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There are two major factors to be considered while analyzing sovereign bonds. They are: economic risk and political risk. Economic risk is all about the ability and the willingness of the government to satisfy its obligation. Analysts have to perform both qualitative and quantitative tests to analyze economic risk.
The two ratings assigned to a national government are local currency debt rating and foreign currency debt rating. Historically, the default rate on foreign currency debt is higher compared to the local currency debt rating. For a local currency debt rating, the government depends on the taxes and the financial system of its country but with the latter, the government has to purchase foreign currency to meet its obligation. Any depreciation in local currency would affect the government's ability to meet its obligation.
Q. Determining Optimum Liquid Balance? Liquid balance (balance of cash and marketable securities) must be maintained at the optimum level. It is the level which gives the minim
Explain contingent exposure and define the advantages of using currency options to manage this type of currency exposure. Answer: Companies may come across a state where they m
List the arguments (variables) of which a FX call or put option model price is a function. How does the call and put premium change with respect to a change in the arguments?
Q. Drawbacks or Criticism of MM Approach? Risk Perceptions of personal as well as corporate leverages are different: - It is incorrect to presume that 'personal leverage' is a
Suppose that Harry and Steven make their living selling contraband at opposite ends of a town that is 1 mile long. Because it's a crowded city, the citizens use taxi-cabs for trans
decision criteria of profitability index.
Question: a. Le Mustang company Ltd is foreseeing a growth rate of 15 per cent per annum in the next three years. It is likely to fall to 12 per cent in the fourth year. Afte
The value of node is determined using a methodology called backward induction. The value at any node depends on the future cash flows; therefore, we need to start from
Prices and Yields The face value of the government security is Rs.100 or Rs.1,000. Earlier, that is, before 1950s the government bonds were issued at a discount. There was no f
2010 equity balance required: (600-20 - 25 - 15 - 20)= 520 employees eligible Total expected equivalent value = 520 x 500 options x $1.48 = $384,800 $384,800 x 3/4 years = $28
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