Marketing in China

Long Term Capital Management (hereafter referred to as LTCM) was an investment firm operated as a hedge fund. Hedge funds are fundamentally large investment funds for well-heeled institutions and individuals. Hedge funds allow for the use of taking short positions in securities and are not limited by the restrictions imposed upon other investment instrument with regard to the composition of their portfolio. LTCM was a type of hedge fund further categorized as a relative-value fund. At early stage, it seemed as if LTCM was destined for triumph with John Meriwether, the renowned bond trader from Salomon Brothers, as its organizer. The LTCM team also recruited two Nobel-prize winning economists Robert Merton and Myron Scholes, as well as ex-Federal Reserve Board member David Mullins, who had quit his job to become affiliated with LTCM. These diplomatic approaches convinced approximately 80 founders to pull up a decent amount of wealth, including David Komansky and Bear Sterns President James Cayne. The main trading strategy utilized by LTCM was called convergence trades. These trades were intended to find gaps in mispriced securities by taking short positions in the more expensive ones and long position in the cheap ones. LTCM had undergone trades in four main types of activities: Convergence trading among US, European, and Japan sovereign bonds; Convergence trades in European sovereign bonds; Convergence trades between on-the-run and off-the-run U.S. government bonds and finally Long position in emerging markets sovereigns which then get hedged back into dollars. The major factor that differentiates LTCM’s trading strategy from other types of investment is that LTCM tried to immunize themselves from the markets’ movements. Unlike others, LTCM did not take positions in whichever the direction of a security was headed. Rather, LTCM tried to find securities that they believed was mispriced; in taking this advantage, LTCM purchased securities that they thought was...