This is actually a good post, and it the type of rare things where I would pay up! There has been actually a trade I thought of that was essentially an arb based on that principle. The issue was to be sure not to get kicked out before a due date. I doubt prop firms would guarantee me the not kick out thing.
How about if I were to pay you zero if I lose, but I pay you DOUBLE the interest if I were to win. You see, I would be generous, I would pay you TWICE what you want. If you find this deal not fair, why should I view your deal as better?
That concept of shared risk is something you'll find in Islamic banking. London launched some Sharia compliant bonds recently and I was reading a bit about this stuff. For me, I'll stick to interest. Keep it simple and all that.
Goldman views one red cent as worth to collect, or the average people view 10% a little. Note that with an interest rate at say 0.50%: 10% is a 20 times profit margin. In % the margin is: 2000%! Where in the world could I have a business with a 2000% margin?
How does it work? Is there a link? Maybe they are just bypassing the interest and using put-call parity. I read an article from a lawyer once, and he explained how those islamic loans work. They are also sharks as anyone else. They should be closed for intellectual dishonesty. The whole finance is based on interest, because it is easy money. So if london is doing it, I hope it is not just to put interest in the back office via put-call parity, and post in the front office the no-interest deal to the 1.7 billion muslims. The British know how to monetize religion.
Don.. i'll ask a serious question... so if someone has $100K (for round numbers purpose)... are you saying that one can basically leverage up to $1.2MM Notional overnight?
Perhaps I'm a cynic but at the end of the day, never mind the mumbo jumbo, I visualise a guy with a calculator working out how many percent they get. http://www.ft.com/intl/cms/s/0/4f2e...44feabdc0.html?siteedition=intl#axzz2ltIzsSjc http://en.wikipedia.org/wiki/Sukuk
Notice that the formulation of your question can get yes as answer even if one were to give only 0.01 dollar as leverage. There is a free option to the other side when you use the keywords: "Up To". My question would be: could you go beyond 1.2MM, and if yes what are the condition you cannot do it. PS: " i'll ask a serious question." I usually read that as if myself am asking stupid questions, but I think ofthomas is a nice and good person, and does not mean that.
LOL, I'm registered for the site so I get straight to the article, and I did test the link. Here, try clicking on the Google link and see if you get through at least the first time. Else register for free. https://www.google.co.uk/search?q=f...onds&ie=UTF-8&oe=UTF-8&hl=en-gb&client=safari