The Portable MBA in Finance and Accounting, 3rd Edition

428 Planning and Forecasting Askin Capital Management Between February and April 1994, David Askin lost all $600 million that he ...

Financial Management of Risks 429 Union Bank of Switzerland What happened at Union Bank of Switzerland (UBS) in 1997 would be fu ...

430 Planning and Forecasting understanding of what the prices of various financial instruments shouldbe, LTCM would identify ins ...

Financial Management of Risks 431 spread—the interest rate differential between risky bonds and high-grade bonds, would narrow, ...

432 Planning and Forecasting original partners who were required to run the fund until it was ultimately liq- uidated in 1999. T ...

Financial Management of Risks 433 SIZE OF THE DERIVATIVE MARKET AND WIDESPREAD USE A derivative is a financial instrument whose ...

434 Planning and Forecasting the early 1980s, derivatives have touched every aspect of corporate finance, banking, the investmen ...

Financial Management of Risks 435 contract. A for ward contract specifies an underlying asset to be delivered, a price to be pai ...

436 Planning and Forecasting Speculators play important roles in the derivatives markets. For one, speculators provide liquidity ...

Financial Management of Risks 437 price is recorded at $4.55. The last mark-to-market payment is from short to long for 25 cents ...

438 Planning and Forecasting A Foreign Currency Hedge Suppose an American electronics manufacturer has just delivered a large sh ...

Financial Management of Risks 439 Synthetic Cash A company’s pension fund is invested primarily in the stocks of the Standard &a ...

440 Planning and Forecasting A Cross-Hedge A manufacturer of plastic water pistols wishes to hedge against increases in raw plas ...

Financial Management of Risks 441 futures and for wards, option prices are a function of the value of an underlying asset, thus ...

442 Planning and Forecasting The payoff ignores the initial price that was paid for the option. Payoff treats the initial price ...

Financial Management of Risks 443 Hedging with a Call Option Consider the trucking company whose rates are regulated yet costs f ...

444 Planning and Forecasting input variables. The formula is known as the Black-Scholes option pricing for- mula. It is widely a ...

Financial Management of Risks 445 Written call options can also be used to hedge in certain circumstances. Consider oil exportin ...

446 Planning and Forecasting price. At that point the put option owner would have the right to sell a worth- less stock for $100 ...

Financial Management of Risks 447 have to be paid for up front, and then receive a subsequent positive payoff de- pending on wha ...