Finanzstudienarbeit

One must pretend to know the broad and yet differentiated world of banking and equity portfolios without bothering to actually learn about them. Use words such as ‘instability’, ‘hedging’, and ‘derivatives’ to inspire awe and trust among those who discuss these activities with you. Of utmost importance to Step Two, one must invest in only certain types of products to assure that one’s portfolio remains inflexible and susceptible to crashing.

This document is authorized for use only by Yen Ting Chen in FInancial Markets and Institutions taught by Nawal Ahmed Boston University from September 2014 to December 2014.

A new kind of financial investment in the North American markets (Sapp, 2010, p. 4)

Nestlé S.A. is a Swiss company and owns a prestigious position being the world’s leading nutrition, health and wellness group (Nestlé, 2016). According to its annual report (2015), this company is exposed to many risks caused by movements in foreign currency exchange rates, interest rate and market prices. The foreign exchange risk comes from transactions and translations of foreign operations in Swiss Francs (CHF). The interest rate risk faces the borrowings at fixed and variable rates. The market price risk comes from commodity price and equity price. The former risk arises from world commodity market for the supplies of coffee, cocoa beans, sugar and others. The later risk arises from the fluctuations of the prices of investments held. (Nestle annual reports, 2015). Thus, financial derivatives instruments are used by this multinational corporation in order to hedge these risks.

Meeting 09/08/11 09/13/11 09/15/11 09/20/11 09/22/11 09/27/11 09/29/11 10/04/11 10/06/11 10/11/11 10/13/11 10/18/11 10/20/11 10/25/11 10/27/11 11/01/11 11/03/11 11/08/11 Topic Class Introduction Investments: background and issues Financial securities Financial securities Securities markets Securities markets Bond prices and yields Bond prices and yields Bond prices and yields Mutual fund and other investment companies Follow Monday 's schedule (no class) Mutual fund and other investment companies Wrap up and Review Exam 1 Risk and Return Risk and Return Efficient diversification Efficient diversification CAPM and APT 1, 2, 3, 4, 9 5 5 6 6 7 HW 4 due Excel case 1 due 4 HW 3 due Chapter Homework and Excel cases (required)

Earlier in this paper, we reviewed the different types of institutional investors. We will also see that in general we can classify those in the first category as institutions with “liability-driven objectives” and those in the second category as institutions with “nonliability driven objectives.” Some institutions have a wide range of investment products that they offer investors, some of which are liability driven and others that they offer investors, some of which are liability driven and others that are nonliability driven. Once the investment objective is understood, it will then be possible to (1) establish a “benchmark” or “bogey” by which to evaluate the performance of the investment manager and (2) evaluate alternative investment objective.

Not many years back, the dimension of the international stock market was marked at about less than 50 trillion dollars! The accrued worldwide derivatives bazaar has been retorted to be at about twenty times that number! This

However, with the passage of time, people’s understanding of the role of financial derivatives gradually deepening, hedge funds in recent years, favoured because hedge funds have the ability to make money in the bear market. From 1990 to 2002, ordinary public funds lost an average of 11.7 per cent a year, while hedge funds earned 11.2 per cent a year during the same periods. There are some reasons for hedge funds which got such impressive results in surveys, and the benefits they receive are not as easy as the outside, and almost all hedge fund managers are excellent financial brokers.

The analysis starts with the valuation of 20 American put options with the same set of parameters usually considered in the literature, implemented by Longstaff and Schwartz as well. The following Table 4.1 presents the results of pricing estimation of 20 options resulting from the combination of the following parameters:

The article will give a brief overview of Hedge Funds and its strategy classifications. Then it will particularly describe “Event Driven” strategy and the market risks associated with it.

Based on the study by E.V.P.A.S.Pallavi, Dr. K. S. S. Rama Raju and Dr. T. Kama Raju (2013), it was stated that options are used to hedge not only the portfolio risk but also to maximize the return on investments all over the world. The pro of using option contracts in hedging is that it is cost efficiency as option has a great leverage power. Investors can obtain an option position that

Names an example or context in which the term is applied, with an illustration available in the appendices.

21 Capped Participating Preferred ................................................................................. 22 Limitations ........................................................................................................................ 24 Garbage in / Garbage Out ............................................................................................. 24 Simplifications .............................................................................................................. 24 Deterministic/Stochastic Model................................................................................ 24 Seniority.................................................................................................................... 24 Conversion ................................................................................................................ 25 IPO ............................................................................................................................ 25 The Nature of Common Stock ...................................................................................... 26 Black-Scholes ............................................................................................................... 28 The Template, a Practical Example, and a Conclusion .................................................... 29

The industry I have chosen for this project is the Internet Software & Services. Companies in the Internet Software and Services Industry develop and market internet software and provide internet services including online databases and interactive services, web address registration services, database construction, and internet design services, to name a few Information Technology is currently one of the largest ten sectors in S&P 500 with a sector weight of 17%. (See fig.1)

Another important factor to consider when identifying investment opportunities is the client’s beliefs in stock trading. There are many different stock trading theories (see Appendix B for theory types) and in today’s information age, they key is to distinguish which ideas the client believes to be valid. Lastly, it is important for the financial manager to evaluate the investment and consider the different risks that could affect the performance. There are four major risks to investment, these include market risk, default risk, inflation risk, and mortality risk (see Appendix C for definitions). For the purpose of this paper, it has been determined that the client profile is that of an aggressive investor whose ideals fall under the expectation theory. With this profile in mind, a potential opportunity for investment could be Stericycle.