forged banknote n.
Skip this Video
Loading SlideShow in 5 Seconds..
Forged Banknote PowerPoint Presentation
Download Presentation
Forged Banknote

Loading in 2 Seconds...

play fullscreen
1 / 8

Forged Banknote - PowerPoint PPT Presentation

  • Uploaded on

Forged Banknote. Finance is about solving the unknown r ather than applying ready rules . Given. Actors: Stranger = S Shop-owner = SO Shop-owner next door = SOND Actions: S wants to buy an article @$4. S offers $10 banknote.

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
Download Presentation

PowerPoint Slideshow about 'Forged Banknote' - gigi

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
forged banknote

Forged Banknote

Finance is about solving the unknown

rather than applying ready rules



  • Stranger = S
  • Shop-owner =SO
  • Shop-owner next door = SOND


S wants to buy an article @$4. S offers $10 banknote.

SO does not have change and gives the banknote to SOND who provides change.

S goes away with the article and $6 change.

Then SOND comes and says that the banknote is false.

S compensates SOND with a valid $10 banknote.


What is SO’s total loss?

how to solve
How to Solve?

Two approaches:

  • Calculate everything step by step.

Lengthy calculations where it is necessary to distinguish valid money from false. There is high prob of mistake.

(2) Use arbitrage method.

The answer will be obvious immediately. SOND has zero impact. SO loss is equal to S gain. S gain is obvious.

arbitrage balance equation
Arbitrage = Balance Equation

What SO looses, S gains:

SO losses = S gain (BE)

It is hard to calculate losses. It is easy to calculate gains: $6 in cash + $4 in value = $10.

It is important to notice that SOND net position is zero.

check up
Check up

Let us check easy stuff with long calculations – losses. The daybook for SO:

Profit/Loss = Debit – Credit = $10 – $20 = –$10

sophisticated note
Sophisticated Note

Changing cash works like a derivative.

The uncertainty is incorporated in the quality of money. There are just two options in the case of forged money (like default). But there is a range of options in the case of dirty money (“dirty” may be treated both literally and figurative).