| Course | GF561 Derivatives and Hedging |
|---|---|
| Unit | Unit 6 |
| Paper type | Seminar reflection |
| Length | About 840 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Finance |
| Updated | October 2026 |
Free sample paper for GF561 Unit 6
Derivatives, Borrowing or the Decision to Sell? A Unit 6 Seminar Reflection on Orange County in 1994
[Student Name]
Purdue University Global
GF561: Derivatives and Hedging
Unit 6 Seminar Reflection
[Instructor Name]
[Date]
The classmates are composite; the events and the books and article cited are real, with figures rounded as commonly reported.
The Event as I Understood It
Before the seminar my understanding was short: a county treasurer in California bought exotic derivatives, rates rose, and the county went bankrupt. Robert Citron ran an investment pool holding about $7.5 billion of money from the county, cities, school districts and other local agencies. As the Federal Reserve pushed short-term rates up month after month in 1994, the pool's securities lost value, and in December 1994 the county filed for bankruptcy. I came in prepared to argue that public money should never touch derivatives.
What the Session Added
Our facilitator began with the pool's balance sheet rather than its holdings. Through reverse repurchase agreements, in which the pool sold securities and agreed to buy them back, it borrowed enough to hold about $20 billion of securities on $7.5 billion of deposits (Jorion, 1995). Many of those securities were ordinary agency notes. Some were structured notes, including inverse floaters whose coupons fall when rates rise, which made the bet on falling rates even stronger.
Kayla's point came first. The pool would have lost money in 1994 with no derivatives at all, simply by borrowing short term to buy longer-term notes. The structured notes increased the loss, but the borrowing nearly tripled the pool's exposure to rates. Her conclusion was that the derivatives were the instrument and the borrowing was the cause.
The pool did not fail because it used derivatives; it failed because it borrowed short to make a large bet that rates would stay low, and the derivatives were simply one of the ways the bet was placed.
The Argument I Did Not Expect
Then Marcus introduced a reading I had never heard. Miller and Ross (1997) argued that the county's losses in late 1994 were largely paper losses on securities it could have held to maturity, and that rates fell sharply in 1995. By their account, if the county had kept the portfolio rather than liquidating it in the bankruptcy, much of the loss would have reversed. The decision to sell at the worst moment turned an unrealized loss into a permanent one.
That provoked the liveliest part of the session. Elena argued that holding on was never realistic: the lenders under the repurchase agreements could seize their collateral, and depositors wanted their money. Marcus answered that the bankruptcy itself froze some of those claims, giving the county more room than it used. We did not settle it.
How I Now Read the Case
I now see three decisions, not one. The first was to borrow heavily against a pool that depositors treated as safe cash. The second was to concentrate that borrowing in a bet on interest rates, through notes and structured notes whose values move sharply with rates. The third was to liquidate after the loss rather than hold through it. Derivatives played a part in the second decision only. A measure of the pool's risk, such as value at risk, would have shown how large a one-year loss was possible long before it happened, which is the lesson Jorion draws (Jorion, 1995).
A Number I Checked
To see how the borrowing magnified the loss, I assumed, for illustration, that the pool's securities had an average duration of about three years. On $20 billion of securities, a rise of about three percentage points in rates would cut value by roughly 9 percent, or $1.8 billion. Measured against $7.5 billion of deposits, that is a loss of about 24 percent of depositors' money, from a portfolio of notes that would have lost only 9 percent without borrowing. The scale of the borrowing, not the exotic instruments, explains most of the damage.
Why the Depositors Were Surprised
One more point stayed with me. The local agencies that deposited money in the pool had been earning yields well above what short-term Treasury bills paid, and several had even borrowed to deposit more. High returns from a pool described as conservative should have raised the question of where the extra yield came from. The answer, a bet on rates financed with borrowed money, was available to anyone who read the holdings reports.
What I Would Tell a Public Treasurer
Match the pool's risk to what depositors believe they hold. Report value at risk to the oversight board, not only the yield. And have a plan, agreed in advance, for what happens after a large loss, so that the decision to hold or sell is not made in a panic (Hull, 2022).
What I Still Wonder
Were Miller and Ross right that holding would have recovered most of the loss, or does that view depend on knowing, after the fact, that rates fell in 1995?
References
Hull, J. C. (2022). Options, futures, and other derivatives (11th ed.). Pearson.
Jorion, P. (1995). Big bets gone bad: Derivatives and bankruptcy in Orange County. Academic Press.
Miller, M. H., & Ross, D. J. (1997). The Orange County bankruptcy and its aftermath: Some new evidence. The Journal of Derivatives, 4(4), 51-60. https://doi.org/10.3905/jod.1997.407981
The Purdue Global GF561 Unit 6 instructions
The sixth GF561 unit pairs a seminar on a well-known derivatives loss with a reflection. State the case briefly from published sources, with figures commonly reported. Describe your understanding before the session. Record how the session reframed the case, attributing each argument to its speaker and naming any research they used, including arguments you did not expect. Separate the decisions that led to the loss, and say which ones involved derivatives at all. Check a key claim yourself with a short calculation, labeled as an illustration. State your revised reading and the practical lesson for a manager in a similar position. Close on something the session could not resolve. Write in the first person and cite books and articles on the case in APA 7, within the seminar's length guidance.
How this GF561 Unit 6 example is built
The writer's pre-seminar summary, blaming exotic derivatives, comes first in the example. The session section introduces the pool's borrowing through reverse repurchase agreements, citing Jorion, and Kayla's point that the borrowing nearly tripled rate exposure. The highlighted sentence records the first shift. Marcus then brings in Miller and Ross's argument that liquidation turned paper losses into permanent ones, and Elena's objection about lenders seizing collateral follows. A section separates three decisions and notes where value at risk would have helped. An illustrative calculation shows how borrowing turned a 9 percent fall into a 24 percent loss of deposits. A section on depositors' surprise at high yields, advice for a public treasurer citing Hull and a question about hindsight close the reflection.
Reading the GF561 Unit 6 grading rubric
GF561 seminar reflections are graded on accurate case facts and a visible change in thinking. Graders check that figures are those commonly reported and that the writer distinguishes established facts from illustrations. Most of the credit depends on how the writer handles specific arguments from the session, including views that challenged the writer, and explaining which persuaded and why. Separating the decisions behind the loss, and identifying which involved derivatives, demonstrates the analytical clarity instructors in this MS in Finance course look for. An illustrative calculation of the writer's own adds weight. Practical lessons and an open question that grows from the debate, with APA 7 references to the literature on the case, complete the grade.
GF561 Unit 6 help from the desk
Many GF561 reflections on a famous loss retell the story and conclude that derivatives are dangerous, the view the seminar is designed to test. Others report the session's arguments without saying where the writer started or ended. Borrowing and derivatives are treated as the same thing. Academic arguments are summarized without attribution. Calculations, when included, are presented as facts rather than labeled illustrations. If your seminar used Barings, Metallgesellschaft or a recent hedging loss instead, keep the same structure: case facts, your starting view, the reframing, the separate decisions, a check, a revised reading, a lesson and an open question.
Get a GF561 Unit 6 example written to your instructions
The loss discussed in your GF561 Unit 6 seminar, this one or another, along with any readings and the rubric, is what the reflection needs; if your section swapped the live session for a written task, send that task. Documented facts stay documented, and one piece of arithmetic carries the revised view. The first custom sample is free, normally inside 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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GF561 Unit 6 questions, answered
How much of the case history belongs in the reflection?
Only what the argument uses. The sample gives the structure of the contracts, the hedge, the price fall and the approximate loss in a few sentences, then spends its length on how the writer's view changed. Background beyond that is better cited than retold, since graders already know the case and are reading for your reasoning.
Where can I find a free GF561 Unit 6 sample paper?
This page holds a full GF561 Unit 6 seminar reflection on the 1994 Orange County bankruptcy, with the borrowing, the structured notes, the liquidation debate, an illustrative calculation and APA 7 references.
Were derivatives the main cause of Orange County's loss?
They contributed, but the pool would have lost heavily without them. Borrowing through reverse repurchase agreements multiplied its exposure to rising rates, and that borrowing explains most of the damage.
What did Miller and Ross argue?
That the county's late-1994 losses were largely on paper and that rates fell in 1995, so holding the portfolio rather than liquidating it would have recovered much of the loss.
How did borrowing magnify the loss?
With about $20 billion of securities on $7.5 billion of deposits, a decline of roughly 9 percent in the securities became a loss of about a quarter of depositors' money.