MF Global,led by Mr Jon S Corzine(former goldman Sachs head)
Its works this way.. MF Global took short term loan from bank A...used the money from the loan to buy European Sovereign bonds.. now MF Global pledge these bonds(girvi) to bank B for cheaper loans.... and used the money from the cheaper loans to pay bank A. Now it payed interest on the loan from bank B but it earned higher interest from the bonds and hence earned the spread... if i can take an example... (it paid 8% to bank B for the loan and earned 10% on the bonds ..there by earning 2%). thats the Spread they earned..looked like a safe bet... reports say that the company used its own funds to do these transactions but as the EUROZONE economy weaked ..the risk of default increased... now since bank B sighted this... it started charging higher interest to MF Global ..and the spread they earned was gone...the COMPANY reported a net loss of $200million, ninth loss in 11 quaters. it filed bankruptcy.
What about MF Global India?
The indian unit is well capitalised and has sufficient margins in the settlement account with the EXCHANGES.
Its works this way.. MF Global took short term loan from bank A...used the money from the loan to buy European Sovereign bonds.. now MF Global pledge these bonds(girvi) to bank B for cheaper loans.... and used the money from the cheaper loans to pay bank A. Now it payed interest on the loan from bank B but it earned higher interest from the bonds and hence earned the spread... if i can take an example... (it paid 8% to bank B for the loan and earned 10% on the bonds ..there by earning 2%). thats the Spread they earned..looked like a safe bet... reports say that the company used its own funds to do these transactions but as the EUROZONE economy weaked ..the risk of default increased... now since bank B sighted this... it started charging higher interest to MF Global ..and the spread they earned was gone...the COMPANY reported a net loss of $200million, ninth loss in 11 quaters. it filed bankruptcy.
What about MF Global India?
The indian unit is well capitalised and has sufficient margins in the settlement account with the EXCHANGES.
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