What is the best financial derivative for a risk averse listed public company (forwards, options, futures,...

What is the best financial derivative for a risk averse listed public company (forwards, options, futures, swap)? Why?

Expert Solution

Futures are the best for risk averse company as there is no counterparty risk because futures are traded over the exchange. Also, the returns do not get worse off dure to leverage in case of negative spot returns

jeff jeffy answered 2 years ago

What are the advantages and disadvantages of forwards, futures, options and swaps in managing FX risk.

Forwards, futures and options have been used by financial institutions for many years to hedge risk...

Forwards, futures and options have been used by financial institutions for many years to hedge risk before swaps were invented. If a financial institution already had these hedging instruments, then why they need swaps? In your answer please include a discussion of the differences and similarities of: forwards, futures, options and swaps.

Options contracts are an alternative to futures and forwards contracts to hedge FX risk. Why would...

Options contracts are an alternative to futures and forwards contracts to hedge FX risk. Why would investors prefer to use options rather than futures or forwards? Under which future outcomes do options provide an advantage relative to forwards or futures contracts? Why might managers choose not to enter into options contracts?

Describe how forwards, futures, options, and swaps can be used to hedge your foreign risk.

An analyst comments that options are always better than forwards or futures given you have the...

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Explain how forwards or futures can be used to manage risk. Provide an example of a...

Explain how forwards or futures can be used to manage risk. Provide an example of a hedge that uses a short futures position. Why might you chose to use a put option as a hedge instead of a short futures position?

Critically evaluate alternative derivatives including forwards, futures, options and swaps available in the market to minimise...

Critically evaluate alternative derivatives including forwards, futures, options and swaps available in the market to minimise risk when paying in international currencies.

How are forwards and/or futures used and what is an advantage and disadvantage of their use...

How are forwards and/or futures used and what is an advantage and disadvantage of their use from a company perspective. From an investor perspective? Discuss the importance of Forwards and Futures as they pertains to a MNC giving an example of its use. Do you support their use and why? Try to provide a real example.

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What types of investors are risk-takers, risk-neutral, and risk averse? If you were assisting with financial...

What types of investors are risk-takers, risk-neutral, and risk averse? If you were assisting with financial planning, what kinds of questions would you ask an investor in order to help determine his/her appetite for risk? What types of financial assets would be more heavily weighted in a generic portfolio for each investor type and why?"

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