Critically discuss the use of forwards vs. futures instruments within firms and how these can be used in order to mitigate financial risks. Provide examples to support your answers.
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Critically discuss the use of forwards vs. futures instruments within
firms and how these can be used in order to mitigate financial risks.
Provide examples to support your answers.
Up to 1000 words
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- Explain each of the investment instruments stated below that offered by financial institutions. These are the investment instruments you like to invest. Explain and justify why. Options FuturesA. Briefly explain three risk exposures that an analyst should report as part of anenterprise risk management system.Page 4 of 10B. Define market risk and the economic parameters considered when calculatingmarket risk.C. Explain the concept of ‘beta’ within the framework of the Capital Asset PricingModel (CAPM). Discuss the relevance of the covariance between assets returnsfor an investor wishing to diversify the risk of a portfolio2. Based on your readings, summarize the key features of the markets with the guide questions below. Features Equity Market Fixed-Income Market Types of Securities Traded Accessibility of the Market Levels of Risk Expected Returns Goals of Investors Strategies Used by Market Participants Example markets
- Question 1 Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items. Question 2Using the data generated in the previous question (Question 1);a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML? d) If an investment’s expected return (mean return) does not plot on the SML, what doesit show? Identify undervalued/overvalued investments from the graph1. Which of the following models for mathematics of the financial markets is dependent on expectations or probabilities of changes in the value of an underlying asset? A. Monte Carlo Simulation B. Black Scholes Model C. Cox-Ross-Rubinstein Model 2. Models for the financial markets are primarily used for all of the following, except, A. Algorithmic Trading B. Technical Analysis (Short term trading) C. Fundamental Analysis (Long term investing D. All of the above 3. Which among the following organizations use financial mathematics as part of their core operation? A. Investment banks B. Government C. Hedge funds D. All of the above 4. S1: Quantitative finance helps to allocate resources to provide the optimum returns. S2: Financial models are accurate. A. Both statements are true B. Both statements are false C.…A. Briefly explain three risk exposures that an analyst should report as part of anenterprise risk management systemB. Define market risk and the economic parameters considered when calculatingmarket risk.C. Explain the concept of ‘beta’ within the framework of the Capital Asset PricingModel (CAPM). Discuss the relevance of the covariance between assets returnsfor an investor wishing to diversify the risk of a portfolio
- Statement 1: Fundamental analysis is a method of forecasting future price movements of a security based onpolitical, environmental and other specific factorsStatement 2: Fundamental analysis is a method that study the past market data such as prices and volumeStatement 3: Fundamental analysis generally uses top down approachStatement 4: Fundamental analysis views from the chart and afterwards reviews the company, industry, financialmarkets, economy, and the conditions affecting the security.Statement 5: Fundamental analysis can be best employed for short-term trading because data can be easilyutilized and come out periodically a. Only statements 1 and 3 are correct b. Only statements 2 and 4 are correct c. Only statements 1 and 2 are correct d. Only statements 3 and 4 are correctInterest rate risk is of great concern to financial institutions and is often material tothe management and performance of an institution. Your Director has requested youto write brief notes on the following techniques of managing interest rate risk:I. Forward Rate Agreements II. Futures III. Swap IV. OptionCompare long-term instruments and short-term risks, in terms of the various types of risk to which investors are exposed. Justify your answer.
- I need help in investigating the topic of derivatives and researching the topic of financial options which are a form of financial derivative. and also explaining firstly what a derivative is, then identifying specific financial options and how they can be used to minimize risk in an organisation. 2. give real-world examples and discuss the implications of financial options for businesses and financial markets. Also give atleast 8 references relating to it.2. summarize the key features of the markets with the guide questions below. Features Equity Market Fixed-Income Market Types of Securities Traded Accessibility of the Market Levels of Risk Expected Returns Goals of Investors Strategies Used by Market Participants Example marketsexplain how an interest rate swap can help investors to transform assets. Use appropriate examples and diagrams to explain your answer. (200word)
