The participants in the derivatives markets are generally classified as hedgers and speculators. The hedgers use derivatives as main purpose to protect against adverse changes while speculators enter a derivative contract with attempt to profit from anticipated changes in market prices. One of the biggest questions in regard to the treatment of derivatives tools is whether actually they are used for hedging or speculation. (Adam and Fernando 2006)
According to Guay (1999) firms can reduce dramatically their risk by the means of derivatives. But in the same research he finds out that derivatives could be used either do increase or decrease risk. Guay (1999) undertakes an empirical examination of new derivative users in attempt to find out whether derivatives are used to reduce firm’s risk. The results show that firms use derivatives to hedge, not to speculate by increasing company’s risk. The investigation is conducted for a sample of 254 non-financial corporations starting using derivatives and the outcomes indicate that during this period the companies’ risk has declined with about...
Today, many health care organizations have been forced to reduce their workforce due to the downturn of the economy. Marshall and Broas (2009) state that whenever health care organizations conduct a reduction in force (RIF); there is the potential for legal risk. However, with proper planning and implementing, employers can minimize the risk of litigation (Marshall & Broas, 2009; Segal, 2001). Hence, before carrying out a 10% reduction in workforce, there are a number of steps that need to be taken to ensure it is successful.
Money related derivatives empower companies to exchange particular monetary dangers, (for example, premium rate hazard, cash, value and product value hazard, and credit hazard, and so ...
Financial risk is the risk a corporation faces due to its exposure to market factors such as interest rates, foreign exchange rates, commodities and stock prices. Financial risks for the most part, can be hedged due to the existence of large, efficient markets through which these risks can be transferred. This is unlike operating risk, which is associated with more manufacturing and marketing activities. Operating risk cannot be hedged because these risks are not traded.
hedging risks and what instruments to use are really depend on whether the company is risk
It is interesting to note that the ongoing controversy concerning the so-called conflict between Wilhelm Gottfried Leibniz and Isaac Newton is one that does not bare much merit. Whether one came up with the concepts of calculus are insignificant since the outcome was that future generations benefited. However, the logic of their clash does bear merit.
However, owing to the complexity and non-accessibility of the law, very few derivative actions succeeded. Among the reasons as experienced in many jurisdictions would tell us that the costs of the litigations, proceedings and attorneys’ fees relative to this claim can be an alarming obstacle for shareholders suing on behalf of the company. These factors, together with the difficulty of establishing liability and seeking permission to proceed with the c...
Most people know that an option is a choice. It is a choice to buy that new compact disc, a choice to upgrade to leather on a new car, or a choice to speculate in the market. Options are a way to reduce risk associated with trading stocks and are quite advantageous in a capitalist society. An option is a “contract between two parties to purchase or sell a commodity futures contract at a predetermined price within a specific time period. Every option transaction has an option buyer and an option seller (4, p. 236).” The advent of organized options trading by the Chicago Board Options Exchange created a new way to play the market. Options can be used to hedge risk and to take profits larger than would be possible by buying and selling stock. This result can be accomplished using a variety of combinations to be discussed later in this paper. These strategies can be useful as pertaining to the options trader who wants to make the most profit with the least amount of risk. Elementary pricing of options will help the reader in understanding some of the differences in premiums and why the differences are so large. The Chicago Board Options Exchange has changed the way that options are traded through advances in technology to the point that options are bought and sold instantaneously with almost a 100% guarantee of credibility. This is one of the main reasons for the options explosion.
Many years ago humans discovered that with the use of mathematical calculations many things can be calculated in the world and even the universe. Mathematics consists of many different operations. The most important that is used by mathematicians, scientists and engineers is the derivative. Derivatives can help make calculations of anything with respect to another event or thing. Derivatives are mostly common when used with respect to time. This is a very important tool in this revolutionary world. With derivatives we can calculate the rate of change of anything with respect to time. This way we can have a sort of knowledge of upcoming events, and the different behaviors events can present. For example the population growth can be estimated applying derivatives. Not only population growth, but for example when dealing with plagues there can be certain control. An other example can be with diseases, taking all this events together a conclusion can be made.
In addition, derivative securities are also helpful to enhance a portfolios performance. This highlights the need for an investor to understand the options before they begin to compose their portfolio. International Portfolio Diversification A diverse portfolio is essential for an investor to expose their portfolio to the necessary risk due to the differences in characteristics from one asset to the next; these assets will be within both the domestic and international market. Fisher (2012) states that a “global portfolio should earn a higher return for the same level of risk and take less risk for the same level of return.” Therefore, an investor can achieve a reduction in risk through international diversification.
According to the risk management literature, firms with high leverage have greater incentive to engage in hedging because
Ever wonder how scientists figure out how long it takes for the radiation from a nuclear weapon to decay? This dilemma can be solved by calculus, which helps determine the rate of decay of the radioactive material. Calculus can aid people in many everyday situations, such as deciding how much fencing is needed to encompass a designated area. Finding how gravity affects certain objects is how calculus aids people who study Physics. Mechanics find calculus useful to determine rates of flow of fluids in a car. Numerous developments in mathematics by Ancient Greeks to Europeans led to the discovery of integral calculus, which is still expanding. The first mathematicians came from Egypt, where they discovered the rule for the volume of a pyramid and approximation of the area of a circle. Later, Greeks made tremendous discoveries. Archimedes extended the method of inscribed and circumscribed figures by means of heuristic, which are rules that are specific to a given problem and can therefore help guide the search. These arguments involved parallel slices of figures and the laws of the lever, the idea of a surface as made up of lines. Finding areas and volumes of figures by using conic section (a circle, point, hyperbola, etc.) and weighing infinitely thin slices of figures, an idea used in integral calculus today was also a discovery of Archimedes. One of Archimedes's major crucial discoveries for integral calculus was a limit that allows the "slices" of a figure to be infinitely thin. Another Greek, Euclid, developed ideas supporting the theory of calculus, but the logic basis was not sustained since infinity and continuity weren't established yet (Boyer 47). His one mistake in finding a definite integral was that it is not found by the sums of an infinite number of points, lines, or surfaces but by the limit of an infinite sequence (Boyer 47). These early discoveries aided Newton and Leibniz in the development of calculus. In the 17th century, people from all over Europe made numerous mathematics discoveries in the integral calculus field. Johannes Kepler "anticipat(ed) results found… in the integral calculus" (Boyer 109) with his summations. For instance, in his Astronomia nova, he formed a summation similar to integral calculus dealing with sine and cosine. F. B. Cavalieri expanded on Johannes Kepler's work on measuring volumes. Also, he "investigate[d] areas under the curve" ("Calculus (mathematics)") with what he called "indivisible magnitudes.
...ting in hedging activities in the financial futures market companies are able to reduce the future risk of rising interest rates. By participating in the financial futures market companies are able to trade financial instruments now for a future date (Block & Hirt, 2005).
Thermodynamics is the branch of science concerned with the nature of heat and its conversion to any form of energy. In thermodynamics, both the thermodynamic system and its environment are considered. A thermodynamic system, in general, is defined by its volume, pressure, temperature, and chemical make-up. In general, the environment will contain heat sources with unlimited heat capacity allowing it to give and receive heat without changing its temperature. Whenever the conditions change, the thermodynamic system will respond by changing its state; the temperature, volume, pressure, or chemical make-up will adjust accordingly in order to reach its original state of equilibrium. There are three laws of thermodynamics in which the changing system can follow in order to return to equilibrium.
In modern times, derivative products have become widely used tools to help investors, organizations and governments manage risk that could arise from factors like unstable commodity prices, changes in currency rates and interest rates in general. A derivative is an asset whose value is derived from the value of an underlying asset that is used to hedge a potentially risky outcome. These underlying assets include a wide range of effects, such as metals, commodities, energy sources and financial assets. Derivatives are evaluated on a balance sheet differently depending their type. This is due to the way they are bought, sold and traded. As such, derivatives come in different variants with the most common being Forwards and Futures Contracts, Call and Put Options and Swaps. This paper will evaluate the potential gains and losses for the different derivative variants while describing their risk potential. As well, this paper will discuss different methods for valuing derivatives.
Long term securities are similar to short term securities, where a firm may invest in human resources, bonds, stocks, real estate, equipment, cash, etc… The advantage of long term investments is that they allow a firm to gain a steady income over a longer period of time than short term investments. Some people may question why a firm may invest in human resources, not realizing that having a staff of workers helps reduce cost. Although this an indirect cost to an entity, but it can be beneficial, because of the continuity of operations. An entity can save on the training of new personnel and supplies will continue to meet demand of the products or services provided by the firm. The main difference between short term securities and long term securities is that, short term securities are sold in a short period, whereas long term securities may never be sold (Schroeder et al, 2011). Firms may invest in long term securities, with the impression that the security will mature in ten to fifteen years. Some companies invest millions of dollars in long term securities risking the possibility of gaining a profit; however, over time there are so many changes in the economy, governmental regulations and policies and even the change in competition can prove challenging during a length of time. Therefore, managers should strategically make decisions on the type of long term investments that would benefit their firms and shareholders. Investors are particularly interested in forecasting a firm’s future cash flow and associated risks (Arora et al, 2014).