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.
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- Critically explain the role and objectives of the main participants in the derivatives market. Provide examples to illustrate and support your answer.Using examples, explain how firms are affected by both systematic and firm-specific risk. What is the risk premium?Question Discuss the process of delta hedging an option. Explain why financial institutions perform delta hedging, the problems involved and the risks.
- Explain with examples how a firm can hedge its risks using optionsa)define interest rate swaptions, and differentiate between payer swaptions and receiver swaptions. b)define forward swaps. c)define risk management. d)discuss reasons for practicing risk management. e)discuss how firms can benefit from risk management.1.Briefly comment on what the CAPM is for, and how it is used. How (by what) is risk measured in the financial markets?.
- What are the implications of these calculations? In other words, based on each of the calculations, and being mindful of the need to balance portfolio risk with return, would you recommend that the company pursue the investment? Why or why not? Be sure to substantiate claims.Suggest what is the best financial instrument to offset market risk exposure and from market volatility? WHY?Compare long-term instruments and short-term risks, in terms of the various types of risk to which investors are exposed. Justify your answer.
- Critically evaluate interest rate swap agreements focusing on their significance and advantages in financial management.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 portfolioHow do you perceive the relationship between risk and return in the context of investment portfolios? Can you provide examples of how an investor might balance the two, and what factors influence their decision-making process in achieving an optimal risk-return profile?