We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Nobody downloaded yet

Derivatives And Risk Management - Essay Example

Comments (0) Cite this document
Summary
Risk can be seen as the probability that a chosen action may lead to an undesirable action in the future. Risk involves the uncertainty of the future. In business risk can be said to be the probability that an investments actual return will not be as per the expectations. …
Download full paperFile format: .doc, available for editing
Polish This Essay95.5% of users find it useful
Derivatives And Risk Management
Read TextPreview

Extract of sample
"Derivatives And Risk Management"

Download file to see previous pages Risk management is the process of identifying, understanding, analysing, accepting, or mitigating risk. Risk management can be divided into two main processes, determining the level of risk exposure in an investment and then handling that risk in the best way possible in line with the objectives of the investment (George, 2012, pp.34-38).
The risk of financial exposure affects all organisations, both directly and indirectly. Though financial exposure presents the opportunity for loss, it may also present strategic benefits for making profits. The financial losses of a company arise from three main sources. The first source of risk is a company’s exposure to changes in the market prices of commodities (Philippe, 2001, pp.23-25). Second is through actions and transactions of third parties such as creditors and counterparties to derivative transactions, and finally are financial risks occurring from the internal failures of the organisation, people, or processes. Financial risk arises from countless transactions of a financial nature which an organization engages in such as purchases, investments, and loans repayments. If financial prices rise, there is the possibility that the company makes financial losses (Philippe, 2001, pp.3-6). ...
Financial risk management usually involves the use of derivatives which are traded widely among financial market players. A derivative is a security whose price is derived from one or more other assets. It is just a contract between two parties specifying conditions under which payments will be made in future between the two parties. Examples of derivatives are options, futures, forwards, and swaps. In the past, diversification was the main way of financial risk management but has now been overrun by the availability of derivatives in most markets which makes it possible for both corporate as well as individual investors to manage risks (Whittaker, 2009, p.19). This paper will analyse the concept of hedging in financial risk management, the best hedging strategies, swaps, and options as they are used in risk management. 2.0 Hedging Vs. Speculation The management of risks involves the use of derivatives. Derivatives in financial risk management refer to securities whose value depends on the value of the underlying asset. Among the kinds of derivatives that exist in financial market includes futures, forward contracts, option, and swaps (Smith & Stulz, 2009, pp.267-284). The underlying assets whose values the derivatives depend on are stocks, bonds, interest rate, foreign exchange instruments, and even commodities. The respective derivatives for these assets are stock options, interest rates futures, currency futures, bond options, and commodity futures. Hedging is the strategy that is used when managing the risk of the underlying asset using derivatives (Nance, et al, 1993, pp.267-284). In financial markets, a hedge can be referred to as an investment position whose purpose is to offset a potential future ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Derivatives And Risk Management Essay Example | Topics and Well Written Essays - 2750 words”, n.d.)
Retrieved from https://studentshare.org/business/1400819-derivatives-and-risk-management
(Derivatives And Risk Management Essay Example | Topics and Well Written Essays - 2750 Words)
https://studentshare.org/business/1400819-derivatives-and-risk-management.
“Derivatives And Risk Management Essay Example | Topics and Well Written Essays - 2750 Words”, n.d. https://studentshare.org/business/1400819-derivatives-and-risk-management.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document
CHECK THESE SAMPLES - THEY ALSO FIT YOUR TOPIC
Analyzing article for Derivatives Risk and Management Class
Indeed, as the cliche goes, “Life is but a matter of choice.” Different people from different backgrounds confront different sets of options. For students, options regarding where to study, what course to take up are just few examples. For graduates, they are confronted with a river of options on which career paths to take, where to work, and to whom they would work for.
3 Pages(750 words)Essay
Risk Management
Infrastructural construction industry has underwent significant changes over the last few years with much focus being directed towards limitation of risks and challenges encountered during the process. Risk assessment utilizes various tool combinations which helps in identification of those risks considered detrimental to successful implementation of the project.
10 Pages(2500 words)Essay
Use of Derivatives in Risk Management
These international markets differ in their outlook on risk, profitability and security. Sensible businesses deploy divergent risk aversion techniques in order to counteract corporate risk. This paper will analyze various forms of risk handling instruments which are used to increase the level of business certainty.
7 Pages(1750 words)Term Paper
Use of Derivatives in Risk Management
Use of Derivatives in Risk Management Risk, in most general terms can be defined as the probability of loss. An organization usually faces risk when it has exposed itself to a certain transaction in which there is a possibility of loss. In this dynamic and modern era, almost all organizations are dealing in and exposed to the financial markets, whether domestic or international.
8 Pages(2000 words)Research Paper
Treasury and risk management
Section (a) The net gain or loss for the stock prices between $121 and $231 per share at option maturity is calculated as follows: Purchased Share Price ($) Current Stock Price ($) (i) Long Share Profit & Loss ($) Strike Price ($) Premium Paid ($) (ii) Long Put Profit & Loss [Max((Option Value - Premium Paid), Premium paid)] Strategy [(i)+(ii)] Protective Put (Net) 171 121 -50 165 28 $16.00 Exercise -$34.00 171 141 -30 165 28 -$4.00 Exercise -$34.00 171 165 -6 165 28 -$28.00 Exercise -$34.00 171 171 0 165 28 -$28.00 Do Not Exercise -$28.00 171 181 10 165 28 -$28.00 Do Not Exercise -$18.00 171 201 30 165 28 -$28.00 Do Not Exercise $2.00 171 221 50 165 28 -$28.00 Do Not Exercise $22.00 171 231
6 Pages(1500 words)Essay
Risk management
The investments in housing, real estate and properties were lucrative in the initial days. The investors had the opportunity to multiply their amount of investment in a short period of time due to appreciation of prices of the land properties. In addition to that the US government also passed laws to ensure that all the citizens of US irrespective of their financial status should have land ownership rights.
12 Pages(3000 words)Essay
Development of Energy Derivatives in Risk Management
The recent developments in the field of financial risk management efficaciously stress on the quantitative methods along with their application in reducing financial risks has made way for many insightful analyses. Market deregulation, advances in global trade, and perpetual technological developments has transfigured the financial market-place throughout the past two decades (Comptroller's Handbook, 1997).
8 Pages(2000 words)Essay
Managing Risk with Derivatives
But financial risks are an external threat to a business and naturally it is beyond the control of a firm. Therefore, this warrants individual attention and risk management techniques are to be employed extensively to lessen the loss from financial risks.
5 Pages(1250 words)Essay
Risk Management and financial derivatives
According to a study conducted by the Wharton School of University of Pennsylvania, over the past thirteen years, pharmaceutical companies are as much as 50% riskier than the overall Standard & Poor's (S&P) 500. This is primarily attributed to the nature of the industry wherein any events, either positive or negative, are magnified and deemed to have a dramatic effect on shareholder value and brand equity.
11 Pages(2750 words)Essay
Risk of Derivatives
Hu also explained that changes in the value of the assets also change the value of the said contract. This underlying asset can be interest rates, exchange rates, stocks, commodities, goods, and so forth (Hu,
2 Pages(500 words)Essay
Let us find you another Essay on topic Derivatives And Risk Management for FREE!
Contact us:
+16312120006
Contact Us Now
FREE Mobile Apps:
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us