Learning Unit - 6
Group Activities
DerivativesGeneral Instructions:
Participants will work in four groups.
Each group will be required to read the material circulated as well as refer to relevant
material obtained library.
At the outset Faculty will make a presentation on this subject; the presentation followed
by discussion is likely to take 30 - 45 minutes.
In the section that follows, there is a brief note on the key concepts relating to
Derivatives. The note is followed by 10 questions, which participants should attempt to
answer after they have been discussed in the groups. The objective of this exercise is to
enable the participants to gain a basic understanding of the concept of Derivatives.
The material circulated also includes two short case studies. Each group will be required
to study and discuss the cases, and seek solutions to the issues/questions listed there-
under.
Sufficient time will be made available for the group activities. At the end of the
discussion, participants will prepare visual aids on the key points. Group representatives
will make the presentation.
Each presentation will be followed by plenary discussion, which will be moderated by the
faculty. The presentations will be followed by consolidation of learning points.
Faculty will be available to assist participants during their group discussion, in case of
any doubts or problems.
Derivatives: Key concepts
(Source : Principles of Corporate finance by Professor Brealey.I.Myrer)
The key concepts relating to derivative securities and corporate risk management are
listed below:
- There are six reasons risk management might increase the value of a firm.
Risk management allows corporations (i) to increase their use of debt, (ii)
to maintain their capital budget over time, (iii) to avoid costs associated
with financial distress, (iv) to utilize their comparative advantages in
hedging relative to the hedging ability of individual investors, (v) to