scale of a project (downsize‚ expand)‚ abandon it‚ or drastically change its implementation in the future are examples of strategic options. The existence of these options improves the value of an investment project and as such should be reflected on the price / investment cost. Alternative methods of valuing such projects‚ with an additional advantage of yielding more accurate estimates of future cash flows are given by: Derivatives valuation approach (copper mine examples) Strategic
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secondary market is the financial market where previously issued securities and financial instruments such as stocks‚ bonds‚ options‚ and futures are traded. In the recent past‚ the Indian securities market has seen multi-faceted growth in terms of: • The products traded in the market‚ viz. equities and bonds issued by the government and companies‚ futures on benchmark indices as well as stocks‚ options on benchmark indices as well
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OF FORWARD AND FUTURES MARKETS MULTIPLE CHOICE TEST QUESTIONS 1. Which of the following is a false statement related to options on futures? a. options on futures are also known as futures options b. options on futures are also known as options on the underlying instrument c. options on futures is a derivative on a derivative d. options on futures are also known as commodity options e. all of the above statements are true related to options on futures 2. Which of the following contract terms
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Contents 1 Introduction to derivatives 1.1 Derivatives defined . . . . . . . . . . . . . . . . 1.2 Products‚ participants and functions . . . . . . . 1.3 Derivatives markets . . . . . . . . . . . . . . . . 1.3.1 Spot versus forward transaction . . . . . 1.3.2 Exchange traded versus OTC derivatives . 1.3.3 Some commonly used derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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option can hedge a firm’s future payables denominated in euros. It effectively locks in the maximum price to be paid for euros. A put option on euros can hedge a U.S. firm’s future receivables denominated in euros. It effectively locks in the minimum price at which it can exchange euros received. 4. Forward versus Currency Option Contracts. What are the advantages and disadvantages to a U.S. corporation that uses currency options on euros rather than a forward contract on euros to hedge its exposure
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A Complimentary Copy from 口 RENTI 巳 E F T Prenticc Hall HALL SOLUTIONS MANUAL AND STUDY GUIDE Fundamentals of Futures and Options Markets Sixth Edition John C.Hull Maple Financial Group Professor of Derivatives and Risk Management Joseph L. Rotman School of Management University of Toronto Prentice Hall ‚ Upper Saddle River‚ NJ 07458 Project Manager ‚ Editorial: Mary Kate Mu红ay Project Manager ‚ Production: Carol Sarnet Buyer: Arn old Vila Copyright @ 2008 by Pearson
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cash flows. The first alternative was to sell yen for dollars at a predetermined price in the future using a forward contract. The second alternative was to purchase a yen put option allowing them to exercise their option only if it was more profitable in the future at the future spot rate. Two more alternatives that we think are appropriate are a synthetic forward using options and a synthetic forward using interest rate parity. Furthermore‚ Tiffany needs to understand the hedging alternatives
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fluctuating of the interest rates‚ currency exchange rate and stock prices; FINANCIAL DERIVATIVES Derivatives: This is a security‚ whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. Most derivatives are characterized by high leverage. Underlying assets: The most common underlying assets include stocks‚ bonds‚ commodities‚
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varying currency values that are relevant to the operation of the company. Tiffany is exposed to foreign exchange risk by selling directly to the Japanese market. The extreme volatility in the exchange rate creates significant uncertainty in what the future exchange rate and profits will be if left unprotected. It is the unpredictable foreign exchange rate fluctuations that pose a serious risk in the Tiffany case. Classic behavior of the Yen/Dollar exchange rate over the years has proven to be volatile
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Chapter 5 Financial Forwards and Futures Question 5.1 Four different ways to sell a share of stock that has a price S(0) at time 0. Description Get paid at time Lose ownership of security at time Receive payment of Outright sale 0 0 S0 at time 0 Security sale and loan sale T 0 S0erT at time T Short prepaid forward contract 0 T ? Short forward contract T T ? × erT Question 5.2 a) The owner of the stock is entitled to receive dividends. As we will get the stock only in one year‚ the value of the prepaid
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