production of gold and copper. MML can mitigate and reduce these risks by entering into the future contracts and options. Future contract or option is suggested for MML who wants to hedge 50% of the production of gold and copper in March and April. In order to meet MML’s management request of low options premium payment‚ MML is advice to use put bear spread and strangle as their options combination strategy. 1.0 Introduction Metal Mining Ltd (MML)
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satisfy the exchange that they are creditworthy to transact. The initial purpose of derivative contracts was to allow traders to hedge risk which they faced in the cash market. Two of the most popular derivative instruments are financial futures and options. Financial futures commit the parties to buy or sell underlying assets at set prices on an agreed future date. The benefit of financial futures in its most basic form can be exemplified by a poultry farmer who is worried about the risk of price fluctuations
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CONCEPT QUESTIONS - CHAPTER 14 14.1 List the three ways financing decisions can create value. 1. Fool investors 2. Reduce costs or increase subsidies 3. Create a new security 14.2 How do you define an efficient market? It is a market where current prices reflect all available information. Name the three foundations of market efficiency? Rationality‚ independent deviations from rationality and arbitrage 14.3 How would you describe the three forms of the efficient-market hypotheses
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costs) What happens when the dollar appreciates/depreciates? What is the currency risk? Why can’t they just pass-through to their customers? For simplicity in calculations: Focus on the $/€. Ignore the time value of the investment in the option premium. Analysis Provide background to the case: what the company does‚ how it sets prices‚ why they don’t pass-through exchange rate volatility to customers. Examine Page 6 of the case closely: Define the base case scenario: Volume
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Volkswagen and Porsche - Corporate Finance Case study: Mergers & Acquisitions of listed companies by Joachim Häcker What is the macro view of this case study? Small fish tries to eat big fish (financial figures are end of 2005 and rounded): VW: Market cap: €16 bn Book value: €24 bn Cash and cash equivalent: €8 bn (+€4 bn marketable securities) Porsche: Market cap: €11 bn Book value: €3.4 bn Cash and cash equivalent: €3.6 bn VW Porsche case study – by Joachim Häcker Seite 1
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Financial Management | March 2012 In association with Notes Study Paper T4 (part b) The seven deadly sins of a case study p45 Paper P3 Foreign currency hedging Many P3 students understand the principles behind foreign currency hedging techniques but struggle to demonstrate the calculations in an exam. Let’s get some practice on how to figure out those numbers By Christine Bligh‚ content specialist‚ Kaplan edging involves reducing or eliminating financial risk by passing that risk on
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Eun & Resnick 4e CHAPTER 8 Management of Transaction Exposure Three Types of Exposure Forward Market Hedge Money Market Hedge Options Market Hedge Hedging Foreign Currency Payables Forward Contracts Money Market Instruments Currency Options Contracts Cross-Hedging Minor Currency Exposure Hedging Contingent Exposure Hedging Recurrent Exposure with Swap Contracts Hedging through Invoice Currency Hedging via Lead and Lag Exposure Netting International Finance in Practice:
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April 27‚ 2011 (W) at the open and you close your position on April 27‚ 2011 (W) (at the settlement price)‚ how much will you make/lose? b) 2. Based on the data in the following table‚ compute the of the May11 131 Call. 4/25/11 4/26/11 SPY $133.64 $104.79 SPY May11 131 Call $3.58 $4.36 3. (15 points) A corporate client wants to borrow $1‚000‚000 from a bank. A bank offers a corporate client 3 different loans plans: a) borrowing $1‚000‚000 cash at 12% per annum with annual compounding
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cost of debt 12.00% Growth rate -4.06% Value of tax shield (perpetuity) 50.4 Value of "Additional assets" 25.0 Total value of MW 516.3 2. How would you structure an analysis of MW as a portfolio of assets-in-place and options? Specifically‚ which parts of the business should be
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dividend which is call “ Covered Call ” . A covered call is a financial market transaction in which the seller of call options owns the corresponding amount of the underlying instrument‚ such as shares of a stock or other securities. If a trader buys the underlying instrument at the same time the trader sells the call‚ the strategy is often called a "buy-write" strategy. In equilibrium‚ the strategy has the same payoffs as writing a put option. The basic goal of a covered call is to create income
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