A stock when it is first issued provides funds for a company. Is the same true of an exchange-traded stock option? Discuss.
Explain the link between options, futures and forward contracts.
Explain why a futures contract can be used for either speculation or hedging.
1. Which of the following statements about interest rate and reinvestment rate risk is correct?
a. Variable rate securities have a high degree of interest rate risk.
b. Price risk occurs because fixed-rate debt securities lose value when interest rates rise, while reinvestment rate risk is the risk of earning less than e
15. Suppose today's exchange rate is $0.62/Euro. The 6-month interest rates on dollars and Euro are 6% and 3%, respectively. The 6-month forward rate is $0.6185. A foreign exchange advisory service has predicted that the Euro will appreciate to $0.64 within six months.
a. How would you use forward contracts to profit in the a
Because of new information that has been gathered on derivatives, it has become apparent that these instruments are capable of providing a good hedge mechanism for various currency transactions in which the firm will engage. Because of the potential importance of derivatives, the treasurer would like more informat
1. The derivatives market is complex because derivative buying and selling includes many things like financial contracts, including debt and structured debts and deposits, swaps, other obligations, futures, options, floors, caps, and forwards, and various combinations of these. Reporting may be hard to understand because derivat