A ruling is expected today on the class action suit against South Africa’s three biggest bread makers. |||

A ruling is expected today on the class action in the Western Cape High Court taken by a group of activist organisations, including Cosatu, against the big three bread makers – two of which have previously been found guilty of fixing bread prices.

Meanwhile, the government made it clear that a special fund set up to house R250 million of the fine on Pioneer Foods broke fiscal rules and the imposed fine of must be directed to the national revenue fund overseen by the Treasury. Economic Development Minister Ebrahim Patel had said that the money would go to an agro-processing start-up fund run by the Industrial Development Corporation, which falls under his department’s domain.

Commenting after the weekly cabinet meeting, government spokesman Vusi Mona said the matter had not been discussed in cabinet. However, Mona said any money owing to the state needed to be directed through the Treasury. It is not clear at this stage whether Patel’s fund – aimed at promoting competitiveness in the food industry – will still be viable.

Another fund to protect the poor may also fail to see the light of day. Should the activist groups lose their case, it is likely to end their hopes of setting up a fund – this time managed by the non-government sector – to benefit poverty alleviation projects.

At the high court yesterday, Acting Judge Francois van Zyl reserved judgment, but is expected to make a ruling today after hearing argument from Cosatu Western Cape, the Black Sash, The Children’s Resources Centre, the National Consumer Forum and five individual consumers, as to why they should be recognised as representatives of the poor in the Western Cape who paid inflated bread prices.

The three major bread producers, Premier Foods, Tiger Brands and Pioneer Foods, have also presented their case.

Yesterday much of the day was devoted to argument from Premier Foods’ legal representative, Anton Katz, who argued that Premier could not be sued. This was because it had not been found guilty of price-fixing, but instead had been granted corporate leniency.

Charles Abrahams for the activist groupings argued that the rights of the people harmed by cartel activity needed to be upheld. He also argued that corporate leniency was a policy of the Competition Commission and was not provided for in terms of the Competition Act.

The commission granted Premier Foods leniency for co-operating with its probe and Tiger Brands reached a settlement with the competition regulator in 2007.

Black Sash advocacy programme manager Nkosikhulule Nyembezi emphasised that it was an urgent application because the class action for damages had to be filed within three years of a judgment for price-fixing. – Business Report

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Dublin, Ireland, United Kingdom (AHN) – Pressure is increasing for Ireland to make a decision on the offer of a financial bailout by the European Central Bank or the International Monetary Fund.

Dublin was given just 24 hours to decide if it will accept the offer to prevent the negative impact of another Irish economic crisis on the 16-nation eurozone.

Finance ministers from the zone are scheduled to hold emergency meetings Tuesday night, while global financial markets are waiting for Dublin’s move to finalize negotiations with the EU.

Fund managers are urging the Irish government to accept the EU bailout offer or face harder times ahead if they delay their decision.

Even before Ireland agrees to the bailout offer, borrowing cost for Dublin has gone done following reports of the ECB financial lifeline offer. Yield on benchmark 10-year Irish bonds went down to 8.1 percent from last week’s 9 percent. Premium sought by investors to hold on to their Irish bonds over the standard German bunds or spread also decreased to 545 basis points from 652 basis points on Thursday.

Irish officials are still balking at the proposed bailout because of the probable loss of sovereignty. The fast-paced developments may possibly result in the Irish government announcing the 2011 budget a week earlier than the previous Dec. 7 schedule.

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The forex options market started as an over-the-counter (OTC) financial vehicle for large banks, financial institutions and large international corporations to hedge against foreign currency exposure. Like the forex spot market, the forex options market is considered an “interbank” market. However, with the plethora of real-time financial data and forex option trading software available to most investors through the internet, today’s forex option market now includes an increasingly large number of individuals and corporations who are speculating and/or hedging foreign currency exposure via telephone or online forex trading platforms. China Foreign Exchange Trade System & National Interbank Fund

Forex option trading has emerged as an alternative investment vehicle for many traders and investors. As an investment tool, forex option trading provides both large and small investors with greater flexibility when determining the appropriate forex trading and hedging strategies to implement.

Most forex options trading is conducted via telephone as there are only a few forex brokers offering online forex option trading platforms.

Forex Option Defined – A forex option is a financial currency contract giving the forex option buyer the right, but not the obligation, to purchase or sell a specific forex spot contract (the underlying) at a specific price (the strike price) on or before a specific date (the expiration date). The amount the forex option buyer pays to the forex option seller for the forex option contract rights is called the forex option “premium.”

The Forex Option Buyer – The buyer, or holder, of a foreign currency option has the choice to either sell the foreign currency option contract prior to expiration, or he or she can choose to hold the foreign currency options contract until expiration and exercise his or her right to take a position in the underlying spot foreign currency. The act of exercising the foreign currency option and taking the subsequent underlying position in the foreign currency spot market is known as “assignment” or being “assigned” a spot position. China Foreign Exchange Trade System & National Interbank Fund

The only initial financial obligation of the foreign currency option buyer is to pay the premium to the seller up front when the foreign currency option is initially purchased. Once the premium is paid, the foreign currency option holder has no other financial obligation (no margin is required) until the foreign currency option is either offset or expires.

On the expiration date, the call buyer can exercise his or her right to buy the underlying foreign currency spot position at the foreign currency option’s strike price, and a put holder can exercise his or her right to sell the underlying foreign currency spot position at the foreign currency option’s strike price. Most foreign currency options are not exercised by the buyer, but instead are offset in the market before expiration.

Foreign currency options expires worthless if, at the time the foreign currency option expires, the strike price is “out-of-the-money.” In simplest terms, a foreign currency option is “out-of-the-money” if the underlying foreign currency spot price is lower than a foreign currency call option’s strike price, or the underlying foreign currency spot price is higher than a put option’s strike price. Once a foreign currency option has expired worthless, the foreign currency option contract itself expires and neither the buyer nor the seller have any further obligation to the other party.

The Forex Option Seller – The foreign currency option seller may also be called the “writer” or “grantor” of a foreign currency option contract. The seller of a foreign currency option is contractually obligated to take the opposite underlying foreign currency spot position if the buyer exercises his right. In return for the premium paid by the buyer, the seller assumes the risk of taking a possible adverse position at a later point in time in the foreign currency spot market. China Foreign Exchange Trade System & National Interbank Fund

Commodity Trading Advisor, Genuine Trading Solutions of Toronto, find not all fund managers analyze their market risk.  The company explains this is often due to a lack of education and a failure to understand the mitigating solutions for off-setting risk.

Genuine Trading Solutions President, Dwayne Strocen explains market risk as “the unexpected financial loss following a market decline due to events out of your control.”  He goes on to explain that stock or bond market volatility or market reversals can be the result of global events happening in far flung corners of the globe.  Top analysts and fund managers simply do not have the resources to crystal ball gaze and predict those events.

Examples of several major unexpected events that sent shock waves throughout the financial community have been:

-    1982 Mexican Peso devaluation;
-    1987 stock market crash knows as “Black Monday”;
-    1989 USA Savings and Loan Crisis;
-    1998 Russian Ruble devaluation;
-    1998 $125 billion collapse of Hedge Fund Long Term Capital Management;
-    2006 collapse of Hedge Fund Amaranth with losses of $5.85 billion.

In 1994 Bank J.P. Morgan developed a risk metrics model known as Value-At-Risk or VaR.  While VaR is considered the industry standard of risk measurement, it has its drawbacks.  VaR can measure total dollar value of a funds risk exposure within a certain  level of confidence, usually 95% or 99%.  What it cannot do, is predict when a triggering event will occur or the magnitude of the subsequent fallout.  For some company’s and funds, a steep decline or protracted recession can be devastating.  Even forcing some un-hedged firms into bankruptcy.  A triggering event can have a ripple effect forcing people out of work and economies into recession effectively putting more people out of work.  No person and no economy is immune.

If you own a mutual fund, chances are your fund is un-hedged.  Until recently, mutual fund legislation prevented mutual funds from hedging.  Many jurisdictions have repealed this rule however mutual fund managers have been slow or decided to continue with ‘business as usual”.  The reason is that most investors of mutual funds are unsophisticated and do not understand the hedging process and may re-deem their money from an investment strategy they do not understand.

Hedge funds on the other hand do not have these restraints.  Investors are more sophisticated and are more open to the nature of hedge fund strategies.  Some of which are not disclosed due to a fear of piracy by competing hedge fund managers.

Risk reduction solutions are not complicated but do require the services of a professional who understands the process.  This is the role of Commodity Trading Advisor firms such as Genuine Trading Solutions, also known as a CTA.  President, Dwayne Strocen states that while most CTA’s are hedge fund managers, few specialize in risk management analytics.  Our focus is on the analysis of solutions to reduce or eliminate market and / or operational risk.  No matter the role, all Commodity Trading Advisors are specialists in the derivatives market.

The first step is the value at risk calculation to determine a funds risk liability.  A risk mitigation strategy known as a hedge is then implemented.  After all, identification of one’s risk is only beneficial if a solution to off-set that risk is put into place.  Hedging requires the use of derivatives, either exchange traded or over-the-counter.  They can take many forms.  The most commonly used hedging instruments are index futures, interest rate futures, foreign exchange, exchange traded commodities such as Crude Oil, options and SWAPS.

A more detailed explanation of derivatives and hedging will be discussed in our next article.  Now that we’ve identified an easy solution for your market risk worries, the implementation of the right strategy can be as easy as a call to a qualified and registered Commodity Trading Advisor.

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Article Source:http://www.articlesbase.com/currency-trading-articles/market-risk-not-to-be-ignored-or-overlooked-1775139.html