EXC3613 Risk Management with derivatives Geir Høidal Bjønnes geir.bjonnes@bi.no 1 Introduction • Learning objectives: 1. 2. 3. 4. What is a derivative? What is the role of Derivatives and Derivatives Markets Firms’ risk exposures Hedging price risk with derivatives • McDonald: Chapter 1 2 Example • Consider a farmer that grows wheat and is expecting to yield 10‚000 bushels of crop in 3 months. He is afraid that the price of wheat might drop at the period
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Bibliography: Books: David Cobham (1992)‚ Markets & Dealers Frank Fabozzi (1986)‚ Advances in Futures and options research‚ DC Gardner (1996)‚ Introduction to derivatives‚ workbook 4‚ level 1 Paul Wilmott (1998)‚ Derivatives‚ The Theory and Practice of Financial Engineering Articles: Financial WMD? (derivatives and risk) The Economist (US) Jan. 24‚ 2004 Are
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Equity – ‘Ownership in a firm’ – A stock is a ‘claim to funds after all debts have been paid’ Prof. Lasse H. Pedersen Important Financial Assets Derivatives – Definition: ‘securities whose payoff depends on values of other assets’ – Examples Options Futures Swaps Investment Companies – Mutual Funds Prof. Lasse H. Pedersen Treasury Bonds Types of Treasury bonds – Treasury Bills (less than 1 year maturity) – Treasury Notes (1-10 year maturity) – Treasury Bonds (10-30 year maturity)
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RISK MANAGEMENT PRACTICES IN THE AIRLINE INDUSTRY by Sharon Fernando PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS In the Faculty of Business Administration Financial Risk Management O Sharon Fernando 2006 SIMON FRASER UNIVERSITY Summer 2006 All rights reserved. This work may not be reproduced in whole or in part‚ by photocopy or other means‚ without permission of the author. APPROVAL Name: Sharon Fernando Degree: Master of Arts Title of Project:
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PRACTICE_FINAL EXAM PORTFOLIO MANAGEMENT Winter 2013 CHAPTER 19—BOND PORTFOLIO MANAGEMENT STRATEGIES MULTIPLE CHOICE 1. Which of the following is a passive bond portfolio strategy? a. Indexing b. Buy-and-Hold c. Classical immunization d. Choices a and b e. None of the above ANS: D PTS: 1 OBJ: Multiple Choice 3. Which of the following is a matched funding technique? a. Classical immunization b. Contingent immunization c. Bond swaps d. Valuation analysis e. Interest rate anticipation ANS: A PTS:
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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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Case Delta Beverage Group‚ Inc. History The Delta Beverage Group is a bottling and canning company from the United States. Delta had some very strong brand names‚ like Pepsi and Mountain Dew‚ included in their franchises. Around 1988‚ a price war occurred and Delta suffered from compressed margins. About a year later situation became critical and a new management team from was hired. The new management stopped the fall in prices‚ the decline in market share and increased margins by changing
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Transaction Costs of Currency Futures Currency Call Options Factors Affecting Call Option Premiums How Firms Use Currency Call Options Speculating with Currency Call Options Currency Put Options Factors Affecting Currency Put Option Premiums Hedging with Currency Put Options Speculating with Currency Put Options Contingency Graphs for Currency Options Conditional Currency Options European Currency Options How the Use of Currency Futures and Options Contracts Affect an MNC’s Value Chapter Theme
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Germans decide to not buy the microchips. That is why we recommend Madesco to buy a put option of DMs. Madesco‚ in case the deal go through‚ will have the right (but not the obligation) to exercise its options and protect its cash flows in terms of Dollar in case DM appreciates. In case the deal never goes through‚ the company knows from the begging that it have sacrificed only the premium cost for buying the options. Also‚ that strategy fits better to Madesco because the time horizon of the hedge is
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Case Background In July 1993‚ Tiffany & Company reorganized its Japanese distribution channel by repurchasing its inventory from its Japanese distributor Mitsukoshi Limited. As a result of this action‚ Tiffany would assume the responsibility of establishing yen retail prices‚ holding inventory in Japan for sale‚ and controlling local Japanese management. Tiffany would be able to have control over retail price in Japan where historically had higher price. Under the previous arrangement‚ Tiffany contracted
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