...Question (1) (a)Organization is a group of people who are united to go to a certain kind of goals in a manner of planning, organizing, monitoring, controlling, cooperating and discussing with each others. Although there are many resources (land, labor, capital, entrepreneurship) that need to put into the business to achieve the organizational goals, the human resources play the most important role to reach that organizational goal since they are the one who will manufacture the products using land and capital and they will be the one who will serve the customers to be satisfied. So goals alignment between the human capital and organization is needed and this is the hardest and most conflict thing because human is the most intelligent people and they can find every single ways that can reduce using effort without noticing by senior supervisors or without breaking rules governed by the organization. For example, the man can produce 100 pieces with his actual effort but the daily average target for all the workers is 80 and there is no difference between manufacturing 100 and 80, he will definitely make only 80.This is called systematic soldiering (Taylor,1998).To solve the problems,driving forces are needed to find to boost the motivations to exert their full efficiency.According to Maslow’s hierarchy of needs, people are driven according to their needs physiological need, safety need, love (belongings) need, esteem need, and self-actualization needs) to be motivated and...
Words: 5074 - Pages: 21
...DERIVATIVES & RISK MANAGEMENT ASSIGNMENT – II By: ATTIKA RAJ, ROLL NO: MS10A009, MBA- 2012 BATCH, DOMS, IITM 2/21/2012 I. Case Analysis – Risk management Policy of Lufthansa Submitted in Assignment 1 II. Case Analysis: Commodity Market Derivatives Case Solutions: 1. Discuss the risk exposure of Amarnath hedge fund. Ans: The Amaranth hedge fund was exposed to following risks: a. Market risk: The risk that occurs from the volatility of investment returns b. Liquidity risk: It measures the degree of difficulty in exiting a given trading position c. Funding risk: It measures the extent to which they were able to meet margin calls on their natural gas position d. Capacity risk: The risk due to putting too much money into one particular strategy 2. What are the negatives to rolling a spread position? Ans: Negatives to rolling a spread position are: When rolling a spread position the investor expects the following months to which the contract was rolled over to be favourable and thus be able to unload its positions. But, if the market moves in a direction opposite to the one anticipated by the investor it can result in huge losses. Also, if the risk increases for a spread position with the increase in the leverage. In the case of Amaranth hedge fund, it had rolled its short positions prior to august into the next month, hoping that market conditions would change and enable it to unload its positions. There were now no more summer months into which it could roll these...
Words: 3366 - Pages: 14
...Fin (IB) 3551: International Finance Homework Problem set #2 Problem Set 2 (problems only) – BOP, crisis, currency derivatives, corporate risk I BOP 1. According to popular opinion, U.S. trade deficits indicate any or all of the following: a lack of U.S. competitiveness owing to low productivity or low-quality products and/or lower wages, superior technology, and unfair trade practices by foreign countries. Which of these factors is likely to underlie the persistent U.S. trade deficits. Comment/Explain. Although popular opinion believes these factors are likely to underlie the trade deficits, none of these factors underlie the persistent U.S. trade deficits. These factors affect other countries more than the U.S. however run trade surplus. American trade deficits reflect the U.S. savings deficit. 2. Identify the correct BOP account for each of the following transactions. a. A German-based pension fund buys U.S. government 30-year bonds for its investment portfolio. Financial account: portfolio investment liabilities b. Scandinavian Airlines System...
Words: 1389 - Pages: 6
...MULTINATIONAL CAPITAL STRUCTURE and COST OF CAPITAL ➢ Capital structure – refers to the proportion of LT debt and equity and the particular forms of capital chosen to finance the assets of the firm ➢ Mgment must choose: ■ the proportions of D and E ■ the currency of denomination ■ fixed or floating rate interest payments ■ indenture provisions ■ conversion features ■ seniority ■ maturity o Perfect mkt assumptions: -frictionless mkts -equal access to mkt prices -rational investors -equal access to costless information MM’s irrelevance proposition o With = access to perfect financial mkts, individuals can replicate any financial action that the firm can take o This leads to MM’s famous irrelevance proposition: -if financial mkts are perfect, then corporate financial policy is irrelevant The converse of MM’s irrelevance proposition o If financial policy is to increase value, then it must either -increase the firm’s expected future cash flows or -decrease the discount rate in a way that cannot be replicated by individual investors. Financial Mkt integration v Segmentation o In integrated financial mkts, real after tax rates of return on equivalent asset are = o Factors contributing to segmentation include: -prohibitive transactions costs -different legal and political systems -regulatory interference (eg barriers to financial flows) -different taxes -information...
Words: 15950 - Pages: 64
...commercial bank to exchange a specified amount of currency at a specified exchange rate called the forward rate on a specified date in the future. Forward contracts are not used by consumers or small firms” (Madura, 2009, page 117). For example a company , American Eagle, based in Washington DC, will need to purchase 2,000,000 South African Rand (R) in 90 days to purchase South African imports (Roibos Tea). It can buy South African Rand immediately at the spot rate of .40R (computed at 2,000,000 Rand x .40R per South African Rand). However, American Eagle does not have the funds now and it could wait 90 days before exchanging US dollars for South African Rand at the spot rate existing at that time. Because the exchange rate can fluctuate meaning that it could rise to .50R. American Eagle can negotiate a forward contract with the bank and purchase R2,000,000 90 days forward. Future Contract: “Are contracts specifying a standard volume of a particular currency to be exchanged on a specific settlement date. Thus, currency futures contracts are similar to forward contracts in the way they are traded. They are commonly used by MNCs to hedge their foreign currency positions. In addition, they are traded by speculators who hope to capitalize on their expectations of exchange rate movements. A buyer of a currency future contract locks in the exchange rate to be paid for a foreign currency at a future point of time. In the United States, currency futures contracts are purchased to lock...
Words: 752 - Pages: 4
...Financial Market) Dr. Ritu Kothiwal, Associate Professor, BIET, Hyderabad Contact No: 09246193330 Email Id: kothiwal55@gmail.com Mr. Ankur Goel, Research Scholar (Management), Mewar University, GZB. Contact No: 9917745990 Email Id: mrankurgoel@gmail.com. ABSTRACT Among all the innovations that have flooded the international financial markets, financial derivatives occupy the driver's seat. These specialized instruments facilitate the shuffling and redistribution of the risks that an investor faces. Thus aids in the process of diversifying ones portfolio. The volatility in the equity markets over the past years has resulted in greater use of equity derivatives. The volume of the exchange traded equity futures and options in most of the mature markets have seen a significant growth. It goes beyond that the local derivative in the emerging markets have witnessed widespread use of the derivative instrument for a variety of reasons. This continuous growth and development by the emerging market participants has resulted in capital inflows as well as helped the investors in risk protection through hedging. INTRODUCTION AND CONCEPT OF DERIVATIVES: Derivatives are financial contracts whose values are derived from the value of an underlying primary financial instrument, commodity or index, such as: interest rates, exchange rates, commodities, and equities. The International Monetary Fund defines derivatives as "financial instruments that are linked to a specific...
Words: 2550 - Pages: 11
...The emphasis is on mechanics, properties and valuation of forwards, futures, options and swap instruments. In covering these instruments, cases, examples and notes would be sought from markets so as to provide a holistic view of the financial market structure i.e., currency, fixed income, equity and money markets. Cases discussed in the class would be contemporary in nature drawn from international experience. Pre-requisites: Students are advised to be through with Financial Management I, Financial Management II and Quantitative Methods. Students are expected to go through all the reading prescribed before every class and make a meaningful contribution through active class participation. The course is delivered through a combination of case discussions, problem solving, real life risk reports and simulation. The course would have an analytical and numerical flavor and hence students are required to bring their calculators/laptops to every class. Text Book: 1. Hull, John C. & Basu, S., Options, Futures, and Other Derivatives, 7th Edison, Prentice-Hall of India, 2008. (JCH) Suggested Text/References: Dubofsky, David A., Derivatives : Valuation and Risk Management, Oxford Publication Jorion, Phillip., Handbook of Financial Risk Management, John Willey Publication. (PJ) Apte, P. G., International Financial Management, 4th Edison, Tata McGraw Hill (PGA) Comptroller of the Currency Administrator of National Banks, Risk Management...
Words: 783 - Pages: 4
...rate on the Swiss franc as a function of the Spot rate and the forward premium (p) over six-months. F = S(1+p) = 1.120(1.0306) = U$ 1.154 2) You would like to profit from exchange rate fluctuations by the use of currency futures contracts. The pound is currently trading at $1.66 / £, with a June futures contract trading at $1.62 / £. You believe the pound will be $1.70 / £ on June 18th. You will use 6 contracts. One contract covers £62,500. A. If the exchange rate on June 18 for the pound turns out to actually be $1.70 / £, what is the profit you made on your bet. Contract price = £62500 x $1.66/£ = $103750 Profit = 6 x $103750 x ($1.70/£ - $1.66/£) = $24,900 Contract Price = £62500 x 1.70/£ = $106250 Profit = 6 x $106,250 x (1.70/£ - $1.66/£) = $25500 Profit = 25500 – 24900 = $600 B. If you put down a 10% initial margin, what is your rate of return on this investment? Initial margin = £103750 x .10 = $10,375 Rate of Return = $600/$10,375 = 57.83% C. Assume you did not have to put in any additional margin after initially entering the trade, how much money would you have in the Margin Account just before clearing out the account balance to $0? $25500 3) Katherine Beroni works in the currency trading unit of Marconi Bank in Venice, Italy. Her latest speculative position is to profit from her expectation that the U.S. dollar will fall significantly against the Japanese yen (the yen will appreciate). The current...
Words: 758 - Pages: 4
...2: "Which of the following is an agreement to buy or sell an asset at a fixed date in the future, for a fixed price? 1. Swaps 2. Futures 3. Forwards 4. Warrant 2: "_ Are derived by continuously computing the average of the most recent n day’s closing prices. 1. Moving Average 2. Quotes 3. Commodities plots 4. Plots 2: "What is the conversion factor of a US Treasury bond if securities coupon is 6 percent 1. 1 2. 2 3. 3 4. 6 2: "Which of the following are market instruments that are low risks, highly liquid, short term debt instruments issued by governments, financial institutions and corporations? 1. Derivatives 2. Financial Assets 3. Money Market Securities 4. None of the Above 2: "According to this theory, movement in financial markets depends on attitudes of investors on the business cycle. 1. Dow Theory 2. Cycle Theory 3. Elliot Wave Theory 4. None of the above 2: "Which of the following is a measure of the average change in prices of goods and represent inflation at the consumer level 1. Consumer price index 2. Implicit price deflator 3. Gross domestic product 4. None of the above 2: "What Happens when fiscal policy is paralyzed due to political statement of budget constraints 1. Revert to the economic policy established by the goverment 2. Monetary policy will be relied on 3. Opt to the financial policy 4. None of the above 2:...
Words: 14382 - Pages: 58
...CONTENTS BONDS 1 STOCKS 6 OPTIONS 10 FUTURES 16 PORTFOLIO PERFORMANCE EVALUATION 20 INTERNATIONAL INVESTING 26 BONDS Page 480 –CFA Problems Questions #1 1. Leaf Products may issue a 10-year maturity fixed-income security, which might include a sinking fund provision and either refunding or call protection. a) Describe a sinking fund provision. The sinking fund provision allows the firm to repurchase a fraction of the outstanding bonds at either the market price or the sinking fund price (usually set at par), depending on the structure of the provision. The provision may be for a specific number of bonds or a percentage of the bond issue. The bonds selected for repurchase are generally selected at random. b) Explain the impact of a sinking fund provision on: i. The expected average life of the proposed security. We would expect a fraction of the total bond issue to be retired before the stated maturity data under the sinking fund provision. Therefore, the sinking fund provision decreases the expected average life of the proposed security. ii. Total principal and interest payments over the life of the proposed security. The sinking fund provision does not affect the total principal payments that investors would receive. However, investors may receive their principal repayments earlier than expected if the firm invokes the sinking fund provision. The sinking fund provision could decrease the amount of interest payments investors would receive...
Words: 6386 - Pages: 26
...A Handbook on Derivatives © Rajkumar .S Adukia B.com (Hons.), L.L.B, AICWA, FCA radukia@vsnl.com/rajkumar@gmail.com 093230 61049/ 093221 39642 www.carajkumarradukia.com If interested in receiving similar technical updates subscribe to carajkumarradukia-subscribe@yahoogroups.com PREFACE Derivatives have changed the world of finance as pervasively as the Internet has changed communications .Well they are everywhere nowadays. The most significant event in finance during the past decade has been the extraordinary development and expansion of financial derivatives. These instruments enhance the ability to differentiate risk and allocate it to those investors who are most able and willing to take it -- a process that has undoubtedly improved national productivity, growth and standards of living. Derivatives products provide certain important economic benefits such as risk management or redistribution of risk away from risk-averse investors towards those more willing and able to bear risk. Derivatives also help price discovery, i.e. the process of determining the price level for any asset based on supply and demand. All markets face various kinds of risks. This has induced the market par-ticipants to search for ways to manage risk. The derivatives are one ofthe categories of risk management tools. As this consciousness about risk management capacity of derivatives grew, the markets for derivatives...
Words: 15288 - Pages: 62
...FIN30014 Financial Risk Management Topic Outline, Reading and Tutorial Questions Semester 2, 2015 ------------------------------------------------- Topic 1: Introduction to Derivatives and Financial Risk Management ------------------------------------------------- Mechanics of Futures Markets Topic Outline * Financial risk management – an overview * The nature of derivatives and their uses for financial risk management * Futures exchanges and futures contracts * Over-the-counter markets and forward contracts * Uses of derivative contracts markets: Hedging, Speculation and Arbitrage * The mechanics of futures markets * opening and closing futures positions * the operation of margins on futures contracts * the role of the “Clearing House” * Futures contracts compared with forward contracts Essential Reading: Hull (2014) Chs. 1 & 2 Additional Reading: Viney, Ch 18, pp. 604 – 613; Ch 19, pp 636-648 Web Resources (Refer to the “External Links” tab on Blackboard) * Financial Pipeline: Derivatives Self-test Quiz Questions Hull Ch. 1: 1.2, 1.4, 1.7 Hull Ch. 2: 2.3, 2.4 (ignore tax questions), 2.5 Tutorial Questions Hull Ch. 1: 1.10, 1.11, 1.12, 1.18, 1.20, 1.21, 1.33 Hull Ch. 2: 2.10, 2.14, 2.16, 2.18, 2.25, 2.26, 2.28 Additional Questions 1. Suppose that on Jan. 4, 2011, an investor...
Words: 4895 - Pages: 20
...firm was investing in foreign currency futures for the first four months from the implementation date (February 1991 to May 1991). This is seen by the negative correlation of (0.94226594) between the derivative (futures) cash flow and the unhedged cash flow. A purpose of a perfect hedge is to obtain a net of zero or in other words, reduce your risk to nothing not including the cost of the hedge. If a correlation is negative, as it was for the first three months, it means that investing in futures contracts was the right move because the cash flows are moving in opposite directions to minimize the risk. Another way to evaluate the performance of the hedging strategy is to compare the variance of unhedged cash flow and the hedged cash flow, expecting that that variance of the unhedged should be greater than the hedged cash flow. As seen in the table below, the variance of the unhedged is greater than the variance of the hedged when Link Technologies invested in currency futures contracts. Futures Variance | | Unhedged CF | 20,691,861,693.67 | Hedged CF | 2,774,199,924.92 | Difference | 17,917,661,768.75 | Even though, the hedging program was perfectly implemented, Mr. Lee strongly believed that investing in futures was the wrong approach because the company experienced a loss of half a million dollars during the first three months. So, he “suggested” that the firm should now invest in call options because the “downside risk was...
Words: 1299 - Pages: 6
...Chapter 01 The Investment Environment Multiple Choice Questions 1. In 2007, ____________ was the most significant real asset of U.S. households in terms of total value. A. consumer durables B. automobiles C. real estate D. mutual fund shares E. bank loans See Table 1.1. Difficulty: Easy 2. In 2007, ____________ was the least significant financial asset of U.S. households in terms of total value. A. real estate B. mutual fund shares C. debt securities D. life insurance reserves E. pension reserves See Table 1.1. Difficulty: Easy 3. In 2007, ____________ was the most significant asset of U.S. households in terms of total value. A. real estate B. mutual fund shares C. debt securities D. life insurance reserves E. pension reserves See Table 1.1. Difficulty: Easy 4. In 2007, ____________ was the most significant liability of U.S. households in terms of total value. A. credit cards B. mortgages C. bank loans D. student loans E. other debt See Table 1.1. Difficulty: Easy 5. The largest component of domestic net worth in 2007 was ____________. A. non-residential real estate B. residential real estate C. inventories D. consumer durables E. equipment and software See Table 1.2. Difficulty: Moderate 6. In 2007, ____________ was the most significant real asset of U.S. nonfinancial businesses in terms of total value. A. equipment and software B. inventory C. real estate D. trade credit ...
Words: 3497 - Pages: 14
...Indian Capital Market Nidhi Bothra Payel Jain Vinod Kothari & Company What are Financial markets Financial market is a market where financial instruments are exchanged or traded and helps in determining the prices of the assets that are traded in and is also called the price discovery process. 1. Organizations that facilitate the trade in financial products. For e.g. Stock exchanges (NYSE, Nasdaq) facilitate the trade in stocks, bonds and warrants. 2. Coming together of buyer and sellers at a common platform to trade financial products is termed as financial markets, i.e. stocks and shares are traded between buyers and sellers in a number of ways including: the use of stock exchanges; directly between buyers and sellers etc. Financial markets may be classified on the basis of • • • • types of claims – debt and equity markets maturity – money market and capital market trade – spot market and delivery market deals in financial claims – primary market and secondary market Indian Financial Market consists of the following markets: • • • Capital Market/ Securities Market o Primary capital market o Secondary capital market Money Market Debt Market Primary capital market- A market where new securities are bought and sold for the first time Types of issues in Primary market • • • • • Initial public offer (IPO) (in case of an unlisted company), Follow-on public offer (FPO), Rights offer such that securities are offered to existing...
Words: 7747 - Pages: 31
