasco in her business enterprise have led to criticisms and stigma and for that time, sales of Martha Stewart’s products were very low. Organizational failures are often not highlighted as a basis for learning; instead, it is covered-up and undisclosed to the public. Learning from failure is not a popular concept in the American reality. Failures have a negative connotation and it is not a thing that is shared to most people. Likewise, organizations steer from the issue of failure and find immediate solutions to such failures and problems without considering the possible learning that the failure brings (Nevis,   DiBella & Gould, 1995). For example, mass resignations of pilots in an airline company spell disaster, and the most likely action for the company is to reduce flights. Learning from failure dictates that the airline company should look into the reasons of the pilots for leaving the airline. The result of the survey would be used as basis to institute changes in their policies in order to address the concerns of the pilots and to prevent mass resignations in the future. Organizations however, try very hard to keep their failures from becoming public since it would not be good for their business but making failures public communicates that the organization is willing to accept their mistakes and further commit to the improvement of their policies and procedures to prevent and minimize the occurrence of mistakes (Cannon & Edmondson, 2005). Large-scale failures that reach the consciousness of the public become common knowledge and these are used as a learning tool for other individuals and organizations.   The stock market scandals have resulted to clearer and stricter guidelines in the stock market. Thus, failures are not entirely negative; instead, it has the potential for driving new information and concepts and in the development of better policies and guidelines for all. Learning is a process that occurs throughout life, and failures play an important role in facilitating learning. Without mistakes and failure, an individual would not be able to learn what is right and acceptable from what is wrong and unacceptable. Failure is as essential to life as learning; one cannot exist without the other. Learning does not occur in a vacuum, it utilizes whatever information, and knowledge is on hand. However, the best kind of learning is said to come from failures and mistakes as it provides concrete basis for differentiating what is positive and good from what is negative and bad (Nevis,   DiBella & Gould, 1995). At an individual level, workers sent on a training workshop to learn new skills in the operation of new equipments would only have a working knowledge of the new equipment. Actual operation of the equipment would test the knowledge of the worker and the amount of learning that he has gained from the training workshop. A failure on the part of the worker would lead to the inefficient use of the equipment, and identifying one’s mistakes and source of failure would result to more learning. At this point the worker can now identify which of his actions had resulted to the mistake and which actions would control for the effects of the mistake and what behaviors he should do to prevent the mistake from recurring. In terms of organizational learning, failures are also a rich source of information that could be used to improve and strengthen the strategies that they already have in place (Cannon & Edmondson, 2005). It is important for organizations to learn from their failures as it is a factual occurrence that reflect the true state of the organization (Carmeli & Sheaffer, 2008). For example, a miscommunication between departments can bring about significant problems and difficulties in the conduct of the organizations’ activities. The most likely reaction is for the department heads and managers to resolve the problems brought about by miscommunication, but if the organization wants to apply the concept of learning from failures, they should b able to identify the source of the miscommunication and in what channels the miscommunication occurred, then the organization should look into the communication patterns of the organization and take the necessary steps to ensure that the communication systems would be corrected to prevent miscommunications in the future. Even though learning from failures has been found to be a useful tool for increasing the efficiency of organizations and in cultivating a positive culture, one that is open to experimentation and failure, not many organizations have embraced the concept and continue to disregard the learning that could be had from failures (Nevis,   DiBella & Gould, 1995). In a discussion of why organizations fail to learn from failures, it was pointed out that organizations fail to utilize failures as rich sources of information because of the lack of critical thinking skills that would identify failures as an opportunity for growth (Carmeli & Sheaffer, 2008). Additionally, organizations does not take into account and monitor for failure, instead it is systematically removed and not dwelled upon. Another reason for not being able to learn from failures is the human tendency to reduce the effect or to cover-up the incidence of a failure. Even without undue pressure, individuals have the tendency to downplay failures and mistakes and for most to find excuses and blame the failure on the system, and other individuals (Carmeli & Sheaffer, 2008). It is important to recognize that failures present a learning opportunity for organizations and even for one’s personal life, and although it takes courage and a more open and willing perspective, it is not impossible to attain. References Cannon, M. & Edmondson, A. (2005). Failing to learn and learning to fail (intelligently): How organizations put failure to work to innovate and improve. Long Range Planning, 38, 299-319 Carmeli, A., & Sheaffer, Z. (2008). How learning leadership and organizational learning from failures enhance perceived organizational capacity to adapt to the task environment. Journal of Applied Behavioral Science, 44:468. Nevis, E. C., DiBella, A.J., & Gould, J.M. (1995). Understanding organizations as learning systems. Sloan Management Review, 36, 73-85.

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.