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Financial managers may want to protect their corporation against the financial risks that a fluctuation in the market price of cost drives or other company fundamentals. A commercial airliner whose operating cost is 25-30 % depended on the price of jet fuel may want to safeguard against the fluctuation of the price of crude oil. A US corporation having anywhere between 15-20 % of its sales in Canadian Dollars may want to safeguard against the currency fluctuation. A textile wholesaler specializing in knits, whose products typically contain 35-100 % cotton may want to safeguard against the fluctuation in the price of cotton. The managers entrusted with the financial management of these corporations may decide to institute programs that would enable to hedge all or part of the company’s exposure to the above cost drivers or currency exposures for the respective firms. Is there any methodology by which we can predict within certain parametersthe price ranges of the abovementioned cost drivers or fundamentals? What financial instruments should the respective managers purchase? Should the manager buy one such financial instrument or should they layer them based on respective value and length of time? What would be advantages and dis-advantages on either side? Many derivatives and hedging financial instruments are typically private agreements between a financial institution and a corporation. These derivatives stand in the boarder of Private Markets (prime financial instrument example for these markets, Asset Backed Corporate Loan), and public markets (prime examples of financial instrument examples for these markets are publicly traded corporate stocks and bonds). Typically these derivative financial instruments will not be embodied into securities and traded, so they are not required to be standardized. Nevertheless the Financial Industry does in effect apply such standardization. Often the contract of these financial instruments has a non-negotiable master agreement and then ISDA suggested clauses which are standardized in the agreement between the offer of the derivative (typically an investment bank, a commercial bank or a corporate financial services provider). What are some major benefits of this standardization? What are the financial institution achieving in standardizing all such contracts with a specific client?
Pension funds have fewer liquidity problems than depositories because. An active management strategy in which money managers try to make timely movements among stocks, bonds, and cash based on complex quantitative models is called. Mortgage-backed se..
mortgage loan analysis a resident in sugar land is planning to buy a new house in march 2014. the sale price of the
Describe the scope of Public Finance. Explain different philosophical approaches to the role of the government. Describe the size of the government sector in the U.S. List and explain the determinants of each demand curve and supply curve.
Luis has $190,000 in his retirement account at his present company. Because he is assuming a position with another company, Luis is planning to "roll over" his assets to a new account. Luis also plans to put $3000/quarter into the new account until h..
Assume that Jose is indifferent between investing in a corporate bond that pays 10% interest and a stock with no growth potential that pays an 8% dividend yield. Assume that the tax rate on dividends is 15%. What is Jose's marginal tax rate?
"Your company Alexander has a bond retiring in 2020. This bond has an interest rate of 13.5%, a face value of $10,300,000 and a closing price of $103.53. Since your company had sold these 10 year bonds at $100 in 2015, which way have interest rates m..
If an individual employee, age 25, earning $45,000 per year has an opportunity to participate in an employer sponsored 401(k) tax sheltered retirement account with the employer matching the first $1,200 of annual contributions made by the employee,
The Cavendish Company recently issued new common stock and used the proceeds to pay off some of its short-term notes payable. This action had no effect on the company's total assets or operating income. Which of the following effects would occur as a..
Imagine you are a representative of management in the company you have selected for your Week Six assignment (Report on Walmart Stores, Inc.) and you must make a capital budgeting decision. The decision is to implement a new computer network system t..
You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of .5 percent per year, compounded monthly for the first six months, increasing thereafter to 17.6 percent compounded monthly. Assume you transfer t..
Stock J has a beta of 1.3 and an expected return of 13.66 percent, while Stock K has a beta of 0.85 and an expected return of 10.6 percent. You want a portfolio with the same risk as the market.
The Gecko Company and the Gordon Company are two firms whose business risk is the same but that have different dividend policies. Gecko pays no dividend, whereas Gordon has an expected dividend yield of 4 percent. Suppose the capital gains tax rate i..
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