duration than the spot market (Shapiro‚ 2010). The hedger will look to hedge their risk of currency depreciation by locking in a fixed exchange rate to be paid at a future date. The forward contract is calculated based on the forward rate and the swap rate. The forward rate is the interbank exchange rate and the swap rate is the market exchange rate (Shapiro‚ 2010). The forward contract would essentially allow the hedger to hedge
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years before) July 1993. 3. To Hedge or Not? Do you think Tiffany should actively manage its yen-dollar exchange rate risk? Why or why not? Explain the benefits and costs of hedging. 4. What to Hedge? If Tiffany were to manage its exchange rate risk‚ then identify what exposures should be managed via such a hedging program (e.g.‚ hedge sales‚ hedge gross profit‚ or hedge cash flows‚ etc.). Explain why. 5. Forward or Options? If Tiffany were to hedge the yen-dollar exchange rate risk‚
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MGRM chose to hedge this exposure by using offsetting long positions with gasoline‚ heating oil‚ and crude oil futures on NYMEX. It’s important to note that the magnitude and complexity of contracts for MGRM made it difficult to hedge this position. One of the complicating factors for MGRM was that although these contracts had the same term‚ the details of delivery varied per contract. Some contracts stated monthly‚ and others stated longer term delivery. MGRM was also only able to hedge 55 million
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assured of a reasonable return. In this case‚ he would enter into a futures contract from the short side. Now‚ the efficiency of the hedge depends on 2 things: the underlying asset and the time to maturity for the futures contract and these should correspond to the farmer’s produce and the harvesting period. What we have discussed here is a short hedge. Similarly‚ a long hedge will be used when the party intends to buy a certain asset in the future and wants to reduce risk of rising prices. Basis Risk
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FIN3102 Investment Analysis and Portfolio Management Case 1- The Dynamis Fund: An Energy Hedge Fund Section C4 Group 1C Group Members Chen Zu Qing (U098258E) Kwan Kin Weng (U090381H) Low Siao Chi (U098260J) Sim Wan Lin (U098374Y) Yong Jun Kang Eric (U098357R) Yong Lin Lin (U098312Y) 0 1. Why would a regional brokerage offer such instruments Compared to individual portfolios‚ such funds woo investors by offering several advantages namely: professional asset/money management‚ liquidity and more
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dollar causes a given amount of yen to convert to fewer dollars in the future. This loss of value could be severe if the yen depreciates by a significant amount. b. If Intel chooses not to hedge its transaction exchange risk‚ what is Intel’s expected dollar revenue? Answer: If Intel chooses not to hedge‚ the expected dollar revenue is the expected dollar value of the ¥100‚000‚000. The expected spot rate incorporates a 1% weakening of the dollar. This means that the expected yen price of the
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1.What are conversion factors? Why were conversion factors developed? How do they impact on which bond is cheapest to deliver? Under what conditions would there be no cheapest to deliver? Explain in detail. The conversion factor‚ for any particular bond deliverable into a futures contract is a number by which the bond future delivery settlement price is multiplied‚ to arrive at the delivery price for that bond. Conversion factor relates all outstanding deliverable government bonds and notes
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cruel or evil. It is important because the reader needs to find what Hedges’ is trying to argue with. Chris Hedge may be misusing the word artifice‚ and it doesn’t necessarily make sense on what his argument is trying to say. When Hedges’ argument says “ The most essential skill… is artifice.” Which part of the paragraph do you think is the artifice part. What make sense or adds up to what Hedges’ is trying to say. Identify what Hedges’ point is‚ and write down what artifice is to you. As in how would
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1. J & L should hedge only some of its exposures to diesel fuel. Although there are several financial instruments available for J & L to hedge against the risk of rising diesel fuel prices‚ these instruments still have their own downsides and possibly their own risks. For example‚ the future contracts from NYMEX seems like an effective hedging strategy for J &L‚ but there are some difficulties in terms of using futures from NYMEX to hedge against the diesel prices. NYMEX does not trade
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hedging strategies that the Controller should become familiar with are cash flow hedges and fair value hedges. Cash flow hedges relate to forecasted transactions where the effective portions of the hedge is initially reported in other comprehensive income and are later reclassified into earnings any portion of the hedge that is ineffective is reported currently in earnings (FASB ASC 815-30‚ 2010). Fair value hedges can be associated with
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