Solution to Derivatives Markets: for Exam Fm

Compute the projected profit for the order quantities suggested by the management team under three scenarios: worst case in which sales = 10,000 units, most likely case in which sales = 20,000 units, and best case in which sales = 30,000 units.

a) An importer of antiquities knows that he can sell bowls and carved figurines to the domestic market. If q1 is this number of figurines sold, their price will be $(60 − 2q1 ). If q2 bowls are sold, $(10 − q2 ) will be the price of bowls. Figurines cost $16 and bowls $4 to the importer and fixed costs are $200. i) How many each of figures and bowls should be sold to maximise profit. ii) Is this indeed a maximum? Justify using second order conditions. iii) What price is

1) In this exercise, you viewed the settlement of costs to finished goods and manufactured output settlement. As noted in the exercise, each should be for $42,000.

1. Write out the initial transaction and cash flows for the trade based on entering

11-14 Formulation/Solution/Analysis Questions 11. MT P1 Please refer to the attached Reed’s Raisin Company Case in your book to determine the total profit. Assume that the open market price of grapes is $0.30/lb. Student Response: Score: Total Profit = $448125 20/20

For the purposes of this report, I analyzed the July corn futures market from a long position in contrast to my short position in the cash market. I took out one contract with a size of 5000 bushels of corn. I tracked this market since January 16th and collected futures and cash market prices throughout that whole period. In addition, I also analyzed hedging with futures and hedging futures with options dating back to February 21st. This report shall cover all aspects of this analysis including a compare and contrast section on each of the net prices from each hedging option.

Air Canada is faced with many different kinds of risks such as fuel price risk, foreign exchange risk and interest rate risk through the use of various financial derivative instruments. Under its risk management policy, Air Canada uses these instruments solely for the risk management purposes, not to generate trading profits. Any change in cash flows associated with the derivative instruments is designed to be offset by changes in cash flows of the relevant risks being hedged.

Luba’s Pharmaceuticals plans to raise $10 million via a general cash offer. Filing fees and legal expenses are $250,000. The underwriters have set the subscription price at $12.50 and charge a 7% spread on all funds raised. How many shares will the firm issue?

and the NYSE is the most important auction market.32. The total dollar return on a share of stock is defined as the: capital gain or loss plus any dividend income 33. One year ago, you purchased 400 shares of Southern Cotton at $38.40 a share. During the past year, you received a total of $480 in dividends. Today, you sold your shares for $41.10 a share.What is your total return on this investment? [$41.10 - $38.40 + ($480/400)]/$38.40 = 10.16 percent 34. Todd purchased 600 shares of stock at a price of $68.20 a share and received a dividend of $1.42 per share. After six months, he resold the stock for $71.30 a share. What was his total dollar return? 600 × ($71.30 - $68.20 + $1.42) = $2,712 ;35. Which one of the following is generally true concerning securities held in street name?The brokerage firm is the owner of record.36. The bid price is the price at which a dealer is willing to purchase a security.37. The ask price is the price at which a dealer is willing to sell a security. 38. The difference between the price at which a dealer is willing to buy, and the price at which a dealer is willing to sell, is called the bid-ask spread.39. You want to sell shares of stock at the current price. Which type of order should you place?Market 40. You purchased XYZ stock at $50 per share. The stock is currently selling at $65. Your gains could be protected by placing a stop-loss order 41. An order to sell that involves a preset trigger point

This paper will Identify and explain the major factors driving the market during this week. It will also identify and explain causes of changes in the market and the index. As well as developed investment objectives and defined risk tolerance levels. I will also include a snap shot of my investments and an explanation of why I choose those particular companies.

Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates, financial indices or other underlying notional amounts. Derivatives are carried at fair value on the consolidated balance sheets in derivative assets or derivative liabilities. We elect to present any derivatives subject to master netting provisions as a gross asset or liability and gross of collateral. Disclosures regarding balance sheet presentation of derivatives subject to master netting agreements are discussed in Note 3 – Derivative Instruments. We may designate derivatives as cash flow or fair value hedges.

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 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)

Questions pertaining to the impact of derivative trading on cash market volatility have been empirically addressed in two ways: by comparing cash market volatilities during the pre-and post-futures/ options trading eras and second, by evaluating the impact of options and futures trading (generally proxied by trading volume) on the behaviour of cash markets. The literature is, however, inconclusive on whether introduction of derivative products lead to an increase or decrease in the spot market volatility. One school of thought argues that the introduction of futures trading increases the spot market volatility and thereby, destabilises the market (Cox 1976; Figlewski 1981; Stein, 1987). Others argue that the introduction of futures actually reduces the spot market volatility and thereby, stabilises the market (Powers, 1970; Schwarz and Laatsch, 1991 etc.). The rationale and findings of these two alternative schools are discussed in detail in this section. The advocates of the first school perceive derivatives market as a market for speculators. Traders with very little or no cash or shares can participate in the derivatives market, which is characterised by high risk. Thus, it is argued that the participation of speculative traders in systems, which allow high

2.7 The effect of derivative trading on volatility of the underlying asset: evidence from the greek stock market. Authors- Evangelos Drimbetas, Nikolaos Sariannidis and Nicos Porfiris