Page 130 - (DK) The Business Book

128

BORROW SHORT,

LEND LONG

MAKING MONEY FROM MONEY

IN CONTEXT Companies with a good cash flow and liquidity
can make money from money, by…
FOCUS
Financial products

KEY DATES
c.1650 A rice market in …investing in financial …borrowing short-
Osaka, Japan issues the first products such as term and lending to
standardized futures contract, derivatives and customers long-term,
futures contracts. like a bank.
agreeing to prices for goods
not yet delivered.
1970s and 80s Deregulation
gives banks and companies But this can prove to be a
more ways to use money to money-losing exercise if there is
make money. a crash in markets or the economy.
1973 US economists Fischer
Black and Myron Scholes
devise a mathematical formula
that appears to take the risk Making money from money is a risky,
out of futures contracts. short-term strategy.
1980s Large corporations
begin to use derivatives to
make money from money. ome companies opt to they can gain access to a new
“make money from money.” source of profit. The two terms that
2007–08 Financial markets
S This means they use their exemplify the idea of making
collapse around the world,
cash assets not only to further the money from money are “treasury
threatening the continued
development of their products, but function” and ”shadow banks.”
existence of banks and also to generate money through
banking-type ventures. the financial markets. Some Hedge betting
companies believe that by making “Treasury function” is a term that
hedges (bets) on the fluctuations of emerged in the late 1970s in the
the currency markets, for example, wake of economic challenges, such