Why is writing deep-in-the-money currency options tantamount to short-term financing?

Q: Why should we care what the Term Structure of Interest Rates looks like?  The Expectations Theory of…

A: The question is to explain the concept of term structure of interest rate, which varies with change…

Q: What is the difference (Who can invest?) between Money Market, Bond Market, Equity Market, Foreign…

A: The money market is the part of the financial market that invests in short-term debt with low risk…

Q: What is the difference (How will the investment earn?) between Money Market, Bond Market, Equity…

A: Financial markets refer broadly to any marketplace where the trading of securities occurs, including…

Q: hy not?

A: Introduction : A forward contract can be seen as a private, customizable contract which is exchanged…

Q: What is the term of interest on bank overdraft?

A: On basis of creditworthiness, a bank allows a person to draw excess money from his account…

Q: Which hedging strategy uses an exchange rate agreed to today for future delivery of currency to…

A: Hedging is a financial management strategy help to setoff the risk of making an investment in…

Q: Why does a money has an intristic value and a currency doesn't have an intristic value?

A: The estimate of an asset's worth based on a financial model is known as the intrinsic value in…

Q: How can the company use currency options to hedge against exchange rate risk?

A: Those companies which have exposure to foreign markets hedge their risk with currency swap forward…

Q: Which of the following is not true with Money Market? Select one: a. Deals in short term funds b.…

A: Money market is a market wherein short term instruments are traded and only those investors who are…

Q: How does a high rate of inflation affect money in all its different roles?

A: Inflation: Inflation is a rate at which the price of the products and services rises. It frequently…

Q: What is bad debt reserves?

A: As a result, as contrast to a bad debt, which is a known account receivable that will not be paid…

Q: Which of the following is the risk due to exchange rates?      Business risk     Financial risk…

A: The investments that we make in debt, equity and other financial securities are exposed to different…

Q: Describe a short-term financing option and discuss the advantages and disadvantages.  Is there a…

A: Short term financing: Any loan that is obtained for a short period of time is Short Term financing.…

Q: WHAT IS A SMART CONTRACT? HOW CAN IT BE USED IN FINANCE?

A: Block technlogy is growing very much now days and it is used in finance quite much and this based on…

Q: Explain what a first-to-default credit default swap is. Does its value increase or decrease as the…

A: A First-to-Default Credit Default Swap (FTD CDS) is a financial derivative instrument used in the…

Q: What are derivatives? How can derivatives be used to reduce risk? Can derivatives be used to…

A: Derivatives A derivative is a securities whose value is generated from or dependent on one or more…

Q: Why Would People Buy Credit Default Swaps?

A: Credit-default swaps can be defined as insurance against default risk. For instance, financial…

Q: How do you think participations affect the riskiness of a loan?

A: It's a credit that involves the lender in the net income. The interest rate is lowered to take part…

Q: Describe about the foreign currency risk.

A: Foreign currency- As we know every country has its own currencies in which it operates. Hence,…

Q: How does a credit default swap work?

A: The credit default swap is a financial derivative and an agreement between two parties. The seller…

Q: What is the difference bet

A: There are many types of traders in the market and each trader has their own objective in the market…

Q: discuss  the advanatages and disadvantages of options in the financial markets?

A: Advantages: The market is in fluctuation. In these circumstances the seller and buyer should use the…

Q: Which of the following best describes interest rate risk? The risk that credit ratings will change,…

A: The effect of interest rates refers to the impact that changes in the cost of borrowing money have…

Q: Explain the challenges policymakers face when interest rates are very low.

A: An interest rate is referred to as an amount that is charged over as well as above the principal…

Q: What kind of interest rate swap would a commercial bank with a negative re-pricing gap (that is,…

A: We have to find out an appropriate kind of interest rate swap for a commercial bank with a negative…

Q: Answer the following: a. Explain why the interest parity condition must hold if the foreign exchange…

A: Foreign exchange market is referred as the market, where the different currencies used to get…

Q: What types of risks are interest rate andexchange rate swaps designed to mitigate?Why might one…

A: Introduction: An interest rate swap is a form of derivative contract whereby two counterparties…

Q: What is the process of solving a cash flow for an unknown interest rate?

A: Time Value of Money: According to the concept of TVM, the company always interested to know the PV…

Q: Can real interest rates be negative

A: The real rate of return is calculated to ascertain the actual return on investment considering the…

Q: Answer the below questions.     (a) For a single-name credit default swap, what is the difference…

A: A Credit Default Swap (CDS) is a financial contract between two parties where one party (the buyer…

Swaps

A swap is a derivative contract in which two parties are agreed to exchange their cash flows from two different financial instruments for a defined period. In swap contracts, cash flows from one financial instrument are fixed and cash flow from other financial instruments is variable based on the interest rate, exchange rate, and commodity price. Swap contracts are transacted in an over-the-counter system. Swap contracts are utilized to hedge risk and mitigate loss.