IV. FOREX Scandal: Top Banks Face Antitrust Fines A. Introduction Foreign exchange, more popularly known as “Forex” or “FX,” is the “conversion of one currency into another.”1 Forex is a virtual, global market where users continuously buy and sell May 20, · A recent Forex scandal has rocked high-finance and left five banks with hefty criminal fines. JPMorgan, Barclays, Citigroup, and RBS, have pleaded guilty conspiring to manipulate foreign exchange (Forex) rates while a fifth bank, UBS AG, pleaded guilty to a different related charge May 20, · How the forex scandal happened. or forex, market is a virtual trading place where dealers buy and sell currencies. regulators said that some forex traders at five of the biggest banks Estimated Reading Time: 5 mins
Forex Scandal: The Ethics of Exchange Rate Manipulation
In November,banks forex scandal, five major banking groups wrapped up joint settlement talks with U.
The banks—UBS, JPMorgan, Citigroup, RBS, and HSBC, were charged with manipulating foreign exchange rates. Despite the large sums, these fines seem to be a trifle for offending banks. The Forex market is a twenty-four hour market in which traders buy, banks forex scandal, sell, exchange, and speculate on different currencies.
While currency rates fluctuate, it is necessary to have a fixed benchmark rate so the value of investment portfolios held by larger institutions such as pension funds and money managers can be valued. If the fix occurs at the end of that minute, then there is a profit opportunity: the euros the investor purchased pushed the price up over those five minutes, but he bought them at the average price over those five minutes, and he can sell them at the banks forex scandal price the fix. Some customers want to buy, others want to sell; so the bank nets the buyers with the sellers and ends up with some net position to buy or to sell.
Traders know they can affect market prices by submitting a rush of orders during the window when the fix is set. However, what makes this entire transaction uncertain is no one can accurately predict how many people are willing to sell euros or any other kind of currency over the next minute. This uncertainty in the market makes it difficult for one trader to move large quantities of sales to skew the market price.
But if a trader can know banks forex scandal advance what other traders are doing, the risk in the transaction can be eliminated.
At this juncture collaboration comes into play. In Novemberthe U. The traders then use this information to attempt to manipulate the fix in their favor. In this case, they would want to buy a lot of euros in the few minutes right before the fix in order to increase the price. To do that, they try to anticipate the actions of banks outside of these chat rooms, and take one of the following Options This is a contract permitting the owner to buy call option or sell put option a financial asset at a specified price strike price.
The owner has a specific date or a specified banks forex scandal of time to choose whether or not to exercise the option.
Options can be used to speculate, which gives more risk, or they can also be used to hedge risk. A person buying a call option would assume that the price of the stock will rise relative to the strike price, generating a profit for the owner. Of course, options 1 and 3 seem to be the complete opposite of each other, and it is counter intuitive they would have the same effect in favor of the positions of the traders within the private chat rooms.
Regardless, by knowing in advance what other banks are doing and colluding with each other, these banks forex scandal did get an unfair advantage allowing them to push the price around more than a pure market supply and demand system would allow. In general, the price movements arising from the manipulations are so small the general public is unlikely to notice a big difference when buying foreign currency. To analyze the ethical implications of the scandal, a theoretical framework is banks forex scandal. Good may be used to refer to anything — it is a general term that expresses positive value about banks forex scandal or assigns positive value to something.
Nevertheless, in philosophy the term takes on special meaning and that meaning is particularly related to ethics. Classic proponents of this moral theory include Jeremy Bentham, Henry Sidgwick, and John Stuart Mill. This theory reduces all morally relevant factors to consequences alone and may appear very simple at first. It is important to note the theory involves many distinct claims regarding the moral rightness of any action. Utilitarianism argues the morality of any action only depends on the consequences, rather than the intentions, of the action.
Our motives are not, however, necessarily self-interested, nor are they always so. This is not to say that self-interest is absent from ethics. Some accounts of moral motivation — ethical egoism, for example — hold that Furthermore, the value of these consequences are evaluated based on the pleasures and pains they cause, and the moral rightness depends on the total net good in the consequences to all people.
These are only several of the distinct claims accepted by utilitarian theorists, but they provide a basic understanding of the theory, which will be applied to the case of JPMorgan in the Forex Scandal to evaluate the ethics of the acts in this case, banks forex scandal. JPMorgan is among the four banks that pleaded guilty banks forex scandal the charges of rigging the fix rates of the foreign exchange market to reap a profit.
Instead, the FCA gives detailed examples of how traders at JPMorgan attempted to manipulate the exchange rates for their own financial profit.
The following case, interpreted from the chat room histories revealed by investigators, demonstrates an attempt by a senior trader to manipulate the p.
In a chatroom conversation, it offers to transfer this order to Firm A. lets do this. The FCA said these trades were designed to take advantage of the banks forex scandal upwards movement in the fix rate following the discussions within the chatroom. Between them they accounted for 41 per cent of the euro-dollar trade.
For these financial giants, however, this is a rather small sum to be added to the overall earnings of a behemoth bank, banks forex scandal. More importantly, these profits made by traders over the years of manipulation do not go directly to their salaries. The main motivation for these traders to manipulate the rates was actually to boost end-of-year bonuses awarded for being a part of a team that consistently made higher profits.
In comparison, the fines faced by these banks are a much bigger financial loss. Banks forex scandal and Citibank were fined the heaviest, proportional to the extent of their involvement in the manipulations. The consequences of the forex rate manipulation on other people are slightly more complex. Firstly, these banks were able to drive the exchange rate for two currencies down or up to make a profit, but the price movements from the manipulation are so small holidaymakers are unlikely to notice a big difference when buying foreign currency.
An additional negative consequence is the loss of trust in the financial system by the general public. Sadly, these riggings occurred after banks had pledged to clean up their actions after the Libor rigging scandal, when banks were found to have falsely inflated or deflated their rates to profit from trades just two years prior, in All in all, were the actions of these senior level traders colluding with each other to manipulate the fix rates of the Forex market ethical?
According to utilitarianism, their actions caused a lot more negative consequences both for the bankers directly involved, and for everyone else in the global economy, banks forex scandal, and is therefore unethical. In this situation, although the amount of profits made by the bankers would be comparatively equal to the financial loss of the greater population. Utilitarianism theory asserts that moral righteousness depends on the consequences for all people and sentient beings.
The fact that a great number of people suffered negative financial consequences banks forex scandal the benefits of the few means the net good for all people has been reduced, and the action is not ethical.
The lesson here is that the conduct of a small group of employees, or of even a single employee, can reflect badly on all of us. bank, and the first bank to settle the charges, JPMorgan took a responsible step to address its involvement. First, despite facing record fines, the banks did not suffer any notable financial setback after the scandal was revealed.
According to Forbes, Citigroup and JPMorgan shares were little changed, while shares for UBS and Barclays actually surged. The real question, then, banks forex scandal, is whether the punishment meted out can cause a shift in the culture of the financial sector towards one that promotes trust, integrityand ethical behavior. In order to avoid this type of manipulation in the future, we have to reduce the opportunities and incentives to cheat, banks forex scandal.
To reduce the opportunity to cheat, global regulators agreed to widen the daily FX fix windows from 60 seconds banks forex scandal five minutes, making it much harder for a few traders to influence the final fixing.
Ultimately, it is their responsibility to maintain a certain culture of integrity within the organization, and if they fail to do so, they should take final responsibility.
In the first sense, guilt is simply the state of having done something wrong. We might say, for example, that a person is guilty of wrongdoing if he has committed a robbery. Thus, although we may judge the robber to be guilty of wrongdoing quite apart from any legal context, we may also find the robber guilty of wrongdoing in a court of law.
Accessed July 8, Barrett, Claer, and John Aglionby. html slide0, banks forex scandal. Blathnaid, Healy. Accessed July 7, Chrispin, Sebastian. English, Carleton. Finch, David McLaughlinTom SchoenbergGavin. Fleming, and Daniel Schafer. Freifeld, Karen, David Henry, and Steve Slater. Gara, Antoine. Graham, Patrick. Hutchison, Clare. Levine, Matt. Lumsden, Gavin. Onyanga-Omara, Jane. Onyanga-Omara, Jane, and Kevin McCoy. Sinnott-Armstrong, Walter, banks forex scandal.
Zalta, Spring Strauss, Delphine. html axzz3fAY6PhwS. Taylor, Mark. Accessed July 1, Treanor, Jill. By: Audrey Zhang In November,five major banking groups wrapped up joint settlement talks with U.
The Forex Market The Forex market is a twenty-four hour market in which traders buy, sell, exchange, and speculate on different currencies. To do that, they try to anticipate the actions of banks outside of these chat rooms, and take one of the following Options. This is banks forex scandal contract permitting the owner to buy call option or sell put option a financial asset at a specified price strike price, banks forex scandal.
A motive is something — often banks forex scandal s or emotion s — that move us to action. Name First Last.
The FX scandal now and later
, time: 6:40Forex scandal - Wikipedia
IV. FOREX Scandal: Top Banks Face Antitrust Fines A. Introduction Foreign exchange, more popularly known as “Forex” or “FX,” is the “conversion of one currency into another.”1 Forex is a virtual, global market where users continuously buy and sell May 20, · Three banks were also fined an additional total of $m for manipulating the Libor and Isdafix benchmarks, bringing the tally for the day to $6bn. Global banks have now paid more than $10bn in relation to the forex scandal, exceeding the $9bn paid by a larger group of institutions to settle the Libor rigging claims May 20, · A recent Forex scandal has rocked high-finance and left five banks with hefty criminal fines. JPMorgan, Barclays, Citigroup, and RBS, have pleaded guilty conspiring to manipulate foreign exchange (Forex) rates while a fifth bank, UBS AG, pleaded guilty to a different related charge
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