Corporate Finance: Using Options and Swaps
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How do managers use options to limit risk exposure?
How do managers use swaps to limit risk exposure?
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Solution Summary
Two simple paragraphs explaining a manager's use of options and swaps.
Excerpt: Options help the investor to exchange some of the ... they enable an investor to adapt or adjust their position depending on the situation... Swaps are used to .... In essence, the swap contract provides ...
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Problems: How do managers use options to limit risk exposure? How do managers use swaps to limit risk exposure?
Solution:
Options help the investor to exchange some of the upside potential for downside protection. Convertible bonds and equity offerings (such as preference equity redemption cumulative stock (PERCS)) have risk-reallocating option provisions ...
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