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Published by: IBS Case Development Center
Published in: 2011

Abstract

This case study discusses the first ever bankruptcy of any County in the history of the US. It discusses Orange County’s investment pool funds and its (mis)management by its treasurer - Robert Lafee Citron. The case study describes how Citron put investors' funds into risky derivative instruments to earn superior returns without proper assessment of risk. It compiles the chronological events which led to the bankruptcy of Orange County. The case will help the students: Demonstrate the importance of risk management while investing in derivative instruments; Explain the mechanism of structured notes and the effect of leverage; Demonstrate the reasons and impact of Orange County’s Bankruptcy; Highlight the lessons learnt from the bankruptcy of Orange County. The case is meant for MBA/MS level students as part of a financial risk management / financial risk curriculum.
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Abstract

This case study discusses the first ever bankruptcy of any County in the history of the US. It discusses Orange County’s investment pool funds and its (mis)management by its treasurer - Robert Lafee Citron. The case study describes how Citron put investors' funds into risky derivative instruments to earn superior returns without proper assessment of risk. It compiles the chronological events which led to the bankruptcy of Orange County. The case will help the students: Demonstrate the importance of risk management while investing in derivative instruments; Explain the mechanism of structured notes and the effect of leverage; Demonstrate the reasons and impact of Orange County’s Bankruptcy; Highlight the lessons learnt from the bankruptcy of Orange County. The case is meant for MBA/MS level students as part of a financial risk management / financial risk curriculum.

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