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The financial writer Sebastian Mallaby observed about hedge funds that: . . . leverage also made hedge funds vulnerable to shocks: If their trades moved against them, they would burn through thin cushions of capital at lightning speed, obliging them to dump positions fast- destabilizing prices.

a. What does a hedge fund's trades "moving against it" mean?

b. Why would a fund's trade moving against it cause it to burn through its capital?

c. What is the connection between a fund's being highly leveraged and its having a "thin cushion of capital"?

d. What does a fund's "dumping its positions" mean?

e. Why might a fund's dumping its positions cause prices to be destabilized? Prices of what?

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92057876

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