Market Value Added Analysis

For examples this disparity may arise in fixed coupon rates. The company may be exposed to other risk, if it does not have an exact or close enough match for the risk being hedged. In realty these futures contract may not adequately hedge risk and this would lead increase in earnings volatility and the company may face greater risk (Banwait 2013).

There are many different types of derivative instruments that can be used in financial markets. This paper will examine the various different types of futures contracts, (futures) that are available to be purchased in the marketplace. It will be shown what role they play in managing risk with multinational companies, portfolio managers, and institutional investors alike. It will also be touched on about how speculators can find opportunities for financial gain with the use of futures.

- If an investor wishes to take advantage of favourable yields but is aware this may increase interest rate exposure, the financial futures markets will provide an opportunity to hedge against possible loss.

Value Chain Analysis is a tool that used to identify the company’s primary and support activities that can creates value for the product to the customers, to analyze the activities to be cost leadership or differentiation strategy and eventually to develop a competitive advantage and create shareholders value. By simply explaining of creating value, a company takes raw inputs (timber) and to add “value” (designing and manufacturing) to them by converting them into something of worth to people for paying money for it (furniture).

The first category of derivatives is traded on a regulated and standardized market on which these derivative contacts have certain standard terms and their operation is centrally controlled through the exchange mechanisms that include collateral requirements given by the exchange members.[footnoteRef:3] On the contrary, OTC derivatives have the commercial advantage to be more flexible, as they are structured on bilateral terms, and thus, they attract market participants who want to hedge the specific risks arising from their financial activity, who become individually responsible for accomplishing their contractual obligations. [3: Ibid, p 5-6]

Calculating value added, could also contribute to determine a strategy of differentiation of products in businesses. Lets take the previous example NIKE. Nike has a low vertical integration but a high value added (thanks to its logo). Since this value added is marketing, value added is in this case an intangible entity. Differentiation is one of the competitive advantages.

Each party to a futures contract must deposit a sum of money known as “margin” with the clearing house. Margin payments act as a cushion against potential losses which the parties may suffer from future adverse price movements.

Derivatives may be traded either via an exchange (exchange traded) or alternatively, privately negotiated contracts, which are generally alluded to as Over The Counter (OTC) derivatives. Exchange traded and OTC-cleared derivative contracts have downgraded Macquarie’s credit risk as their counterparty is a clearing house, accountable for the handling of risk management for their members to guarantee that the clearing house has sufficient resources to carry out its upcoming obligations. Members are instructed to produce initial margins in agreement with the exchange rules in the form of cash or securities, and further present daily variation margins in cash to cover adjustments in values of the market. Macquarie has exchange traded derivatives with positive replacement values as at 31 March 2016 of $1,794 million, whereas as at 31 March 2016 of $4,641 million.

“The VBM framework extends these ideas to highlight the identification of the firm’s financial and non-financial value drivers, and the feedback loop from performance to the subsequent reassessment of objectives, strategies, and organizational design and control.” (Ittner, C. D. and D. F. Larcker, 2001). Value-based management is a kind of corporate governance principle and management approach that ensures corporations are managed consistently on long-term shareholder value creation. In normally, it can maximize shareholder value.

In any society which has to make arrangements for a continuous supply of commodities, trading activity cannot be confined to the immediate present needs. Forward contracts evolved in the early stages of development of mercantile activity to cater to the needs of a manufacturer, processor or producer to ensure that he gets his supplies of raw material at the appropriate time. Such forward contracts provide for giving and taking actual delivery of goods at a specified price and a specified future date.

Modernized convenient platforms for financial instrument trading are one of the great contributors. In general, there are two types of “places” for financial instrument trading. One is trading on an exchange and another is trading over the counter (OTC). When trading in an exchange, certain rules and regulations are implemented in order to facilitate the trading process and to protect the interests of all the involved parties in the trading. When the buyer and the seller reach agreement which the bid and the ask price are equal, the transaction will be executed and the agreed price will be communicated throughout the market. Once two parties agree at a matching price, the trade can be executed no

The present price markers for crude oil are WTI, Brent and Dubai/Oman. The crude oil derivatives contracts are traded on the New York Mercantile Exchange (NYMEX). The exchange acts as a regulatory body and as a financial trading forum for all the parties interested in buying the options. Members of the exchange carry out the trades themselves, or they act on behalf of the firms they represent through an open outcry auction held in the trading room or the floor. The procedure begins when a buyer calls an authorized commodity broker with an order to buy or sell futures or options contract. This order is sent to the firm’s agent who is on the trading floor. The prospects of more profits increases for the

The participants in the derivatives markets are generally classified as hedgers and speculators. The hedgers use derivatives as main purpose to protect against adverse changes while speculators enter a derivative contract with attempt to profit from anticipated changes in market prices. One of the biggest questions in regard to the treatment of derivatives tools is whether actually they are used for hedging or speculation. (Adam and Fernando 2006)

price is been agreed on the date on which the contract was made. The future decided date is

Virtually all financial decisions carry some implication of risk, because of the uncertainty of the future. However, the concept of market transparency suggests that regulators and ordinary consumers do have the ability to try to predict what will occur, based upon the knowledge of a company's holdings. However, the use of derivatives means that it is very difficult for ordinary consumers to accurately value the level of risk they are entering into, because there is little transparency about the real level of risk or the value of the financial instrument in question. Despite the calls for transparency in the new global economy and increased public scrutiny of business activities, the level of complexity of the derivative market makes it difficult for ordinary shareholders or even government agencies to follow and monitor it (Ferrell, Fraedrich & Ferrell 2008: 280). Derivates "are contractual arrangements between two parties at least one of which is likely to be a giant financial institution that transfer risk. They typically have