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Zhou asks:
Please account for the following sentence: "In early
February, the SEC confirmed that it was investigating whether the major
brokerage houses were tipping off hedge funds to the trades the brokers
handle for big clients like mutual funds." This sentence is taken from an
article in Fortune Magazine. I spent much time on it and my conclusion is
that there is something wrong in its word order. Am I right?
In
addition, what is "hedge fund"?
My comments:
There's
nothing wrong with the sentence, Zhou.
Breaking it down, you'll see these points:
Brokerage houses handle
trades for mutual funds.
Mutual funds are among the big clients of
major brokerage houses.
Apparently, there were allegations that the
brokerage houses were tipping off hedge funds to the trading activities of
their big clients like mutual funds.
As a result, there appeared to
have been an investigation conducted by the US Stock and Exchange
Commission (SEC), to see whether the allegations were true.
On Tuesday,
the SEC confirmed the investigation.
Naturally, when all those ideas are bundled into a single sentence,
they become a tough nut to crack, especially for the uninitiated - readers
who are not familiar with financial terms such as mutual fund, brokerage,
stocks and trades.
And hedge fund of course in your case.
A hedge fund is a fund (money collected and kept) for hedging. A hedge
is a row of close-growing small bushes used for dividing one garden from
another. Hedges protect the garden from trespassers. The hedging
businesses in the financial world are aimed at protections against
something bad from happening, i.e. future losses.
Let me give you an example. If you run an exporting business that
garners you an annual profit of, say, US$1 million. Year after year you
have an extra million dollars to put away in the bank. Over time, you
realize, however, the US dollar has been steadily losing its value - the
green back has lost half its value against the euro, for example, in just
the past few years. Therefore to guard against future losses, you decide
to buy some euros and perhaps also British pounds sterling. By keeping,
say, three currencies instead of one, you will have diversified your
savings and hedged yourself against possible future depreciation of one
particular currency against another.
Or you can ask a hedge fund to handle this business for you. A hedge
fund is run by professionals who do all kinds of hedging businesses apart
from currency dealings.
Keep reading, Zhou, and you'll become fluent in financial terms. Hedge
funds, mutual funds, stocks and bonds and what have you, they are the
higher forms of capitalism. I encourage you and all people to learn a bit
about them - this is the calling of the times - if just to be able to run
your own finances a bit better.
Even if you regard capitalism as one of your enemies, I encourage you
to do it - capitalism is not going away, you know.
And as they say, if you can't beat them, join them.
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