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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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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pay $110 per share at that time. What is the benefit of this derivative contract? Dell can buy Google stock today and take delivery in three months. If the price goes up‚ as it expects‚ Dell profits. If the price goes down‚ it loses. Example 2—Option Contract. Now suppose that Dell needs two weeks to decide whether to purchase Google stock. It therefore enters into a different type of contract‚ one that
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Australian School of Business School of Banking and Finance FINS 3635 OPTIONS‚ FUTURES AND RISK MANAGEMENT TECHNIQUES Course Outline Semester 1‚ 2012 Part A: Course-Specific Information Part B: Key Policies‚ Student Responsibilities andSupport Table of Contents PART A: COURSE-SPECIFIC INFORMATION 1 2 2.1 2.2 2.3 2.4 2.5 3 STAFF CONTACT DETAILS COURSE DETAILS Teaching Times and Locations Units of Credit Summary of Course Course Aims and Relationship to Other Courses Student Learning Outcomes
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Visit Free Slides and Ebooks : http://downloadslide.blogspot.com CHAPTER 16 Dilutive Securities and Earnings Per Share ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics 1. Convertible debt and preference shares. Warrants and debt. Share options‚ restricted share. Earnings Per Share (EPS)—terminology. EPS—Determining potentially dilutive securities. EPS—Treasury share method. EPS—Weightedaverage computation. EPS—General objectives. EPS—Comprehensive calculations. EPS—Contingent shares. Convergence
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Valuation Stephen M Schaefer London Business School March‚ 2012 Outline • The no-arbitrage principle • Arrow-Debreu (A-D) securities and market completeness • Valuing options with one period to maturity via replication using underlying asset and borrowing / lending replication using A-D securities risk neutral probabilities • Valuing options with several periods to maturity Understanding Risk Neutral Valuation 2 No-arbitrage pricing Understanding Risk Neutral Valuation 3 Arbitrage (Definition) •
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The Risk Profile A plot showing how firm value is affected by changes in prices or rates. Reducing Risk Exposure Although perfect hedging may be impossible‚ the normal goal is to reduce financial risk to bearable levels and thereby flatten out the risk profile. Forward Contracts: The Basics Forward contract—contract between buyer‚ who will take future delivery of the goods‚ and seller‚ who will make future delivery‚ for sale of asset in the
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when he is going to get it. Therefore‚ if he would have choose to do a forward or a future contract hedge‚ it wouldn’t have been convenient since he was obligated to sell U.S. dollars on a specific day. What would have been a good option was to sell an American put option of US $161‚030‚000 with an expiration date of December 2008. This would allow Peter to hedge against his expected depreciation of the U.S dollar but doesn’t force him to sell the U.S dollar in the future in case if the American firm
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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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Purpose of hedging foreign exchange risk 2.2 Alternative hedging techniques 3.1 Calculations using forward contract 3.2 Calculations using money market 3.3 Calculations using billing in US dollar 4.1 Features of fixed contract 4.2 Features of options contract 5.0 Conclusion References 1.0 Introduction This report contains a brief understanding about the foreign exchange risk and the various techniques used for hedging against these risks which is very important
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