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Derivatives and risk management

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Choose an existing company and discuss the use of derivatives as a means to manage risk and enhance returns also discuss how options, forwards and futures can be used to manage the risk of the selected company

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Solution Summary

This solution explores risk management in the context of derivatives, options, forwards and futures. The solution is 415 words long and uses Walmart as an example to illustrate these concepts.

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The company selected is Wal-Mart Stores Inc. The company operates retail stores in various formats around the world. Being a multinational company, Wal-Mart is exposed to currency exchange rate risk and interest rate risk. In order to minimize this risk and increase its return, the Company uses derivative financial instruments for hedging and non-trading purposes to manage its exposure to changes in interest and currency exchange rates, as well as to maintain an appropriate mix of fixed- and floating-rate debt. Also the company uses derivative financial instruments in order to deal with certain risk that is ...

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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