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To: Amy J who wrote (174897)	6/24/2003 9:21:04 AM
From: GVTucker	Read Replies (1) \| Respond to of 186894

Hold on to your hat, Amy, I've got a shocker for you. AMD cut their 2Q sales forecast this morning.

To: Amy J who wrote (174897)	6/24/2003 2:58:47 PM
From: chomolungma	Respond to of 186894

What's the max risk? Shouldn't the absolute worse case be obvious & easy to define - just a matter of setting all variables to the worse possible case? It's not that easy. Take an example from a derivative on a physical contract like copper. Suppose you open a commodity account and put in $10,000 to go long 5 copper contracts or 125,000 pounds of copper at 76 cents a pound. The margin required is around $6,500. The value of that copper is $95,000, is that your total risk? How exactly do you put a number on it? And that's an easy example. What if you're short 5 copper contracts? In theory, your risk is limitless. What if copper went to $10.76 a pound? You lose $1,250,000. How do you measure risk in that case. In financial instruments, it gets even more complex. I mentioned the eurodollar contract yesterday which has a notional value of one million dollars and a margin of about $800 per contract. That means with a commodity account of less than a hundred thousand, I can contract to buy or sell one hundred million 90-day eurodollars at the market price. Is that my risk? If the Fed RAISES interest rates 500 basis points (that's 5 full percentage points, I lose $12,500 per contract. Is that really a possibility? How do you quantify the risks of something like that happening? There have been elaborate mathematical models that use volatility to try and measure risk. It's that type of model that the boys at Long-Term Credit were using.....ooooops.... even the best models fail. I haven't looked at the Freddie Mac derivative portfolio but I'll bet there's lots of complicated transactions to try and isolate them from interest rate risk. If someone took some time and ran a bunch of "what-ifs," we might see what kind of risks they were taking, but throwing some large derivative exposure number out there is meaningless at best and at worst an attempt to sensationalize and mislead. Let's shed light on this subject and not inflame.