2.1.3Options. There Are Two Kinds Of Options In The Market,

The market for swap exists since it allows parties to access market which they might not be able to do directly. Also swaps are customizable between parties and so are more flexible. The duration of

Ms. Cohen’s argument was irrelevant because not only did she provide any supportive facts, but she is also incorrect because the hedging program did not create any new risks. In fact, it was perfectly implemented since it reduced the firm’s foreign currency fluctuation risk as seen above.

If Seller fails to comply with this contract for any other reason, Seller will be in default and Buyer may, as Buyer's sole and exclusive remedy, terminate this contract and receive from Seller the deposit, thereby releasing both parties from the contract.

(a) An option's value is determined by its exercise value, which is the market price of the stock less its striking price. Thus, an option can't sell for more than its exercise value.

For interest rate hedging strategy, swaps are used to hedge. And most importantly, interest rate swaps are an agreement between two counterparties exchanging one stream of future interest payments for another. Interest rate swaps can exchange a fixed payment for a floating payment or vice versa. We can also hedge against commodity price risk where this involves purchase of a futures contract, that guarantee a particular price at a certain point in time. In this case, the price is guaranteed and no unexpected loss can occur. Also no gain based on favorable price changes can occur as well. We can also hedge against commodity price risk where this involves purchase of a futures contract, that guarantee a particular price at a certain point in time. In this case, the price is guaranteed and no unexpected loss can occur. Also no gain based on favorable price changes can occur as well. Hedging against investment risk means strategically using instruments in the market to

Trading is when you give some of your own goods or services for someone else’s goods or services. Some of the ways trading takes place is trading stocks or trading football cards.

Derivative contracts were either negotiated with specific counterparties (over-the-counter) or were standardized contracts executed and traded on an exchange. Negotiated over-the-counter derivatives were comprised of forwards, swaps, and specialized options contracts. Over the counter derivatives can be tailored to meet the customers’ needs with respect to time and quantity and they are not traded in an organized exchange. On the other hand, standardized exchange-traded derivatives consisted of futures and options contracts. Even though over-the-counter derivatives were usually not traded like securities in an exchange, they might be terminated or assigned to an alternative counterparty. Standardized derivatives trade on an exchange and have time and quantity that are fixed.

Generally, under Chapter 4, on the default of a grantor under a security agreement, the secured party can commence enforcement action, and the first step in enforcement is for the secured party to seize the collateral. Having seized and obtained possession of the collateral, the secured party may either dispose of or retain the collateral. There are strict rules that regulate how each of these steps are to be taken.

“Over-the-counter derivatives will be required to be traded on regulated exchanges, and the trades will have to be submitted to regulated clearinghouses” (First Data Corporation, 2010). The clearinghouses must also submit proposals to the regulators before accepting swaps for clearing. Regulators will have the authority to impose capital, margin, reporting, record-keeping and code of conduct requirements on swap dealers and participants to ensure there are adequate financial resources to meet their responsibilities (First Data Corporation, 2010).

Miscellaneous factors could impact on the possibilities of default. If any events as such bankruptcy, mergers and acquisitions or force majeure happen,

Banks take deposits from savers and pay interest on these accounts. They receive interest on loans when they pass these funds on to borrowers. The spread between the rate they pay for funds and the rate they receive from borrowers is where their profits are derived from. This practice of combining deposits from many sources which can be lent to many borrowers forms a interchange of funds

Swaps give flexibility and allow the bank to design the contracts in a way that fits its needs. Banks can tailor the durations, rates and other terms of the swap contracts and make it specific to the current situation of the bank. Furthermore, they can easily communicate with other banks in order to construct contracts, which benefit both sides.

European option: An option that can only be exercised at the end of its life

From its definition it can be noticed that hedging is a strategy employed by companies in an effort to safeguard their economic position and to prevent the company from the losses which are associated with the unforeseen risks. Companies can hedge against risks which are associated with losses by taking control of their future purchases. The commodity prices vary in different markets and are caused or influenced by different economic factors. Some commodities are very scarce and with the increased depletion subject to the global demand in different foreign markets, the prices are set to be hiked in response to the established demand which positions the companies that use those particular commodities to have cash flow problems.

Furthermore it is possible to buy and sell European option contracts, an option gave the holder the right to buy or sell the underlying futures contract at a predetermined price.