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In 1993 he created Long-Term Capital as a hedge fund and recruited several Salomon bond traders and two future Nobel Laureates, Myron S. Scholes and Robert C. Merton.[5][6] LTCM managed trades in Long-Term Capital Portfolio LP, a partnership registered in the Cayman Islands. The fund's operation was designed to have extremely low overhead; trades were conducted through a partnership with Bear Stearns and client relations were handled by Merrill Lynch.[7] The company used complex mathematical models to take advantage of fixed income arbitrage deals (termed convergence trades) usually with U.S., Japanese, and European government bonds. By a series of financial transactions, essentially amounting to buying the cheaper 'off-the-run' bond (the 29 and three quarter year old bond) and shorting the more expensive, but more liquid, 'on-the-run' bond (the 30 year bond just issued by the Treasury), it would be possible to make a profit as the difference in the value of the bonds narrowed when a new bond was issued. At the beginning of 1998, the firm had equity of $4.72 billion and had borrowed over $124.5 billion with assets of around $129 billion, for a debt to equity ratio of over 25 to 1.[15] It had offbalance sheet derivative positions with a notional value of approximately $1.25 trillion, most of which were in interest rate derivatives such as interest rate swaps. The fund also invested in other derivatives such as equity options.
Effect of Asian financial crisis and Russian crisis. Investment in Dual Listed Company Royal Dutch Shell Bailout
New hedge funds require face-to-face access to specialized services flacks, fund-raising consultants, lawyers, accountantsas well as to the institutions and individuals that supply capital. The first law of hedge-fund dynamics is that most people who start hedge funds dont wander far from familiar turf. This is partly because traders are loath to give up hard-won co-ops and nursery-school spots, and partly because they are superstitious creatures of habit. The second law of hedge-fund dynamicsalso known as the narcissism of small distancesis that hedge-fund managers seek the shortest possible commute that doesnt involve working at home. The third law of hedge-fund dynamics dictates that hedge-fund managers, like other members of the global plutocracy, tend to move in the same small, concentric circles.
What did RBI do to arrest rupee fall?
The RBI also deregulated interest rates on non-resident Indian deposits to attract greater flow of dollars through this route.