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One-third of colleges and universities trade in risky derivatives

Tuesday 20 November 2012

One-third of the Netherlands' colleges, training schools and universities invest in complicated financial products known as derivatives, the education ministry said on Tuesday.

Educational institutions use derivates to cover themselves against the risk of a rise in interest rates on loans. However, the drop in interest rates means the value of these investments is now negative.

Although this negative value is virtual, it can affect the institutions' financial stability and lead banks to demand extra guarantees.

New rules

In total, the derivatives owned by training colleges (mbo) to shore up their investments are down in value by €74m, while hbo college and university investments are down by €216m, according to education ministry figures.

Education minister Jet Bussemaker is now working on plans to tighten up the rules for investments by public bodies. Earlier, home affairs minister Ronald Plasterk called for a ban on local council investment in derivatives, saying it is wrong to take such risks with public money.

A number of housing corporations have also run into trouble with derivatives trading. One, Vestia, had to be bailed out after losing €2.6bn.

Universities invest in derivatives, speculate on interest rates

Four vocational colleges latest to join derivatives scandal
Housing corporations to have amateur status as investors

Should colleges be free to invest as they think fit? Use the comment box below.

© DutchNews.nl

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Readers' comments (7)

OMG!! they are doing what, playing with derivatives, who the hell put them into this, its worse than playing with fire. I have just filled a chapter of the book I am writing with warnings against these things. Stop them NOW

By Rick Pearson | November 20, 2012 6:23 PM

If I am advising a business - which happens to be part of my job as a copywriter - if the question is about money, I tell them it is the wrong question.

Look not at the money: look at those customers who bring you the most. Because getting more of that kind of customer will bring you more.

No fiddling the books or fancy mathematics is going to change that.


By Gemma | November 20, 2012 8:08 PM

It is just another example of the happenings perpetuated in the current state of affairs that predominates in this mad world in which we live!

By J M Dawson | November 20, 2012 8:48 PM

I'm pretty certain they didn't decide this over coffee. They will have been advised by the brightest and best that the financial industry could offer.
Your money and our experience soon becomes our money and your experience.

By Dr Ponzi | November 21, 2012 8:53 AM

Oh relax. They are simply hedging their interest rate risk. Rates are extremely low right now. As rates rise, and they will, the assets they own will lose value. If rates fall, the value of their assets increase but the increase is offset by the hedge. The hedges (i.e. "risky derivatives") are simply there to preserve the value of their investments. It's important to distinguish between good risk management, which these institutions seem to be doing, and speculative trading.

By Brad Roberts | November 21, 2012 9:22 AM

Derivative is a huge con game. They should invest in easy to understand secure investments.

By ufo | November 21, 2012 9:52 AM

Brad - do you also have snake oil for sale?? I know some potential home buyers that may be interested.
what a load of .... - our entire financial system that is now based on fake values (eg - derivatives) is at risk. No one will be relaxing any time soon.

By John Edwards | November 22, 2012 9:09 AM

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