The Methods of Job Analysis and Job Design in the HR Function Essay Example for Free

The Methods of Job Analysis and Job Design in the HR Function renderThere arent many differences in job descriptions for an Employment Assistant example in my text and the Marketing Account Representative position at Alliance Worldwide on Monster.com. The job description for the Employment Assistant position is summarized and straight to the point. Instead of providing the callers history, the job description very describes the position. In the Human Resources way department, the selected individuals must perform professional HR run short such as employee recruitment and selection, maintaining files, and other duties. In this position, you must depart under general supervision as well. The Marketing Account Representative position is a little different. The description for this position is mostly the history of the company such as forgeting to hire candidates at an entry-level position and training them into Branch Management. There are different position titles between th is entry-level position, and with each promotion, you will be an expert in your previous field and entry-level in another, maintaining a teacher and student mentality.One of the differences is the responsibilities between being in Human Resources Management than a Marketing Representative is that there werent any business opportunities available. The job opportunities for Marketing Representatives at Alliance Worldwide are presented immediately upon hiring. just about of the opportunities includes developing entry-level skills and gradually grow to train others. Despite of the different job descriptions of these two positions, each job includes a great deal of education, hard work and training, and the ability to perform.

Letter of Transmittal Essay Example for Free

Letter of Transmittal EssayAs per the request you made, I am writing this report to point out problem areas that Pinkberry will micturate to carefully consider as it attempts to expand its presence internationally, and particularly into the Kuwaiti market. For five years now, Pinkberry has established a solid reputation as the finest purveyor of frozen yogurts in the US, rising to gain the market leadership position in this category. This has largely been made possible through our unique product offering, which makes use of the highest quality, real, non-fat milk. With our success in the US market, time is ripe for the company to expand internationally and capture the global market by leveraging on this strength, which is also the source of the companys competitive advantage. One of the prime investment destinations that we have identified is Kuwait. With a real GDP growth rate of 8. 5% in 2008, a relatively open economy, high rates of growth in the services sector driven by a b oon in oil prices in recent times, opportunities for growth in this market abound for Pinkberry.Additionally, US products enjoy very favorable attitudes in the country, with the two countries having pre-existing trade relationships where the US is Kuwaits largest import partner accounting for about 13% % of all its imports. Notwithstanding these factors, Pinkberrys entry and subsequent success in the Kuwaiti market is likely to be tempered with various challenges. These include heathenish differences between the Kuwaiti and US markets, political-legal forces, and the unavailability of local sources of raw materials.By going through this report, I believe that you will get an exhaustive time lag of these factors, which will enable us come up with strategies that will help us effectively conquer the Kuwaiti market. I remain greatly glad for the opportunity to prepare this report and will remain freely available for any clarifications arising. Yours faithfully, Business Development Manager, Pinkberry.

The Risks Of Employing Ex Convicts General Studies Essay

The Risks Of Employing Ex Convicts General Studies Essay1. Background and Rational for choice of 1st field of operation.Risk of companies enforceing ex-convicts by dint of with(predicate) the Yellow Ribbon Project. (SPRING.gov.sg) Ex-convicts be trained in courses such as Nitec certification in electronics, ISC in food preparation, ISC in electrical wiring, and NSRS in modify skills. They also gain regulate retain sex in Singapore Corporation Of Rehabilitative Enterprises (SCORE) industries (eg. Bakery, laundry services, multimedia etc) to preserve relevant in the workforce.This benefits employers as these workers ar pre-trained and fitting to start work immediately.It is important to promote the employment of change as Singapore has a small population, hence desire to maximize charitable resource. Also, companies need to address prevailing skills shortages and problems in filling tune vacancies in tight labour markets. Besides this, due to the fact that Singapore is dependent on foreign workers, ex-convicts can be employed instead, with a lower pay, to reduce their cost of production.Need for ex-convicts to be included in lodge and for them to be able to sustain themselves without living off others. Thus they leave no longer be a burden to society, including companies. net sources Ruth and Bryan to find information that explains(i) bump of infection reappearancen(ii) Its necessity Others Rayna and YiKai to gather statistics/evidence/ behold results to(i) Provide evidence to show why risk is worth taking(ii) Substantiate the reasons for importance to take risk2. Details of what happened or was doneCompanies enkindle in employing ex-convicts register an account to access the Singapore Corporation Rehabilitative Enterprises online job portal. Companies then employ ex-convicts, giving priority to those who participated in rehabilitative and aftercargon programmes, provided by the Yellow Ribbon Project. Last year, a record 2,459 companies p ledged to give former convicts a fleck chance up 13 per cent from the 2,118 registered with the Score in 2009.E.g.Logwin Air + Ocean Singapore pte ltd (Straits Times 14/2/11)Logwin Air + Ocean Singapore, an internationalistic logistics company, has hired 3 ex-convicts since 2008.Among these is Mr Abdul Rahim Daud, who was jailed for vehicle theft in 2009. He currently works as an assistant for the company, ensuring that the company does not accidentally export more goods than necessary, saving it money.His boss, managing director Jimmy Ler, says that he is an efficient worker and he is good at what he does.(+)Employed ex-convicts were already trained, so no need to allocate resources to training, save time and money.(+)They work hard as they know the 2nd chance is precious(-)Employees need to go for follow-up sessions with the Singapore After-C atomic number 18 standstill (SACA) and Singapore Anti-Narcotics Association (SANA), takes up time.(-)Some employees may revert to old ways, threat to company(-)May tarnish companys reputation as public do not live with criminals, generally.Printed/ internet sourcesRayna and Yikai to refer to website and others for employment of ex-convicts programmes.Resource PersonsRuth and Bryan to seek expert opinion about employment of ex-convicts programme. .Printed/ internet sourcesRayna refers to Yellow Ribbon website on pull through-up of collaborationsRayna to writeBryan to vet for spelling grammer and to format documentRuth to vet that substantiation is adequate and start writing BiblioYiKai to vet for logic gapsq Group has sh deliver that 1st plain is interesting and has significant lessons to learn from.q Group has shown that an appropriate amount (not too a good deal, not too little) of background information to 1st area is given.3. Lessons learnt1. The number of employers voluntary to hire ex-convict has jumped by nearly a third.2. Important role families play in the rehabilitation of former prisoners. The Fam ily Resource Centres set up in prisons are where counsellors run workshops in family, parenting and marriage for prisoners to prepare them for life outside jail. Helps them patch things up with family and reconnect with society without being a burden because they are able to donjon and sustain themselves with a job.3. Rehabilitative and aftercare programmes and skills training helps to en received that the ex-convicts will be able to help the company increase productivity and not make losses.Printed Internet sources Ruth and YiKai to find information on(i) effect of hiring ex-convicts on society(ii) ways government and public can helpOthers Rayna and Bryan to gather statistics/evidence/ survey results to(i) provide evidence to show positive welfare effect(ii) substantiate the reasons for employing ex-convicts who participated in the rehabilitative and aftercare programmes.q Specific impacts/approaches catch up with hold of been clearly identified.q Appropriate and relevant lesso ns learnt have been drawn out from each impact/approaches.4. Background and rational for choice of 2nd area.Successful social entrepreneur wants to contri howevere and return back to the society. They path other companies to employ modify to build an inclusive society. Joan Bowen is conferred the Notable New Employer mete out. The cafe and culinary centre was started in August 2009 to teach essential life-long skills to softly in circulateectually handicapped young adults. The cafe operates as a social enterprise with the ultimate aim of equipping youths with peculiar(a) needs with a position of culinary skills so that they are able to make their mark as individuals and contrisolelye as active members of society, says Jeanne Seah-Khong, managing director of Joan Bowen. Joan Bowen, founded by Ms Seah and her husband Khong Yoon Kay, two 55, currently has 13 PWDs on its payroll. They work as cooks, dishwashers and service at huntants. To enable the PWDs to learn better, Joan Bo wen provides tools like visual aids to help them overcome their handicaps in reading. educate in the cafe is structured for PWDs to work smoothly.Through systematic training, the PWDs became so proficient in operating the point-of-sale machines, coffee machines and credit-card terminals that they were even able to tell when the machines were due for servicing, Ms Seah adds.Other employers employ incapacitate because of the following reasonsAt the counter in the Toa Payoh KFC restaurant, a crew member taps on his I am deaf badge and, without fuss, takes your order with a big smile. This shows that hiring throng with disabilities have benefits as it is believedthat legion(predicate) have to work very hard to beaccepted into the workforce and will, therefore,be less likely to leave and hence, are motivated and determined to meet employment challenges.Lights, monitors and visual cues in the kitchen alert the hard-of-hearing staff when food is ready to serve. A shift manager is on d uty he cant hear you either. This shows that companies will benefit as many people with disabilities are accustomed to finding alternative ways of doing things. This innovative thinking can carry over into the study. Thus, the cost of hiring handicapped workers is not much higher than that of ordinary workers.Despite its handicap, the Toa Payoh outlet has been operating since 2003. Its success has spawned two other deaf-operated KFC branches, in Fuchun Community Centre and Jurong West Community Centre.Apart from the ccc deaf crew on its payroll, KFC also opens its doors to people with Attention Deficit Hyperactivity Disorder as well as the intellectually, physically and visually handicapped. Their ages range from 16 to 56. Some have been with KFC for as long as 19 years. Thus, ensures that human power shortage can be avoided as many people with disabilities tend to remain with the same employer for many years.KFC has not gone unnoticed as a PWD-friendly boss. It was appointed Amba ssador for the Deaf in 2004 and demonstrateed the Presidents Social Service Award in 2006. Thus, hiring alter do not result in a decrease in business for companies but instead increase their business. KFC did not experience a decrease in the number of consumers. This shows that hiring incapacitate will not affect the business of the companies as customers will often be attracted to or remain loyal with a company that they feel is being inclusive.Statistics show that people with disabilities use less sick leave than non- disenable employees. (Journal of occupational Accidents-1984). Thus, hiring disabled has benefits as they are more productiveWhile the 50 PWDs Hans employs are small in number compared with those on KFCs payroll, they make up almost 10 per cent of its staff. The PWDs are treated as part of Hans big family. We address the PWDs as colleagues and dont see them as a burden, says Hans deputy general manager Gan Yee Chin. Five others also got a special mention for parti cular exemplary qualities in hiring PWDs Joan Bowen, Eureka Call Centre Systems, Pizza Hut Singapore, Holiday Inn Singapore Orchard city Centre and Fong Shen Mould and Precision Engineering.As a whole, hiring disabled has more advantages than disadvantages as employers have found that most have not only(prenominal) met but exceeded exceptions- In fact, They have gone on to become very productive and loyal Employees. Need to employ disabled people 1. Diversity in the workplace employing disabled people helps the the team to be more diverse, which in turn ups the level of creativity and innovation. Furthermore, they will be drawing from a wider talent kitty-cat and there are disabled people who have skills, knowledge and expertise to contribute to the company/society.Louis Harry check into showed that 88% of people working with a disabled colleague say that this experience is enriching, likely to modify their opinion of disabled people and to give a new sense of value to their j ob (60%). 2. Tight labour market limited human resources, companies have to make full use of expertise available, and employing disabled people helps them to boost manpower.Louis Harry Survey showed that 80% of people employing or working with disabled workers think that they are as productive as any other employee.3. Contribute back to society employing disabled people will enable them to earn a steady income to concentrate themselves or their families, also helping to boost their confidence when interacting with other capable individuals. Moreover, the company will earn the respect and admiration of others because of their humanity, they are willing to employ disabled people and are not focused solely on making money. Louis Harry Survey showed that 75% of people working with a disabled colleague think that the recruitment of disabled workers in their firm gives a positive image and influences them favourably in the perception of their employer. Internet sourcesRayna and Bryan t o design survey for companies, which employed disabled, to gather statistics. Ruth and YiKai to interview KFC for statistics.q Group has shown that 2nd area is interesting and has significant impact. q Group has shown that an appropriate amount (not too much, not too little) of background information to 2nd area is given.5. Strategies that can be create from lessons learnt in (3) to apply to 2nd area. Strategy 1 ESPERANZA(Hope)Features of the websiteThe organizer is the Asian Womens Welfare Association. The main objective of setting up the ESPERAZA is to provide a favourable platform for job matching. The website will be managed by AWWA, which the bridge between companies and disabled. AWWA assist disabled in going onto the website to look for more job opportunities, especially, people who are blind. The website is specially formatted to make it easier for the disabled (cannot sit or look at the computer screen for too long) as the job are categorize according to type of disabili ties (e.g. deaf) and industries (e.g. handicraft). To ensure that companies can save money on providing skills training and disabled job opportunities to disabled according to their last talents/experiences and skills learnt previously in AWWA. Disabled visit website, know about different job opportunities and decides on interested and relevant job. AWWA alert disabled that once clicked on confirm button, disabled will be an official employee of company, cannot b deficiency out, otherwise they will have a black record and remain unemployed for lifetime. Solution to reduce riskOne of the main reasons why companies hesitate hiring the disabled is cause they are unsure whether the disabled are able to fully commit themselves to the jobs. This includes resigning after a short term and so on. With the features like confirm button, disabled people will take their job interviews into careful consideration. This is turn reduces the risk that the companies face when hiring the disabled. ship way to encourage companies to participate in the job search portalSend volunteers to companies who are able to hire the disabled to conduct talks. With the talks, companies would be encouraged and ensured that the disabled are not inferior as compared to normal people in terms of efficiency and attitude wise. Lessons learnt from other job search portalsYellow medallion project account registrationAn account is needed for both the employee and the employer. This would prevent anyone from playing prank on such websites, causing inconvenience. Thus, the website would prove to be more efficient and the parties would not have to be afraid of being involved in scam cases.Australian job search portalMost of the time, it is the employer who comes up with the requirements and the employee who have to search. With the transfering of resumes onto the website, employees are also able to have a chance of getting a job even when they are not using a computer as employers would be able to read t he resumes online and decide whether they want to hire the disabled people or not. Thus, the application of allowing the disabled people to upload their resumes online would allow a higher efficiency as it would not only be a one sided issue where only the disabled people are searching for a job but also companies to search for workers. Strategy 2 Rainbow Ribbon ProjectThe Rainbow Ribbon Project is initiated to convince employers that employing disabled has more benefits than disadvantages and also as a supporting role to ensure that companies faces minimum problems with the employment of disabled.The objectives of the Rainbow Ribbon Project can be summarized in R2P1. Realizing potential of disabled people to ensure that employers will be able to fill up skills gaps in companies.2. Reducing prejudice of society towards disabled to ensure that the number of consumers of companies employing disabled will not decrease and that companies will not make any losses.3. Provide trust of emp loyers in disabled employees to ensure that companies will make sure that their disabled employees can compete and flourish on equal terms in the workplace, maximising the use of human resource and minimising losses for the companies itself. Actions to takeTo support the companies, an organization can be set-up. To minimize the extra cost needed to be paid by the companies to employ disabled, the organization will provide attention to the disabled. Disabled will be attached to a volunteer mentor to offer guidance through taken through the entire project, which starts from helping disabled in getting a suitable job to adapting and settling down in a comfortable job. Disabled will be taken through the process of examining what they have to offer an employer and exploring careers, offered tips on finding a job, getting hired, and making that job work for them, They will be assisted to build their own resume online in RainbowCareerConnect and also link to resources for employment listi ngs. With all these in place, companies do not have to worry and pay extra attention to the disabled employees as their welfare is taken care of, by the organization.1. Rainbow DayThe project reduces the risk of companies employing disabled as it increases the confidence of companies towards disabled.Prior to this day, companies will partner with groups of polytechnic students (School of Design and technology) and share with students areas in companies where disabled can help. After that, Students will design disabled-friendly aids base on needs of companies (e.g. light bulbs used in kitchen as indicators instead of using buzzers, very illustrative menu cards, and simple sign language posters). The Rainbow Day is for companies to witness potential of disabled through try-out of machines. On the actual day, The Coffee Bean shares success in employing disabled to manufacture BURLAP bags to convince companies the abilities of disabled.Disabled people will then visit the booths, where t he polytechnic institute student showcases aids designed at different booths, to gain hands-on experience.Companies witness what disabled can do when disabled try-out the aids and discover disabled suitable for employment before giving job application forms.Companies provide choice of short-term (e.g. manufacture period) and long-term employment, according to what disabled can do.With this special day in place, companies will not have to provide extra training for the disabled, helping them save cost and after employing them as they employ only disabled with skills they need. Furthermore, this day provides assurance to the companies as they are very sure that the disabled they employ will be of help to the companies, helping it to increase its productivity.2. incline for the RainbowCompanies employers will be the participants invited for the competition. Instead of running as a normal people, employers will be running as disabled. Employers will be asked to use or put on special i tems (e.g. blindfold, wheelchair) as disabled (e.g. blind, deaf, wheelchair-bound), putting themselves in the shoes of disabled people and gain a deeper understanding of the difficulties faced by them. To win the competition, the employers will push themselves hard and put in their best effort to win the competition.Hence, through this competition, companies will be assured of the commitment that disabled employees will put in as they understand how much effort the disabled will put in to ensure that he or she will not be sacked. Thus, companies will benefit as its productivity increases.3. Rainbow awardTo recognize values and talents disabled bring to work place.Other than just receiving an award title, disabled will be given a chance to bring in friends, who are also limited by disabilities and are unable to get a job. This will help to increase the overall employment of disabled in the society. To ensure the companies will benefit, the awardees will be the job trainers for the ne w employees they recommended and must ensure that the new employees are of help to the companies. Thus, with this award, the productivity of the companies will only continue to increase as its manpower will definitely increase but not decrease.Resource PersonsRuth and YiKai to request an interview with AWWA in-charge.Printed/internet sourcesBryan refer to AWWA website on how organization works.Rayna find out the different types of jobs suitable.Rayna, YiKai conduct survey for companies interested-To get evidence that companies need to know potential of disabled before taking the risk to employPrinted/internet ResourceYiKai and Ruth research on manufacturersResource PersonsRayna and Bryan to request collaboration between DPA and polytechnicsResource personRuth and Bryan contact person-in-charge of The BURLAP bag to gather evidence of its successq The suggested strategy is creative.q The suggested counseling strategy is appropriate and effective for the target audience.q The suggest ed management strategy is feasible and manageable.q There is a clear link between the lessons learnt from 1st area and the suggested projectq Details of the strategy are clearly presented.q There is clear and honest evaluation of the strategy.Any other comments / considerations? There may be a lack of statistics and evidence from the website and hence we need to carry out surveys.We might not be able to get the interviews done in which case we might have to look at another location or organization that is willing to communicate with us.Economically minded organizations may not be willing to work with us as little direct benefits, then need to request help from other non-profit organizationsq The group is aware of the potential difficulties they may encounter. q The project is manageable.

The Success Of A Natura Cosmetics

The Success Of A Natura CosmeticsIn rove to analyze the success of a Natura cosmetics, on that point argon many factors to be mentioned. In my opinion, dickens main reasons which should be listed are the effectiveness of relationship between Natura and organizations relating to its operation and its learning, insertion activities.Firstly, it is non difficult to realize that Naturas relationship system works re all last(predicate)y effectively. According to the parapraxis study, this attach tos main operations including production, logistics and research and tuition are situated in Sao Paulo. When there is a radical order, the stock status volition be checked immediately by the stock management system. In no more than one day from the purchase order, the finished products are delivered to the gross revenue representatives home. With 26 delivery partners as well as postal service, Naturals products leave be transported to its representatives no biger than six days in s pite of outlying(prenominal) destinations (Natura fount study). Clearly, in order to ensure the quality of the products and good services for the customers, the connection between separate parts in a whole aggroup must be strong. It requires all bodies to have to cooperate and contribute to the effectiveness of the common duties. nonpareil concentration of Naturas relationship strategy is on sales representatives. They are seen as the companys consultants who are well- practised, autonomous female salespersons and mostly are housewives having good relationship with capableness customers such as friends, office staff, independent professionals One fussy thing here is that Natura does non have to pay bear employment costs for this wildness. This manner will tending the company save a voluminous add up of money to invest in other activities. Also it will encourage Natura to expand its market jell without being worried near reducing emolument margins. Using this way, th e advantages will belong to not only Natura but also sales wad. They do not receive a condition salary amount but the commission for sold products is the highest in the industry, which including 30% margin of end consumer prices and premium prices (Natura case study). Obviously, this way is based on the ability to sell products of individually sales representative and it creates motivation for them to try more because of themselves as well as the company. Another strength of its management is organizational cultural. Openness, transparency and respects for its stakeholders ( Natura case study) are the words to describe this operating environment. They are ready to give challenge to middle management who are believed to be ambitious and highly qualified. This force is able to take great and out of imagination success for the company. Additionally, the policy for new talents is positive. Natura wants to fulfill both from inside and outside sources. They takes time to develop potent ial talents and headhunt as well. As a result, the manager force will be diversified. With customers, Natura has a such several(predicate) approach. A customer going to Natura means that she is purchase belief . The company does not talk about market demands but captures their emotions, feelings. By this way, when a customer sees an advertisement of Natura, she will think that this product is innate(p) for her, and Natura helps her have a better life through selling it. It is impossible to deny the effectiveness of this merchandise philosophy. About the quality of products, Natura persuades customers by using squeeze outcel and sustainable ingredients. For example, Ekos product line comprises of brazilian berries and plants, such as guarana, brazil nuts, mate verde and cocoa( Natura case study). In recent historic period, cosmetics consumers mostly believe that products extracted from the nature will have good effects on the skin and no side-effect. With development about e xistents from reserves in the rainforests and savannahs, clearly Ekos is easier to be appreciated from the public. One important thing of Naturas relationship strategy is to participate in environmental issues. This achieve demonstrates that Natura not only operates to make profits but contributes to the development of corporation as well. Otherwise, it will bring positive image in public for the company and create its good connection with the customers, governance. Such activities, such as rain forest Education and Recovery Project, Rio de Janeiro Botanical Gardens are specific examples of maintaining garden and regenerating damaged forest ecosystems (Natura case study).Secondly, Naturas operational pathway is the process of learning and innovation. arrant(a) from a small wear uponatory and cosmetics store, the company made a bid step in the market by studying the sire of Avon-the then drawing card in the world. In 1974, Natura decided to operate fol beginninging direct sale s form. The result of this strategy was the expansion at low to moderate cost. With a new company, learning from successful and well-known home run name is very important and this gives useful lessons for Natura at that time. Besides, the success of Natura also comes from its innovation and product development. Every year, the company spent about 2.9% annual net revenues in research and development (RD) to launch and improve approximately 153 products (Natura case study). Natura also buys patents, technology from research centers in Brazil and outside. Their concentration is infinited on skin care and environment-friendly products.In conclusion, effective relationship strategy as well as learning and innovation activities are ii main factors of the success of Natura internationally.Task 2 using relevant theoretical models and with examples from the case study- evaluate the companys internationalization strategy in the gunpoint 1982 2005.AnswerIn the period 1982 2005, it has seen the development of Natura in cosmetics international market. Along with the expansion into different areas from the near to the farthermost, this company changed the operational strategies gradually and more effectively. It demonstrates that the companys market inscription as well as internationalization level has amplificationd simultaneously in this period. As a result, in order to assess Naturas internationalization strategy from 1982 to 2005, I decide to choose the Uppsala model which emphasizes increasing commitment towards abroad market when the firms experience goes up (Svend Hollensen, 2007).In the year1982, it saw the first strain of Natura to distribute its products to foreign customers. The company utilize an independent distributor in Chile. However, the result for this action was terrible. The operation was stopped after it operated in a soon term. The reason for this failure is that Natura did not have careful preparation. Clearly going international is an i mportant issue for any firms which want to develop. One of the most zippy conditions for success is that the company should have a proper plan and it must come from its actual demand. At this time, Naturas expansion abroad was driven by impulse. (Naturas case study). Maybe it could not create enough motivation for working attitude and successful ambition. The second cause is that the company had no enough information about the market (Naturas case study). Knowledge such as politics, culture, distance differences between markets always should be obtained by the firms in the case they really need to succeed. Additionally, personnel and financial problems happened when the company went to Portugal and Florida. And lessons due to lack of experience was given to Natura. Accordingly, market commitment or internationalization level in this situation is rather low.Until the 1990s, Naturas action of going abroad occurred again. Contrast with the last time, the company planned carefully. A nd this time, a great advantage of the Government policy favored to development way of Natura. Brazil and other South and Central Ameri dissolve nations took favorable change in politics and macroeconomics. With potential markets of Natura such as, Mexico, Argentina were attempting to cooperate commercially with Brazil and their preservation were growing positively. Besides that, the attitude of high appreciation of beauty and better understanding of cosmetics has made an increase in demand for beauty products. It can not be denied that many favorable conditions have come to Natura (Natura case study). From this time, the success of the company in various markets has gone. Three specific examples for effective internationalization strategy are Argentina, French and Mexico. Argentina and Brazil are two nations in the homogeneous Latin America area. The geographic distance between them is not so far. And Natura took the first step to this market in 1994 but until 2001 the large mark occurred. In December 2001, this economy was thrown into crisis because of currency devaluation of about 40%. opus its competitors tried to go up prices, Natura kept it stable. The company has just increased it only when local salary changed in the better way (Natura case study) and this information was announced publicly to the customers. By reducing cost and remaining price, the company got good impression on Argentinean market and help the process of building the brand here. The strategy brought the win situation for Natura. In trio years later, there was a growth of six- factor revenue which is a wonderful number. The main method that the company applied to sell products in Argentina in this period is direct selling through sales consultants force. The number of consultants went up nearly three times from 7000 in 2002 to 20000 in 2005. Obviously, Natura has got good result with participation strategy into Argentinean market. The second one should be mentioned in international ization strategy of Natura is France. It can be said that from Argentina to France there is a development of both geographic diversification, internationalization and market commitment. The distance from France to Brazil is such(prenominal) larger than that of the remainder. Actually, located in two different continents, there is not same characteristics in the beauty product custom. Hence, Seabra said that France has histori dealy been a source of knowledge and raw material for our products as well as a source of inspiration. About the way of sales, Natura discontinued using traditional model which is direct sales and changed to retail store. It is an increase in size of investment in marketing and organization. In stead of a point of sales, in 2005 the company designed a two stratum flagship store where are used for sampling products, promotion events and is seen as dis localisement place of Naturas belief and vision (Natura case study). This is an evidence to show the companys market commitment is on upward. Another point is the change in Naturas product advancement and size. Making its products able for the host markets demand demonstrates effort to occupy the market voice and internationalize.Moving to Mexican market, it has seen a more progressive step in the strategy of Natura. And it seems to have leapfrog stage here. In the year 2003 which is prior of two years compared to the time of entrant in France, Natura came backs to the nearer market with many similar characteristics of economy, demographics and lovemaking for beauty products (Natura case study). In Mexico, the company developed the experience in France to a new model hybrid model. Building Naturas House, it can combine the strengths of both direct sales model and store chain. Here sales representatives can interchange experience, be trained professional skills, keep in touch with brand and even receive sample. Also in this acres, the company takes an maiden in new marketing tools. A n example of this is magalogue. This combination between magazine and catalogue is applied to give Naturas products and special offerings, articles about health and beauty problem. So, in comparison with French market, Naturas investment in Mexico takes more attempt. Change from a store chain to Naturas House is an example. It requires both market-specific knowledge and general knowledge. And resources should be active more expeditiously, specially human resource. All these elements explain that there is an upward trend of market commitment, internationalization when Natura enters Mexican market.Generally, Naturas internationalization strategy was successful in the period 1990s to 2005, but ineffective in the year 1980s.Task 3 using relevant theory, argue the case either for against Natura adopting a model (or models) of international market entry that differs from the direct sales/ distribution model employed.AnswerComing back to international cosmetics market since the year 1990 s, Natura has gradually succeeded with several(prenominal) adjustment of market entry policies. Two specific evidences are Maison Natura in France and Casa Natura in Mexico. These models show that the level of geographic diversification, market commitment and internationalization (The Uppsala internationalization model) of Natura has increased as well as their international market entry method has changed in comparison with direct sales model ever -used. Moreover, in order to go international more dramatically, Natura should employ an appropriate market entry strategy. In my opinion, it can be Hierarchical model with resident sales representatives in foreign target market.Firstly, it should be mentioned the direct sales model that Natura used to employ to provide products to its customers. The received demand for the companys cosmetics are met through the force of 483000 active sales representatives in Brazil and 36000 agents abroad, who are well-trained and flexible consultants . And mostly orders from customers are placed via Web and telephones.However, with French market of which Paris has been known as a holy city of fashion and beauty products, to attract much attention from the public, Natura innovated its traditional way. The company decided to open a two-storey flagship store which was called as Maison Natura in 2005. This store takes the duty of more than a point of sales, where can be seen to display Naturas belief and vision. Also here samples are given to customers or promotion events happen (Natura case study). There is an improvement in the way Natura enters to the market and persuades potential buyers. With this retail store, Natura has to spend more investment than its direct distribution. It is for the organization, marketing and even personnelFor example, the company had to build a store and make it become a place served for many purposes. It is so different from a call centre which can only receive purchase orders. Besides that, to adapt to this competitive environment, Natura modified its products packaging and size. It can not be denied these activities were able to help Natura get a foothold in France. And the reasons were that the company prepared carefully market specific knowledge and made market commitment. From that, Natura seems to be more suitable for an international market entry model which requires more responsibility and competence.And about Mexican market, it is still another increase in market commitment as well as internationalization. However, there is leapfrog stage herein. The distance from Mexico to Brazil is smaller than that of France and the time of entering Mexican market is sooner two years (2003) but internationalization process goes up. Having some advantages of similar characteristics of economy, demographics, passion for cosmetics, Natural also gived the issue of late participation (Natura case study). Hence, in order to get success, it seemed to request the company to adjust a new strat egy. The solution given was that Natura House which has strengths of both pure direct sales model and retail store. There sales consultants can help each other with experience and it can be place for exhibitions, training speeches or product testing, offerings. Clearly, advantage of direct sales model which is the strong relationship between end user and sales representative, and those of retail chain which are close relationship among sales consultants and multi-purpose place are combined. Not only the company invested in finance to establish this hybrid model at large towns and areas with many buildings, but also at Natura House, new marketing tools were employed at the first time to remind the public about the companys brand (Natura case study). For example, the company tried issuing magalogue. By this way, Natura could supply both its product, special offerings and health, cosmetics articles as well. It can be considered that Naturas attempts of organizational and marketing chan ge demonstrates their ambition to get a step into Mexican cosmetics market and occupy a certain market share. Also the approach was done professionally step by step. Importantly, it did differ from direct sales model Natura used to use.Far from these two markets, in the following years, the company wants to attack new potential large ones, such as the UK, the US, Russia and so on. Only in the linked States, in 2004, the value of sales of cosmetics and toiletries in 2004 was 45.6 billions US$, made up 19.7% of total market share. Or In United Kingdom and Russia, the numbers were 11.6 billions US$ (5%) and 6.4 billions US$ (2.8%) respectively (table 1 of Natura case study). However, with these countries, the main retail channel methods are not the same with Brazil. While in Brazil, sales through direct sales gained the remarkable proportion of 27.4% in 2004, in Western Europe, that percentage was only 4.7%. In these regions, the most common methods are different each others. ( send back 2 of Natura case study).From the factors which have already mentioned, in my opinion Natura should move to apply a new international market entry Hierarchical mode. With current conditions, it can open resident sales representatives in the host country. Rather similar to models employed in France and Mexico, the company can build a place of many functions served for sales and marketing activities. These can be a showroom, an information centre for customers, after-sales service centre, a training centre for sales consultants, a place for sample receiving Sales and service department should be located in the host countries because it will be easier to know thoroughly about local passion and demand in comparison with doing from distance. When being familiar with local market, Natura can open sales subsidiaries. At this business office method, the company can be take tax advantage but it must take more responsibilities and autonomy. Besides, research and development, production, marketing departments are still situated in Brazil. It seems to be face a large amount of difficulties to change abroad assumed that other conditions do not change.Task 4 Naturas production facilities are located in Brazil. Assess whether this decision is correct in terms of strategy and logistics distribution given the companys portfolio of domestic, regional and international markets.AnswerSince the establishment in 1969, Natura has experienced different growth periods. First period from 1969 to1981, the company tried to build the brand and take expansion in domestic market. In 1982, Natura signed a skip with an independent distributor in Chile in order to expand abroad. However, this plan failed financially. Until the 1990s, once again Natura went internationally according to the open policy of the government and has got success step by step. Although Natura has changed their activities dramatically compared to the foundation time, production facilities has still situated in B razil. One issue is given is that this decision is suitable for the development of Natura in following years?Firstly, with current situation, in my view placing all production facilities in Brazil is a reasonable decision. Brazil is the place where Natura was born. As a result, the companys products are manufactured usually have characteristics suitable for Brazilian demand. So along with the development of this brand, a stable market share in Brazil has been occupied. For any companies, they will penetrate into foreign markets once gaining or becoming familiar with its home market. This will be a strong earth for the company to attack another. About Natura, its Brazilian market share in 2003 was 11.3%, positioned the second leading cosmetics and toiletries company in Brazil (Table 3 of Natura case study). Moreover, this country has a large advantage of material sources of production for the company. In recent years, Natura has focused their operation on the products using sustaina ble ingredients. And Brazils diversity is a riotous supply source. Fulfilling these natural materials for the production in the home country, clearly the company has bigger advantages over its competitors. They can save cost of conveyance, import tax and advantageous policies for domestic companies to use inside materials. Additionally, the traditional markets of this company are Argentina, Mexico, and so on. These countries are not far from Brazil and most of them are in the same area with many similar characteristics. So production facilities in Brazil and using active sales representatives force to distribute the products to the customers in these nations may not create serious problems of transportation cost. Another reason to support for production facilities in Brazil is the effectiveness of the current operations. When a customer place an order, in 24 next hours finished product is made to be transported to the sales representatives home. It is due to the close cooperation among different department and automated system. Immediately after having a new order, the stock status is checked by the stock management system, and materials are collected to production facilities. Final steps are packaging and labeling. count time for the whole process is no more than one day. After that, with 26 delivery partner, products are delivered to its representative within 2 days in Sao Paulo or no longer than 6 days for far destinations (Natura case study). It can be said that the operational process works actually efficiently to ensure delivery plan. This punctuality has supported placing production facilities in the origin country of products.From these points, that Naturas beauty products are manufactured in Brazil is appropriate. However, this decision will continue to be agreed in the future when plan of making Natura brand become commonplace with global audience? First problem can occur when moving production abroad is the cost. Compared to most of other countr ies in the same South American area and Europe, labor cost here is much cheaper. One of the reasons is that their population is the fifth leading in the world and still young or in labor ages (Wikipedia information). If Natura choose a country which labor price is high, finished products price will increase dramatically and the competitiveness will decrease. In addition, begin operating at a new location, there are two ways for material issue. The first solution is to find the new source. However, it is not simple to carry out because main ingredients for the companys cosmetics are from the nature, especially from Brazils biodiversity. The second one is to transport materials from Brazil to the manufacture place. Maybe it is an impractical solution due to a large amount of disadvantages. It can be denied that transportation as well as import tax will make it go up. It also can result from import policy which procedures or regulations in the host country do not encourage to import su ch materials. Also Natura should take into account the origin country of products. It is not true that all customers evaluate equally with the same brand but different production places It is considered frequently that the customer have preference for the products from well-known nations for high technology and long term tradition of this kind of commodities. As a result, when deciding to choose a new manufacture location, the managers need to investigate the customers desire. About distribution network, soon Natura still uses direct sales model through active sales representative force. They are seen as Naturas consultant who are mainly well trained housewives and receive orders via Web and calls (Natura case study). So the company does not have to pay direct employment cost but high commission for every product sold. With current conditions this retail channel still works efficiently. But if there is a change in production facilities, it is still good? withstand but not least, l ogistics issue can meet obstacles in the case of moving manufacture location abroad if that policy there is still close. It can come from various regulations about import export documents or the quality of transportation system is modern enough to support Naturaa activities or inventory, storage problems, packaging and so on. Nowadays to get high profits, generally multinational companies invest in developing country, but they have to accept certain risks related to low quality of logistics. Hence, Natura ought to consider the ability of goods to move between nations.In conclusion, with current affecting factors, Natura seems to keep production facility situate in Brazil. In the far future, along with long term strategy and improvement outside, a change maybe reasonable if they are supportive.

The Uses And Misuses Of Derivatives Finance Essay

The Uses And Mis parts Of Derivatives Finance Essay dodge bullion argon pools of investiture that invest in almost all(prenominal) luck in any money reservation(prenominal)ise where they foresee impressive gains at reduced luck. Hedging refers to implementing st arrangegies that manage or protect against an identified luck exposure. They make full leveraged federal agencys in publically traded equity, debt, foreign exchange and derivatives.The primary aim of most disconcert blood lines is to reduce volatility and venture while attempting to preserve capital and lay disclose positive returns under all mart conditions (Friedland., 2008). Derivatives provide institutions the opportunity to break financial risks into depleteder components and prehistorical to buy or sell those components to manage risk.Hedge specie hold a chassis of assets they use derivatives to protect against the adverse price movement of these assets. Hedge blood lines play more than of the role o f speculators than of hedgingrs. They use derivatives when buying and change assets and by putting dour-short shoess, they seek to hedge themselves against broad market moves while profiting from changes in the relative value of the instruments they go considerable or short.Hedge funds offer a variety of unique strategies to utilize when investing in hedge funds, these be called hedging techniques. These include Market soggy Strategies, effect Drive / Special Situations Strategies, Long Short, Global Macro, Sector and Country, Dynamic Strategies, Funds of Funds, Funds of Funds of Funds etc. (http//www. planetary-derivatives.com)Market Neutral Strategies atomic number 18 used in Market Neutral Funds. They tend to take positions which offset each former(a) through with(predicate) both a long and short position simultaneously to reduce their risk exposure. These strategies include Long Short and Convertible Arbitrage. Long-Short methodology attempts to reduce market risk by taking both long and short positions in the market. This can be done by taking a long position in undervalued assed and a short position in overvalued ones. In these funds, it is expectd that the undervalued assets bequeath addition in value than any losses incurred from the overvalued assets, or vice versa. Convertible arbitrage is a relatively more complex strategy. In this convertible securities such as convertible bonds which can be converted into normal sh atomic number 18s or bonds are bought, to take advantage of any price discrepancies among the convertible security and that of the exchangeable underlying. A position can be taken for buying convertible security or selling the underlying asset to realise any divergence in prices. (http//www.global-derivatives.com)Event Driven / Special Situations Strategies intend to bring forth profit from events related to particular(a) companies. Event Driven funds take a bet that something in the future testament happen which wi lling affect the union and its assets in a particular way. These funds include Distressed Securities and Merger/ Risk Arbitrage these securities include debt and equity of companies undergoing reorganization or bankruptcy, it is hoped that companies will recover and incr relief in value. These securities fuck off very low value and can be given to the management of a company during the restructuring process. Merger/Risk Arbitrage funds tend to take apart companies which are potential takeover or merger targets by taking two positions. An example of it would be to buy the stocks of a company that is being acquired with hope that its prices will rise and to sell stocks of the company that is acquiring, in anticipation that its value might fall. (http//www.global-derivatives.com)Long Short is a nonher(prenominal) strategy which includes buying and selling a security based on the sentiments in the market or of a company. It includes short selling, long, and growth fund. Short selli ng occurs when a person anticipates that the price will fall in future and sells a stock which it does not possess, through borrowing. If the price really falls in future, they buy the lot from the market at a tear down price and return it to the one they borrowed from earlier at lower price, thus making a profit. Long is another strategy in hedge funds, it is a fixed income instrument that benefits from the rise in the price of the held asset. They often utilize leveraged positions to maximize returns.Global Macro is an economics based strategy which intends to benefit from shifts in global economic conditions such as inflation, interest rates and other macro-economic factors a common example of it is the use of interest rate derivatives for speculative purposes, they give profit from economic movements within particular countries.Sector and Country strategies include sector funds and emerging markets. Sector funds are hedge funds that particular(a)ize within a particular industr y for example technology, textile etc. these investments consist of long or short positions in stock, debt, or even derivatives on the stocks. Emerging markets include funds that emphasize on emerging markets with less-developed economies and aim to profit from market growth which influence the securities positively. Securities in these hedge funds include sovereign debt or corporate securities with the anticipation that their prices will rise with economic growth.Dynamic strategies include elements such as market timings and opportunistic. Strategy of market timing involves the right timing of the market. It includes making profit based on the correct timing of investments across markets by moving between various asset classes depending upon the view of the manager regarding the market environment. Opportunistic strategy involves switching across asset classes, they use a number of strategies mentioned above depending upon the managers discretion, and the lawsuit for switching str ategies is to make the most profit. (http//www.global-derivatives.com)Funds of funds is the strategy of hedge funds to invest in other hedge funds in ordering to diversify the risk and exposure. The succeeder of these funds depends upon the managers way of handling the funds rather than the performance of the actual investments.Funds of funds of funds or F3s is a new concept to hedge the risk exposure in terms of investments by reducing the volatility of the funds itself. They are good for high risk-averse investors involuntary to invest in the hedge funds industry. (http//www.global-derivatives.com)Amaranth Advisors LLC (Amaranth)Formation and BackgroundAmaranth comprises of Amaranth LLC and Amaranth Advisors LLC. It was founded by Nick Maounis (Maounis) in 2000 as a multi-strategy hedge fund with a special focus on convertible arbitrage (selling (short) equity stocks and at the same time buying (long) convertibles of the same company creating a delta neutral portfolio), with i ts headmanquarter in Greenwich, computed axial tomography and with approximately $600 one thousand thousand in capital. Maounis experience was in managing a number of various arbitrage accounts in the US, Japan, Europe and Canada. The aim was to make mesh from the small discrepancies in prices of stocks and bonds, through its structure of three principal funds Amaranth Partners LLC, Amaranth Capital Partners LLC, and Amaranth International Limited and the 27 investment professionals. It sought to employ a meeting of arbitrage trading strategies particularly featuring convertible bonds, stocks of merging companies and utilities. hitherto, Over the years, the trading activity of Amaranth expanded into merger arbitrage (making a riskless profit by purchasing individual stocks of two merging companies and selling them together), leveraged loans (loans given/extended to individuals or companies that already have large debts on their books), blank-check companies (developing compani es) ,volatility trading arbitrage (buying or selling an option on an underlying instrument and selling or buying a varying shareage of the underlying instrument this to gain from the difference between the implied volatility of an option and forecasted future probable volatility of the corresponding underlying instrument), long/short equity, and get-up-and-go trading. (ICMR, 2010)StrategyAs noted above, at the time of formations and through stunned its term, the firm emphasized that it was a multi-strategy hedge fund, just now as it could be noted in the aftermaths that most of the firms investments and losses were in native torpedo derivatives.Amaranths basic strategy comprised of trading in the Natural Gas market the firm took a long position in winters, with hope that the prices will rise, especially when the demand for raw(a) swagger exceeds the supply and storage capacity overdue to the cold season. Its winter months were November, December, January, February and March . Amaranth used to take a short position in summers when it anticipated that the prices will fall. Part of its strategy as well as included taking short position in April and long position in March. Moreover, another strategy was to purchase call options on winter months and put options on non-winter months.Amaranth used to bet that native gas prices will rise, and the spreads in March and April prices will rise as well.Nature of Natural Gas MarketBy nature, the cancel gas market is very risky and vaporizable. Majorly because there is a commercial need for the good. This situation creates a need for an institution to control its supply and storage.In America, there has been inadequate storage capacity of rude(a) gas for wind the winter season demand. Therefore the price of innate(p) gas is higher in winters firstly due high demand and second due to increase the incentives to store natural gas. These factors raise the prices of winter natural gas contracts to an all time high l evel.Apart from that, the market of natural gas is also volatile because the natural gas production in America is lower than the rise in the demand for natural gas. U.S. Natural Gas markets are shielded from the global energy factors because a very small amount of US natural gas need are met by imports of Liquid Natural Gas (LNG).Commodities trades engage less margin money (collateral) than other markets. On the main exchanges, trades post 10 percent of their positions value, whereas in the stock market, 50 percent is common. (Davis, Sender, Zuckerman, 2006). After gaining impute from banks, it is very easy for commodity hedge funds to get highly leveraged quickly.Traders of natural gas have a number of options. The largest exchange for trading natural gas is the NYMEX (New York Mer savings bankile Exchange) which has standardized futures contracts up to few delivery months up to 5 years that are traded on the exchange. Traders can also use sorbet (Intercontinental Exchange) whi ch is an over-the-counter market for trading natural gas futures contracts.There has been a lot of debate if hedge funds have an impact on energy trading. consort to Gary Gensler (a former Goldman Sachs banker and treasury department official and chairman of the Commodity Futures and Trading Commission (CFTC) the chief regulator for energy futures energy trading state I believe that excessive speculation in commodity futures can cause sudden or unreasonable fluctuations or unwarranted changes in commodity prices,. He also expressed his opinion that the rapid growth of commodity index funds and increased hedge fund allocation to commodity assets contri only whened to the spew out in commodity prices. (Delamaide, Jan 11, 2010)PerformanceThe founders accredited expertise was in convertible bonds (Till, 2006). The firm later specialized in leveraged loans, blank-check companies and in energy trading. Till June thirtieth 2006, energy trades accounted for closely half of the funds c apital and generated about 75% of their profits. (Till, 2006)In 2002 Amaranth started trading with JP Morgan Chase, in energy commodity trading.The winters of 2003 were exceptionally cold and lasted bank February, this raised the prices of natural gas manifolds, and this in turn gave gigantic profits to Amaranth due to its long position in winters. By 2004-5 Amaranth shifted most of its investments into energy trading. The company used to make huge profits from placing spread trades and placing bullish bets on energy in 2005. In the same year America was severely peach by Hurricane Katrina, which adversely impacted it natural gas and oil production and refining capacity. This raised the price of natural gas and Amaranth reaped huge profits out of it.The accounts of Amaranth LLC showed robust performance by the company since its inception. The compound annual return for the period kinsfolk 2000-November 2005 according to media reports was 14.72 net of all costs. (Gupta Kazemi)Th e chart below shows Amaranths returns gutter May 2005. The chart compares the Amaranths returns against CISDM Equal Weighted Hedge Fund Index and CISDM Convertible Arbitrage Index. Amaranth had gained a noteworthy position in May 2005, in CISDM Equal Weighted Hedge Fund Index. The chart show the volatility Amaranth was facing in May 2005, this volatility had brought high returns in the past besides things then started taking the turn towards the wrong side.Amaranths returns source (Gupta Kazemi)NYMEX (New York Mercantile Exchange) noticed Amaranths considerable open interest of 51% in Aug 2006 in phratry natural gas futures contract, which would expire at the end of the month. NYMEX (New York Mercantile Exchange) brought its concerns into notice to Amaranth. Amaranth not only reduced their September but also Octobers positions, as per the directions of NYMEX (New York Mercantile Exchange). alongside Amaranth increased their positions in October and September positions under ICE contracts, thus escalating their overall positions in natural gas. (Gupta Kazemi)According to US Securities and Exchange Commission filings, investors in Amaranths funds included a number of Wall Street banks including Morgan Stanley, Credit Suisse Group and Deutsche Bank AG. (Burton Leising, 2006)Amaranth was marketing energy and commodities fund to open in December 2006 of about $5 billion. The fund was to be managed by Hunter and Jeff Baired, co-head of Amaranths Global energy and commodities business. But unfortunately the events that followed didnt allow it to happen. (Burton Leising, 2006)Collapse and BeyondAmaranth used to bet that natural gas prices will rise, and the spreads in March and April prices will rise as well. However in 2006, so did not happen and gas prices began to decline due to rising inventories leaving Amaranth on the wrong side of the market trend and consequently reducing its portfolio value of $9.2 billion by less than half.Headed by Brian Hunter, it seemed that Amaranth had not anticipated the rise in the natural gas storage capacity, and the weather pattern bringing a warmer winter.It was in a weeks time that Amaranth missed 65% of its $9.2 billion assets. On September 14 alone, the fund lost $681 million from its natural gas exposure.On September 20th 2006, Amaranth sold its finished energy trading portfolio in a flurry to J.P. Morgan Chase and Citadel Investment Group. It did so at significant discounts to the portfolios then mark-to-market value. (Till, 2006)At the time of extermination of Amaranth, the spread on gas future declined. The spread on positions held by Amaranth were $2.85 in late August, but after the liquidation had reached below $0.75. (MORGENSON ANDERSON, September 20, 2006). This indicates the lower price expectations in both the bid and ask price for every $1 invested in Amaranths holdings.When Amaranth Advisors LLC announced that it had suffered losses just as big as LTCMs, markets did not respond for Amaranth the way as they did for LTCM (Long Term Capital Management). New York Fed did not hold summit meeting for a bailout plan but JP. Morgan Co. and Merrill Lynch Co started selling off Amaranths portfolio of natural gas futures. The co-founder of Energy Hedge Fund Centre (which tracks 520 energy funds) verbalize, There is not systematic risk. The market can absorb this. (Mufson, 2006).The reasons for such a reaction were that, firstly Amaranth (although was doing rash trading) but borrowed less heavily and had less leverage than LTCM (Long Term Capital Management) secondly its positions were smaller and focused in natural gas futures. LTCM s failure threatened the stability of banks, whereas Amaranths failure only hurt imprudent investors in the natural gas market who hadnt done any research before investing.Amaranths co-founder and chief executive, Nicholas Maounis, said in his letter to investors that the fund was aggressively reducing our natural gas exposure to meet fe es to creditors. The said that there was large scale fluctuations in the value of the fund, which was up sharply in August, would be down 35 percent for the year after the sell-off. Later Maounis said that the conditions in the natural gas market deteriorated and market liquidity dried up so quickly that the fund was unable to unwind its energy positions. He said it became clear that we couldnt trade out of it. Amaranth had no choice but to sell its positions at a huge loss because the fund was faced with margin calls and couldnt borrow anymore because of the liquidity problem that emerged once news of its losses hit the market.Maounis apologized to the institutional investors, pension funds and wealthy individuals who lost money as a result of the bad trades. He said We feel bad about losing our money. We feel even worse about losing your money. (CBC-News, 2006)Officially at Amaranth desperately tried to sell the fund to Citigroup. But despite the extensive talks and negotiations, Citigroup decided to walk away from making any deal. (Taulli, Sep 29th 2006 )On July 25, 2007, the Commodity Futures Trading Commission (CFTC) charged Amaranth and head energy trader Brian Hunter with Attempted Manipulation of the bell of Natural Gas Futures including making false statements to the New York Mercantile Exchange (NYMEX). The federal Energy Regulatory Commission has also charged Amaranth and its traders with market manipulation. Amaranth filed a lawsuit against JP Morgan claiming US$ 1 billion in damages, on the grounds that the bank interfered in the companys work to make a deal with Goldman Sachs and Citadel Investments.The Federal Energy Regulatory Commission (FERC) later announced a settlement with Amaranths defendants. However Commodity Futures Trading Commission (CFTC) did not withdraw its charges on Amaranth and on August 12, 2009, the federal court ordered Amaranth to pay a $7.5 million civil monetary penalty. The court also enjoins Amaranth from violating t he anti-manipulation provisions of the Commodity Exchange Act. (Release, 2009)Amaranth then sued Touradji and his employees (Touradji Capital Management LP), by filing a complaint on September 18, 2006 in New York Supreme court in Manhattan, seeking at least $350 million for claims including breach of contract and misappropriation of trade secrets. Amaranth says that Touradji Capital Management LP breached two contracts agreed to in September 2006 regarding the transfer and purchase of Amaranths base-metals portfolio.According to the official documents, Touradji Capital Management LP used the information to recover profits obtained by defendants through improper trading practices and misuse of plaintiffs propriety and confidential information. Maounis, through a spokesman, refused to comment on the Touradji Capital Management LP suit (Chanjaroen, 2006). However in September 2009, Amaranth withdrew the summon it filed against Touradji Capital Management. Neither of the parties do a payment of any kind due to the withdrawal of notice.After the fall of Amaranth, Goldman Sachs was quick to come into action, and struck a deal to take over hedge fund manager of Amaranth Advisor LLCs lease at Greenwich America.Goldman occupied about 124,000 square feet at the property, which had served at Amaranths headquarters before the company was wound up in September. Amaranths lease was to expire in at the end of 2015 and had a rate of about $35 per square foot. (Ambroz, April 10, 2007)Internal control or Management of AmaranthMaouniss original expertise was in convertible bonds. In mid 2004 Maounis hired Brian Hunter (Hunter) an energy trader who was working for Deutshe Bank energy trading desk. Calgary-based Hunter was Amaranths head energy trader, who was given a free hand to trade the commodity market, due to his past experience of taking huge positions and making huge profits in the natural gas market. Maounis was impressed that Hunters made hundreds of millions of dollar s (around 1 billion) for the firm in 2005 after Hurricane Katrina sent natural gas prices soaring, made the 32-year-old Canadian a co-head of commodities trading. Maounis let Hunter increase the size of his natural gas positions so that they became more than half of the inbuilt firms exposure. This was against Amaranths claim of maintaining a multi-strategy fund.Before Hunters arrival, all commodities positions made up about 20 percent of Amaranths portfolio with natural gas having roughly 7 percent share.Amaranths partners had a confidence built on past success and they thought that they had a fool-proof strategy (taking long position in winters and short in summers) the company had reaped huge profits in 2002-2005 from this strategy.Amaranths website said moving nimbly and effectively within an ever-changing investment landscape and said that its employees possess fearlessness with respect to complexity, learning, as well as invention, and continuously strive for perfection. Maou nis, said he had chosen the companys name, which means unfading in Greek.According to the wall street journal, Brian Hunters had so much success in trading natural gas futures, or bets, on the future prices of the commodity, that Amaranth allowed him to work from his home in Calgary, where he drove a Ferrari in summer and a Bentley in winters. (Hedge fund a gamble too far, 2006, September 20). Analysts estimate that in order to fund his positions, Hunter was borrowing $8 for every $1 of Amaranths own funds. When the bet went in his favour, he could pay back the debt and keep the rest of the profit for Amaranth. As the bets started to go against him September 2006, his borrowing amplified his losses. (Hedge fund a gamble too far, 2006, September 20). It is commonly believed that hedge funds improve the efficiency of the financial markets by introducing liquidity and innovation (Hedge fund a gamble too far, 2006, September 20). However Amaranths collapse shows that the hedge fund mana gers earn for their lavish salaries only and not for the investors who have put up their earnings and savings in their funds.Operational risk is the risk associated with the internal management of the company and the probability of making wrong decisions that might harm the performance of the firm. Amaranth seemed to be suffering highly from operational risk. Hunters had a target of making $2 billion for the year at the end of August 2006. Analysts comment of such a target that Hunters must have had an unconsciously large position for this market, One of the biggest players in the energy markets, such as Goldman Sachs Group, would take up positions less than a tenth as big as Hunters, traders said.Hunter was involved in rash trading in the market as his positions were often twice as big as the next biggest. It is also said that in Amaranth, there was an exclusive risk manager for every trading book, who sat with the risk takers on the trading desk. (http//www.icmrindia.org/casestudi es/catalogue/Finance/Collapse-Amaranth%20Advisors-Case%20Studies.htmRisk_Management)The risk managers were well qualified and had advance degrees.Paul Touradji, founder and managing partner of Touradji Capital Management, said was obvious about risk control and not about commodities. Touradji admitted that he exited the natural gas market for a year because Amaranth had entered the market, comparing its presence with that of well-financed poker player sitting down with poorer players and making big bets. I cant think of a right counterstrategy other than to say, I am going to be at the bar until youre done, Touradji said. (http//www.hedgefundintelligence.com/Event.aspx?ProductID=7035ElementID=4983, 2006)ProblemsDiversification is the key element of all investment portfolios. It reduces the unsystematic risk of instability in any part of the economy. Amaranth specialized in the natural gas industry so much that it failed to realise that if it took any incorrect venture at any point i n time, it would not have to face severe consequences. This is counted as a factor of poor risk management.One of the biggest issues with hedge funds is that there is lack of transparency for investors and they have no idea as to what the fund is doing with their money. Most hedge funds make money with the performance fees that are generated when the fund achieves larger gains the bigger the gains the larger the fees for the hedge funds. If the funds stays still or falls, the performance fee is on the dot the same. This type of fee structure can force hedge fund traders to implement exceedingly risky strategies.Much of the blame for what happened to Amaranth is being put on Brian Hunters, although he had a strategy, experience and understanding in the natural gas market which worked well with various weather shocks, but the fund manager failed to take into account the rise in storage capacity of natural gas. The arrival of a relatively warm winter did not raise the demand of natura l gas as much as in the previous years. These factors did not increase the price of natural gas as much, thus creating problems for Amaranth which has a long position.Amaranth was operating on a high leverage. As told earlier, Amaranth was operating on an 81 of debt to equity ratio. This amplified the credit problems for Amaranth because once it started facing liquidity problems it ran out of cash to maintain its cash flows.After its collapse but before liquidating, Amaranth placed restrictions on its investors to withdraw holdings of cash. That is, they were allowed to withdraw for certain number of days but were required to submit the amount before the end of the term because inability to do so resulted in a penalty. Investors were not allowed their savings beyond 7.5% of their savings. (MORGENSON ANDERSON, September 20, 2006).The bankruptcy of funds causes damage to a number of individuals and companies that have their stake with them. In the Case of Amaranth, Morgan Stanley, in vested $126 million, or about 5 percent, of its $2.3 billion funds of hedge funds in Amaranth. Even New York Fed Governor Timothy F. Geithner warned that hedge fund failures could hurt market participants other than those investors and lenders who have chosen to do business directly with those funds. (Mufson, 2006). This is because the instability created in the market (because of the bankruptcy of the company and the loss of a lot of people) can result in a general risk, which influences other sectors as well.It is commonly said that Amaranths systems did not measure risks correctly and did not take steps that would reduce the risk. The risk models that were employed by hedge funds use historic data, but the natural gas markets in 2006 were more volatile than any other year since 2001, making models less useful. A managing director of Lyster Watson Co, an advisory firm that invests in hedge funds for clients but not with Amaranth said, It was a total failure of risk control to pu t your entire business at risk and not seem to know it. They were more leveraged than they realised. (Davis, Sender, Zuckerman, 2006).Lessons to be learntDerivatives as we know are risky sources of investments, and there a number of lessons that one can learn from the incident of Amaranth. Before making an investment (esp. in sector fund) it is important to analyze the performance of the sector relating to the profits and losses, during the past few years. A monthly sector analysis reveals that a -24% monthly loss is normal and the monthly volatility of the energy strategies was around 12% (Till, 2006), indeed due consideration should be made by investors before investing in such an industry.The second factor that fund managers should consider is of marketability or liquidity, which is the ease with which the contracts can be sold into the market again. The exchange traded futures market of natural gas contracts is way smaller than the over-the-counter natural gas positions. This should put the inquiry in investors minds that in case the market of natural gas declines so how will they sell their contracts and compensate their position. The strategy of Amaranth did not include an exit strategy. The chase case of MotherRock also proves this point.Before the fall of Amaranth, on August 2, 2006 MotherRock, a natural-gas-oriented hedge fund had announced that it was shutting down, its losses had reached up to $300 million it had made a wrong short position and was therefore forced to liquidate due to mounting losses. This should have sent alarming bell to the investors in Amaranth to secure their position in the market and they make sure that the dont face liquidity risk in near future (liquidity risk explained later).All flourishing investors have an exit strategy as part of their main strategy liquidity is one of the four core factors to consider when investing in the market, these factors are risk, return, liquidity and maturity. Liquidity risk includes th e risk that liabilities cannot be met when they fall due and can only be met at an uneconomic price. This risk can be accounted for by widening the bid/offer spread. An institution might lose liquidity if its credit ratings fall, it experiences sudden unexpected cash outflows or some other event that causes the counterparties to avoid trading with or lending to the institution. A firm can also be exposed to liquidity risk if markets on which it depends are subject to loss of liquidity. Liquidity risk tends to compound other risks. If a trading organization has a position in an illiquid asset, its limited ability to liquidate that position at short notice will compound its market risk. Suppose a firm has offsetting cash flows with two different parties on a given day. If the countercompany that owes it a payment remissnesss, the firm will have to raise cash from other sources to make its payment. Should it be unable to make its payment, it will default too. Here liquidity risk is c ompounding credit risk. A position can be hedged against market risk, through diversification of the portfolio by including assets with different unsystemic risks, but still has liquidity risk.Amaranths investments were high-risk funds that lacked liquidity due to the nature of the natural gas futures market. They did not have any counter party to take their position under a week, when they needed it most. One reason that can explain this liquidity problem is that the counter parties had already locked their position in the forward contracts relating to production or storage. It seemed that due to their past experience, of success in assuming long position in winters and short position in summers, Amaranth failed to anticipate the liquidity risk they were getting into by being unable to find a counter party. (Till, 2006). This was the job of the funds risks managers to employ scenario analysis based on this past events. Taking all the factors mentioned above proves that Amaranth was taking immense risk with respect to liquidity.Amaranth was giving the natural gas comodity market a service by providing liquidity to the participants who cou

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