Managing and Identifying Risk
|
|
- Melina Watkins
- 5 years ago
- Views:
Transcription
1 Managing and Identifying Risk Fall 2011
2 All of life is te management of risk, not its elimination Risk is te volatility of unexpected outcomes. In te context of financial risk te volatility is in: 1. te value of a firm s assets and liabilities 2. te prices of its inputs and outputs. Firms need to decide wic risks to accept and wic to manage. Tis will depend on teir business strategy and competitive position.
3 Were are te Risks? How Big Are te Risks?
4 Wat Risks Does a Firm Face? Risk management requires tat a firm s exposures to risk are identified, quantified and managed. 1. Business risk manufacturing and marketing its products to create a competitive advantage. How does tis risk depend on our actions? Oters actions? Is tis someting we sould edge? 2. Financial risk sensitivity of casflows and firm value to movements in financial markets (e.g. interest rates, excange rates, commodity prices, ). How do tese impact our profitability? Our competitive position domestically? in foreign markets? Is tis someting we sould edge?
5 Financial Risks?
6 Examples of Risk Financial risks: Market risks (canges in prices) Credit risks (counterparty risk) Liquidity risks (ability to buy/sell wen needed) Operational risks (management decisions) Oter risks wic can ave financial implications: Legal risks, reputation risks Financial risk management is te process of creating economic value by using financial tools or operating decisions to manage exposure to risk.
7 Most Common Financial Risks Major types of market risk: Interest rate risk Excange rate risk Equity risk Commodity risk How do canges in tese factors influence our competitive position? Our ability to acieve our corporate goals/strategy?
8 Factors Influencing Risk Management Modern risk management considers te following: Accounting Rules Mkt Prices Risk Mgmt F/S Info Economic Costs
9 Steps in Risk Management Identify key factors wic impact firm profitability or oter major performance metrics. Large, diversified firms may ave less net exposure to different financial risks. Assess te volatility/uncertainty of tese factors using istorical data. Develop pro-forma models of te impact on earnings and sareolder value of canges in financial factors (e.g., sensitivity or scenario analysis). Set corporate policies regarding acceptable levels of earnings and sareolder value at risk. Set procedures for monitoring and managing risk.
10 Identifying Risk To see a framework for identifying risk, we will consider te largest source of international risk FX risk Transaction Risk Gain or loss on a contracted transaction resulting from a cange in excange rates. Translation or Accounting Risk Effects of canges in excange rates on te translation back of assets and liabilities denoted in foreign currencies into te domestic currency denominated financial statements. Economic or Operating Risk Canges in te value of a firm induced by canges in demand for its products or supply of its production factors caused by canges in excange rates over time.
11 Example of Transaction Risk A US electronics company contracted to sell 100,000 semiconductors to a Frenc computer manufacturer for a price of 10Euro / piece. Delivery is in 90 days wit payment upon delivery. If te excange rate was $1.40/EUR wen te contract was signed te US firm expects to get $1,400,000 from tis sale. If te excange rate canges to $1.30/EUR, te US firm will only get $1,300,000. Te possible cange in revenues is transaction risk.
12 Example of Translation Risk If our US electronics company decided to set up a Frenc subsidiary to do tis and future transactions, consider ow excange rate canges would impact its balance seet if it started as follows: Assets Liabilities. Cas 50M EUR Current Liabilities 350M EUR Inventory 300M EUR Long-Term Debt 50M EUR Plant & Equip 100M EUR Equity 50M EUR Total 450M EUR Total 450M EUR Wat is te most important item ere to te US parent?
13 Example of Translation Risk cont d If te initial excange rate wen te subsidiary was set up was $1.10/EUR, te translated values of te subsidiary would ave been: Assets Liabilities. Cas $55M Current Liabilities $385M Inventory $330M Long-Term Debt $55M Plant & Equip $110M Equity $55M Total $495M Total $495M Wat would appen to te value of te subsidiary for te parent if te excange rate went to $1.05/Euro? Would te parent care?
14 Example of Translation Risk cont d If te excange rate went to $1.00/Euro, te translated values of te subsidiary would be: Assets Liabilities. Cas $50M Current Liabilities $350M Inventory $300M Long-Term Debt $50M Plant & Equip $100M Equity $50M Total $450M Total $450M Altoug te Euro values are uncanged, te US dollar value of te equity as fallen. Is tis a problem?
15 Example of Translation Risk cont d If te excange rate went to $1.30/Euro, te translated values of te subsidiary would be: Assets Liabilities. Cas $65M Current Liabilities $455M Inventory $490M Long-Term Debt $65M Plant & Equip $130M Equity $65M Total $685M Total $685M Altoug te Euro values are uncanged, te US dollar value of te equity as risen. Is tis a problem?
16 Economic Risk Tere are two components to be considered: Future exposure: te impact of unexpected excange rate canges on te value of future income denominated in different currencies. If our contract as us getting paid over te next 20 years, ow will excange rate canges impact te PV of our future casflows? Wat impact will tis ave on our long-term viability? Competitive exposure: te impact of excange rate canges on te ability of a firm to compete based on teir impact on te costs and revenues for te firm and its competitors. Wen te yen was low in value, Japanese imports flooded te markets in Nort America.
17 Te Hedging Decision Wy not? Sareolders can diversify away risks temselves. Tere is no need for te firm to do tis for tem (M&M Proposition I). Costly to edge and it does not increase te expected casflows, so wy incur te cost? Managers can not outguess te market, so in equilibrium (on average) te expected value of edging is zero. Managers may edge to increase teir job security, but not to maximize firm value. Hedging is irrelevant, since it can not decrease a firm s systematic risk and tat is all investors care about.
18 Wy? Te Hedging Decision (cont d) Management knows more about te firm s risk profile, so it can edge its risks better tan sareolders. Decreases te risk of bankruptcy. For a given amount of debt, edging reduces te probability of bankruptcy. Te cost of te treat of financial distress can be very ig, bot directly and indirectly. Smootes earnings - stock markets like tis! Firms may ave to forego positive NPV projects because tey cannot raise capital or accurately predict teir casflows.
19 Managing Transaction Risks A transaction exposure is created as soon as te seller quotes a price in foreign currency terms and exists until te buyer settles te bill. Recall our example: a U.S. company expects to receive 1 million in tree monts. Wat could te U.S. company do to manage tis risk? Alternatives for managing transaction risk: Remain unedged Use forwards/futures Use a money market edge Use options
20 Managing Transaction Risks Remaining unedged means tat we ave decided to accept te transaction risk. We get all of te benefit and suffer all of te costs of canges in te excange rate. Forward/futures: we agree to excange currencies at a stated rate at a given future date. Wat appens if te contract is not awarded if we use forwards? futures? Wat is te expected value of tis strategy in an efficient market?
21 Managing Transaction Risks Money Market Hedge: we borrow in te foreign currency, excange tat for our domestic currency at te spot rate. Wen we get paid te foreign currency we pay back te loan and interest wit te proceeds. Te costs will be similar to tose of a forward. Te final cost will depend on te interest rate differential and ow we invest te domestic currency obtained after converting te loan. Bot te Money Market Hedge and te Forward contract remove te risk of future excange rate movements. We get a known amount in te future. Downsides?
22 Managing Transaction Risks Options: we can purcase a put option on te foreign currency so tat we can lock in a minimum price at wic we can sell te proceeds from our transaction. Wat appens if te foreign currency appreciates versus our ome currency? Depreciates? Wat appens if we do not get te contract? Unlike te two previous alternatives, tis is not riskless. Not riskless? Tere is a ig cost, but tis cost allows te possibility for gains if te excange rate moves in te rigt direction, and a floor for te losses if it does not. As a result, tere is uncertainty about te value of tis alternative.
23 Summary: Managing Transaction Risks For our transaction risk example: Unedged do noting Forward/future buy a forward/future to sell 1,000,000 Euros for 1.30 USD/EUR in 90 days Money Market borrow 990,099 Euros today at 4%, convert to USD, and invest in US. Owe 1,000,000 Euros in 90 days Option buy a put on Euros to sell 1,000,000 Euros at a strike price of 1.30 USD/EUR in 90 days (wy not 1.25 USD/EUR?). How to decide wic to use? Cost of eac alternative? Risk tolerance of firm? Corporate policy for exposure to transaction risk?
24 Managing Translation Risks Tis is not a cas risk. It is a paper risk. How big a deal if it is not a cas risk? Accounting exposure arises wen te financial statements of foreign affiliates (stated in foreign currency) must be restated in te parent company s currency for te preparation of consolidated financial statements. Te translation of te foreign affiliates assets and liabilities (and possibly derivatives) may result in an increase or decrease in te parent company s net wort and reported net income due to canges in te excange rate since te last report. Main alternative: Balance Seet edge
25 Managing Translation Risks Balance Seet Hedge: te firm maintains an equal amount of foreign currency assets and liabilities on its balance seet to remove te net exposure. How to do tis: 1. Convert all existing cas into te parent company s domestic currency immediately. 2. Delay te repayment of debt and convert te cas tat would ave been used for tis to te domestic currency. 3. Forward or Money Market edges: if te parent firm as a net asset (liability) exposure in te foreign currency, get an equal sized liability (asset) in te foreign currency to offset it. Te goal is to decrease te net value of foreign assets tat need to be converted to te domestic currency.
26 Summary: Managing Translation Risks For our example we could: Pay out te 50M Euros from cas and convert to USD. Tis would remove te value of equity from te balance seet and leave zero net exposure. Parent firm could borrow 50M Euros to ave a liability on its balance seet to offset te 50M Euro asset (equity) from te foreign affiliate.
27 Managing Operating Risks Tey are long-term risks tat can be influenced by many unknown events. We will focus on te influence of long-term canges in excange rates. Some alternatives to edge operating risks: Matcing currency casflows: offset a continuous stream of future foreign income wit foreign debt requiring a corresponding set of payments. Tis is similar to a series of forwards financing domestic debt. Credit Market Swaps: two firms in different countries borrow long-term in teir ome country and make te payments for te oter company (swap) using teir stream of foreign income. Tis keeps te liabilities on te firms books in teir ome currency. Diversify operations across countries.
28 Summary: Managing Operating Risks We ave 100M Yen casflows guaranteed every year for te next 10 years. Matcing currency casflows: borrow Yen for 10 years. Every year make 100M Yen payments (bot interest and principal). In 10 years te debt is repaid. Tis is similar to a series of forward contracts to sell 100M Yen every year for 10 years to pay a domestic debt. Credit Market Swap: borrow US dollars for 10 years and swap tis wit a Japanese firm aving borrowed Yen for 10 years. We make teir 100M Yen interest payments and tey make our USD interest payments. Tis keeps te liabilities on te firms books in teir ome currency. Diversify operations across countries so tere are some casflows outflows in Yen as well.
29 Recent Survey of Canadian Firms Canadian firms are risk-averse. 75% would be willing to accept lower profits to ave lower uncertainty in profits. Fluctuating excange rates is a problem for trade-engaged businesses because it can result in unpredictable profit margins. In industries were profits margins are tigt, (e.g. wood products, automotive, textiles) sortterm swings in te value of te Canadian dollar can easily lead to losses. Furtermore, profit volatility negatively impacts te firm s ability to access bank lending, since it increases risk for bankers analyzing a firm s income statements. Most firms tat managed foreign excange risk are doing so to protect profit margins on export sales. In fact, 85% said tis was teir primary objective in managing foreign excange risk; followed by increasing te predictability of profits wic was a key objective for 55%. Source: ttp://
30 Wo is Hedging Currency Risk? Survey of currency derivative use by firm size. Te sample was 372 large U.S. firms for fiscal year end 1991 tat ad foreign excange rate exposure as of fiscal year-end Companies are among te 500 largest (by sales) companies in te Fortune 500: 4t Quartile (largest firms) 75.3% 3rd Quartile 38.7% 2nd Quartile 34.3% 1st Quartile (smallest firms) 17.2% Source; C. Geczi, B. Minton and C. Scrand Wy Firms Use Derivatives, Te Journal of Finance, September 1997.
31 Use of Derivatives in Hedging FX Risk Type of Instrument Frequency of Use Forward Contracts 72.3% Over-te-Counter Currency Options 18.8% Excange Traded Currency Options 5.4% Currency Futures Contracts 4.1% Source: K. Jesswein, C. Kwok and W. Folks Wat New Currency Risk Products are Companies Using and Wy?, Journal of Applied Corporate Finance, Fall 1995.
Managing and Identifying Risk
Managing and Identifying Risk Spring 2008 All of life is te management of risk, not its elimination Risk is te volatility of unexpected outcomes. In te context of financial risk it can relate to volatility
More informationManaging and Identifying Risk
Managing and Identifying Risk Fall 2013 Stephen Sapp All of life is the management of risk, not its elimination Risk is the volatility of unexpected outcomes. In the context of financial risk the volatility
More informationWhat are Swaps? Spring Stephen Sapp ISFP. Stephen Sapp
Wat are Swaps? Spring 2013 Basic Idea of Swaps I ave signed up for te Wine of te Mont Club and you ave signed up for te Beer of te Mont Club. As winter approaces, I would like to ave beer but you would
More informationWhat are Swaps? Basic Idea of Swaps. What are Swaps? Advanced Corporate Finance
Wat are Swaps? Spring 2008 Basic Idea of Swaps A swap is a mutually beneficial excange of cas flows associated wit a financial asset or liability. Firm A gives Firm B te obligation or rigts to someting
More informationWhat is International Strategic Financial Planning (ISFP)?
Wat is International Strategic Financial Planning ()? Spring 2013 Wy do we need? Wat do we do in Finance? We evaluate and manage te timing and predictability of cas in- and outflows related to a corporation's
More informationGlobal Financial Markets
Global Financial Markets Spring 2013 Wat is a Market? A market is any system, institution, procedure and/or infrastructure tat brings togeter groups of people to trade goods, services and/or information.
More informationIntroduction. Valuation of Assets. Capital Budgeting in Global Markets
Capital Budgeting in Global Markets Spring 2008 Introduction Capital markets and investment opportunities ave become increasingly global over te past 25 years. As firms (and individuals) are increasingly
More informationFinancial Markets. What are Financial Markets? Major Financial Markets. Advanced Corporate Finance
Financial Markets Spring 2008 Wat are Financial Markets? A financial market is a mecanism tat allows people to buy and sell financial securities, commodities, and oter fungible financial assets wit low
More informationCapital Budgeting in Global Markets
Capital Budgeting in Global Markets Spring 2013 Introduction Capital budgeting is te process of determining wic investments are wort pursuing. Firms (and individuals) can diversify teir operations (investments)
More informationACC 471 Practice Problem Set # 4 Fall Suggested Solutions
ACC 471 Practice Problem Set # 4 Fall 2002 Suggested Solutions 1. Text Problems: 17-3 a. From put-call parity, C P S 0 X 1 r T f 4 50 50 1 10 1 4 $5 18. b. Sell a straddle, i.e. sell a call and a put to
More informationAMERICAN DEPOSITARY RECEIPTS. ISFP Stephen Sapp
AMERICAN DEPOSITARY RECEIPTS Stepen Sapp Definition: ADRs American Depositary Receipts (ADRs) are dollardenominated negotiable securities representing a sare of a non-us company. Tis security trades and
More informationRaising Capital in Global Financial Markets
Raising Capital in Global Financial Markets Fall 2009 Introduction Capital markets facilitate te issuance and subsequent trade of financial securities. Te financial securities are generally stock and bonds
More information2.11 School Board Executive Compensation Practices. Introduction
Introduction Figure 1 As part of Education Reform in 1996-97, 27 denominational scool boards were consolidated into 10 scool boards and a Frenc-language scool board. From 1 January 1997 to 31 August 2004
More informationA Guide to Mutual Fund Investing
AS OF DECEMBER 2016 A Guide to Mutual Fund Investing Many investors turn to mutual funds to meet teir long-term financial goals. Tey offer te benefits of diversification and professional management and
More information2.15 Province of Newfoundland and Labrador Pooled Pension Fund
Introduction Te Province of Newfoundland and Labrador sponsors defined benefit pension plans for its full-time employees and tose of its agencies, boards and commissions, and for members of its Legislature.
More informationRaising Capital in Global Financial Markets
Raising Capital in Global Financial Markets Fall 2011 Introduction Capital markets facilitate te issuance and subsequent trade of financial securities. Te financial securities are generally stock and bonds
More informationRaising Capital in Global Financial Markets
Raising Capital in Global Financial Markets Fall 2010 Introduction Capital markets facilitate te issuance and subsequent trade of financial securities. Te financial securities are generally stock and bonds
More informationNumber of Municipalities. Funding (Millions) $ April 2003 to July 2003
Introduction Te Department of Municipal and Provincial Affairs is responsible for matters relating to local government, municipal financing, urban and rural planning, development and engineering, and coordination
More information11.1 Average Rate of Change
11.1 Average Rate of Cange Question 1: How do you calculate te average rate of cange from a table? Question : How do you calculate te average rate of cange from a function? In tis section, we ll examine
More informationRaising Capital in Global Financial Markets
Raising Capital in Global Financial Markets Spring 2012 Wat are Capital Markets? Capital markets facilitate te issuance and subsequent trade of financial securities. Te financial securities are generally
More informationInternational Parity Conditions. Introduction. Parity Conditions. Fall Stephen Sapp
International Parity Conditions Fall 2010 Introduction Te costs sould be te same for buying and selling goods, services and financial assets in different countries, in a common currency. For example, te
More informationMaking Informed Rollover Decisions
Making Informed Rollover Decisions WHAT TO DO WITH YOUR EMPLOYER-SPONSORED RETIREMENT PLAN ASSETS UNDERSTANDING ROLLOVERS Deciding wat to do wit qualified retirement plan assets could be one of te most
More informationInternational Parity Conditions
International Parity Conditions Spring 2013 Introduction Te costs sould be te same for buying and selling goods, services and financial assets in different countries wen converted to a common currency.
More informationBuildings and Properties
Introduction Figure 1 Te Department of Transportation and Works (formerly te Department of Works, Services and Transportation) is responsible for managing and maintaining approximately 650,000 square metres
More informationPRICE INDEX AGGREGATION: PLUTOCRATIC WEIGHTS, DEMOCRATIC WEIGHTS, AND VALUE JUDGMENTS
Revised June 10, 2003 PRICE INDEX AGGREGATION: PLUTOCRATIC WEIGHTS, DEMOCRATIC WEIGHTS, AND VALUE JUDGMENTS Franklin M. Fiser Jane Berkowitz Carlton and Dennis William Carlton Professor of Economics Massacusetts
More informationEXAMINATIONS OF THE HONG KONG STATISTICAL SOCIETY
EXAMINATIONS OF THE HONG KONG STATISTICAL SOCIETY HIGHER CERTIFICATE IN STATISTICS, 2012 MODULE 8 : Survey sampling and estimation Time allowed: One and a alf ours Candidates sould answer THREE questions.
More information2.21 The Medical Care Plan Beneficiary Registration System. Introduction
2.21 Te Medical Care Plan Beneficiary Registration System Introduction Te Newfoundland Medical Care Plan (MCP) was introduced in Newfoundland and Labrador on 1 April 1969. It is a plan of medical care
More informationPractice Exam 1. Use the limit laws from class compute the following limit. Show all your work and cite all rules used explicitly. xf(x) + 5x.
Practice Exam 1 Tese problems are meant to approximate wat Exam 1 will be like. You can expect tat problems on te exam will be of similar difficulty. Te actual exam will ave problems from sections 11.1
More information2017 Year-End Retirement Action Plan
2017 Year-End Retirement Action Plan Te end of te year is a good time to assess your overall financial picture, especially your retirement strategy. As te year comes to a close, use tis action plan to
More informationCalculus I Homework: Four Ways to Represent a Function Page 1. where h 0 and f(x) = x x 2.
Calculus I Homework: Four Ways to Represent a Function Page 1 Questions Example Find f(2 + ), f(x + ), and f(x + ) f(x) were 0 and f(x) = x x 2. Example Find te domain and sketc te grap of te function
More information2.17 Tax Expenditures. Introduction. Scope and Objectives
Introduction Programs offered by te Province are normally outlined in te Estimates and approved by te Members of te House of Assembly as part of te annual budgetary approval process. However, te Province
More informationNew York Cash Exchange: 2016 Essential Learning for CTP Candidates Session #8: Thursday Afternoon (6/02)
New York Cash Exchange: 2016 Essential Learning for CTP Candidates Session #8: Thursday Afternoon (6/02) ETM4-Chapter 13: Cash Forecasting ETM4-Chapter 15: Operational Risk Management ETM4-Chapter 16:
More informationComplex Survey Sample Design in IRS' Multi-objective Taxpayer Compliance Burden Studies
Complex Survey Sample Design in IRS' Multi-objective Taxpayer Compliance Burden Studies Jon Guyton Wei Liu Micael Sebastiani Internal Revenue Service, Office of Researc, Analysis & Statistics 1111 Constitution
More informationEssential Learning for CTP Candidates NY Cash Exchange 2018 Session #CTP-08
NY Cash Exchange 2018: CTP Track Cash Forecasting & Risk Management Session #8 (Thur. 4:00 5:00 pm) ETM5-Chapter 14: Cash Flow Forecasting ETM5-Chapter 16: Enterprise Risk Management ETM5-Chapter 17: Financial
More informationHedging Segregated Fund Guarantees
Hedging Segregated Fund Guarantees Heat A. Windcliff Dept. of Computer Science University of Waterloo, Waterloo ON, Canada N2L 3G1. awindcliff@elora.mat.uwaterloo.ca Peter A. Forsyt Dept. of Computer Science
More informationTaxes and Entry Mode Decision in Multinationals: Export and FDI with and without Decentralization
Taxes and Entry Mode Decision in Multinationals: Export and FDI wit and witout Decentralization Yosimasa Komoriya y Cuo University Søren Bo Nielsen z Copenagen Business Scool Pascalis Raimondos z Copenagen
More information3.1 THE 2 2 EXCHANGE ECONOMY
Essential Microeconomics -1-3.1 THE 2 2 EXCHANGE ECONOMY Private goods economy 2 Pareto efficient allocations 3 Edgewort box analysis 6 Market clearing prices and Walras Law 14 Walrasian Equilibrium 16
More informationA N N U A L R E P O R T 225 North 13th Avenue Post Office Box 988 Laurel, Mississippi
COMPANY PROFILE Sanderson Farms, Inc. is engaged in te production, processing, marketing and distribution of fres and frozen cicken and oter prepared food items. Te Company sells its cicken products primarily
More informationLabor Market Flexibility and Growth.
Labor Market Flexibility and Growt. Enisse Karroubi July 006. Abstract Tis paper studies weter exibility on te labor market contributes to output growt. Under te assumption tat rms and workers face imperfect
More informationIntroduction to Algorithms / Algorithms I Lecturer: Michael Dinitz Topic: Splay Trees Date: 9/27/16
600.463 Introduction to lgoritms / lgoritms I Lecturer: Micael initz Topic: Splay Trees ate: 9/27/16 8.1 Introduction Today we re going to talk even more about binary searc trees. -trees, red-black trees,
More informationRelaxing Standard Hedging Assumptions in the Presence of Downside Risk
Relaxing Standard Hedging Assumptions in te Presence of Downside Risk Fabio Mattos Pilip Garcia Carl Nelson * Paper presented at te NCR-134 Conference on Applied Commodity Price Analysis, Forecasting,
More informationTypes of Exposure. Forward Market Hedge. Transaction Exposure. Forward Market Hedge. Forward Market Hedge: an Example INTERNATIONAL FINANCE.
Types of Exposure INTERNATIONAL FINANCE Chapter 8 Transaction exposure sensitivity of realized domestic currency values of the firm s contractual cash flows denominated in foreign currencies to unexpected
More informationChapter 8. Introduction to Endogenous Policy Theory. In this chapter we begin our development of endogenous policy theory: the explicit
Capter 8 Introduction to Endogenous Policy Teory In tis capter we begin our development of endogenous policy teory: te explicit incorporation of a model of politics in a model of te economy, permitting
More informationThe Redistributive Effects of Quantitative Easing
Te Redistributive Effects of Quantitative Easing Developing an illustrative model of te key mecanisms of Quantitative Easing By Mark van der Plaat * Abstract: Since te Financial crisis of 2007-8, multiple
More informationCan more education be bad? Some simple analytics on financing better education for development
55 an more education be bad? ome simple analytics on financing better education for development Rossana atrón University of Uruguay rossana@decon.edu.uy Investigaciones de Economía de la Educación 5 1091
More informationEfficient Replication of Factor Returns
www.mscibarra.com Efficient Replication of Factor Returns To appear in te Journal of Portfolio Management June 009 Dimitris Melas Ragu Suryanarayanan Stefano Cavaglia 009 MSCI Barra. All rigts reserved.
More informationEarnings Update Guaranty Trust Bank PLC: Q Results
Earnings Update Forging aead in te face of eadwinds Guaranty Trust Bank Plc ( Guaranty ) posted an above-consensus earnings performance in its 9M results released Wednesday sowing strong growt in Gross
More informationECON 200 EXERCISES (1,1) (d) Use your answer to show that (b) is not the equilibrium price vector if. that must be satisfied?
ECON 00 EXERCISES 4 EXCHNGE ECONOMY 4 Equilibrium in an ecange economy Tere are two consumers and wit te same utility function U ( ) ln H {, } Te aggregate endowment is tat prices sum to Tat is ( p, p)
More informationCurrency Futures or FX Futures Introduction and Pricing Guide
s or FX Futures Introduction and Pricing Guide Michael Taylor FinPricing A currency future or an FX future is a future contract between two parties to exchange one currency for another at a fixed exchange
More informationLabor Market Flexibility and Growth.
Labor Market Flexibility and Growt. Enisse Karroubi May 9, 006. Abstract Tis paper studies weter exibility on te labor market contributes to output growt. First I document two stylized facts concerning
More informationFinancial Management in IB. Foreign Exchange Exposure
Financial Management in IB Foreign Exchange Exposure 1 Exchange Rate Risk Exchange rate risk can be defined as the risk that a company s performance will be negatively affected by exchange rate movements.
More informationDelocation and Trade Agreements in Imperfectly Competitive Markets (Preliminary)
Delocation and Trade Agreements in Imperfectly Competitive Markets (Preliminary) Kyle Bagwell Stanford and NBER Robert W. Staiger Stanford and NBER June 20, 2009 Abstract We consider te purpose and design
More informationNominal Exchange Rates and Net Foreign Assets Dynamics: the Stabilization Role of Valuation Effects
MPRA Munic Personal RePEc Arcive Nominal Excange Rates and Net Foreign Assets Dynamics: te Stabilization Role of Valuation Effects Sara Eugeni Duram University Business Scool April 2015 Online at ttps://mpra.ub.uni-muencen.de/63549/
More informationCopyright 2009 Pearson Education Canada
CHAPTER NINE Qualitative Questions 1. What is the difference between a call option and a put option? For an option buyer, a call option is the right to buy, while a put option is the right to sell. For
More informationChapter 8. Swaps. Copyright 2009 Pearson Prentice Hall. All rights reserved.
Chapter 8 Swaps Introduction to Swaps A swap is a contract calling for an exchange of payments, on one or more dates, determined by the difference in two prices A swap provides a means to hedge a stream
More informationSouth Korea s Trade Intensity With ASEAN Countries and Its Changes Over Time*
International Review of Business Researc Papers Vol. 8. No.4. May 2012. Pp. 63 79 Sout Korea s Trade Intensity Wit ASEAN Countries and Its Canges Over Time* Seung Jin Kim** Tis paper analyzes ow Korea
More informationINTERNATIONAL REAL ESTATE REVIEW 1999 Vol. 2 No 1: pp
0 Lin and Lin NTERNATONAL REAL ESTATE REVEW 999 Vol. No : pp. 0-5 An Estimation of Elasticities of onsumption Demand and nvestment Demand for Owner- Occupied Housing in Taiwan : A Two-Period Model u-ia
More informationCurrency Swap or FX Swapd Difinition and Pricing Guide
or FX Swapd Difinition and Pricing Guide Michael Taylor FinPricing An FX swap or currency swap agreement is a contract in which both parties agree to exchange one currency for another currency at a spot
More informationMarket shares and multinationals investment: a microeconomic foundation for FDI gravity equations
Market sares and multinationals investment: a microeconomic foundation for FDI gravity equations Gaetano Alfredo Minerva November 22, 2006 Abstract In tis paper I explore te implications of te teoretical
More informationJournal Of Financial And Strategic Decisions Volume 10 Number 2 Summer 1997 EXECUTIVE STOCK OPTIONS: RISK AND INCENTIVES
Journal Of Financial And Strategic Decisions Volume 10 Number 2 Summer 1997 EXECUTVE STOCK OPTONS: RSK AND NCENTVES Socorro M. Quintero *, Leslie Young ** and Micael Baur *** Abstract We perform comparative
More informationa) Give an example of a case when an (s,s) policy is not the same as an (R,Q) policy. (2p)
roblem a) Give an example of a case wen an (s,s) policy is not te same as an (R,) policy. (p) b) Consider exponential smooting wit te smooting constant α and moving average over N periods. Ten, tese two
More informationTHE ROLE OF GOVERNMENT IN THE CREDIT MARKET. Benjamin Eden. Working Paper No. 09-W07. September 2009
THE ROLE OF GOVERNMENT IN THE CREDIT MARKET by Benjamin Eden Working Paper No. 09-W07 September 2009 DEPARTMENT OF ECONOMICS VANDERBILT UNIVERSITY NASHVILLE, TN 37235 www.vanderbilt.edu/econ THE ROLE OF
More informationGuidance regarding the completion of the Market Risk prudential reporting module for deposit-taking branches Issued May 2008
Guidance regarding the completion of the Market Risk prudential reporting module for deposit-taking branches Issued May 2008 Branch Market Risk Reporting Guide May 2008 1 Glossary The following abbreviations
More informationProblem Solving Day: Geometry, movement, and Free-fall. Test schedule SOH CAH TOA! For right triangles. Last year s equation sheet included with exam.
Problem Solving Day: Geometry, movement, and Free-fall. Test scedule First mid-term in 2 weeks! 7-10PM; Feb 8, Eiesland Hall. Review and practice a little eac day!!! EMAIL ME THIS WEEK if you ave class
More informationOperating Exposure. Operating & Financing Cash Flows. Expected Versus Unexpected Changes in Cash Flows. Operating & Financing Cash Flows
Chapter 9 Prepared by Shafiq Jadallah To Accompany Fundamentals of Multinational Finance Michael H. Moffett, Arthur I. Stonehill, David K. Eiteman Copyright 2003 Pearson Education, Inc. Slide 9-1 Chapter
More informationTypes of Foreign Exchange Exposure. Foreign Exchange Exposure
Foreign Exchange Exposure Foreign exchange exposure is a measure of the potential for a firm s profitability, net cash flow, and market value to change because of a change in exchange rates. An important
More informationForeign Exchange Exposure
Foreign Exchange Exposure Foreign exchange exposure is a measure of the potential for a firm s profitability, net cash flow, and market value to change because of a change in exchange rates. An important
More informationExam 2 Sample Questions FINAN430 International Finance McBrayer Spring 2018
Sample Multiple Choice Questions 1. Suppose you observe a spot exchange rate of $1.0500/. If interest rates are 5% APR in the U.S. and 3% APR in the euro zone, what is the no-arbitrage 1-year forward rate?
More informationCh. 9 Transaction Exposure. FX Exposure. FX Exposure
Ch. 9 Transaction Exposure Topics Foreign Exchange Exposure Transaction Exposure Techniques to Eliminate Transaction Exposure Limitations of Hedging FX Exposure Foreign Exchange Exposure: Measure of the
More informationWho gets the urban surplus?
8/11/17 Wo gets te urban surplus? Paul Collier Antony J. Venables, University of Oxford and International Growt Centre Abstract Hig productivity in cities creates an economic surplus relative to oter areas.
More informationDown or Out: Assessing the Welfare Costs of Household Investment Mistakes
Down or Out: Assessing te Welfare Costs of Houseold Investment Mistakes Laurent Calvet, Jon Y. Campbell and Paolo Sodini April 2007 - Madrid Down or Out Welfare cost of underdiversification nonparticipation
More informationClimate Change and Flood Risk. Tim Reeder Regional Climate Change Programme Manager
Climate Cange and Flood Risk Tim Reeder Regional Climate Cange Programme Manager Structure of talk Callenges of flood risk management in London & climate cange issues Te TE 2100 Project - Climate Cange
More informationChapter 8 Outline. Transaction exposure Should the Firm Hedge? Contractual hedge Risk Management in practice
Chapter 8 Outline Transaction exposure Should the Firm Hedge? Contractual hedge Risk Management in practice 1 / 51 Transaction exposure Transaction exposure measures gains or losses that arise from the
More informationTrade Complementarity Between South Korea And Her Major Trading Countries: Its Changes Over The Period Of *
World Review of Business Researc Vol. 3. No. 2. Marc 2013 Issue. Pp. 64 83 Trade Complementarity Between Sout Korea And Her Major Trading Countries: Its Canges Over Te Period Of 2005-2009* Seung Jin Kim**
More informationThe Leveraging of Silicon Valley
Te Leveraging of Silicon Valley Jesse Davis, Adair Morse, Xinxin Wang Marc 2018 Abstract Venture debt is now observed in 28-40% of venture financings. We model and document ow tis early-stage leveraging
More informationStochastic Dominance of Portfolio Insurance Strategies
Annals of Operations Researc manuscript No. (will be inserted by te editor) Stocastic Dominance of Portfolio Insurance Strategies OBPI versus CPPI Rudi Zagst, Julia Kraus 2 HVB-Institute for Matematical
More information1 The Structure of the Market
The Foreign Exchange Market 1 The Structure of the Market The foreign exchange market is an example of a speculative auction market that trades the money of various countries continuously around the world.
More informationEcon 551 Government Finance: Revenues Winter, 2018
Econ 551 Government Finance: Revenues Winter, 2018 Given by Kevin Milligan Vancouver Scool of Economics University of Britis Columbia Lecture 4b: Optimal Commodity Taxation, Part II ECON 551: Lecture 4b
More informationInterest Rate Futures and Valuation
s and Valuation Dmitry Popov FinPricing http://www.finpricing.com Summary Interest Rate Future Definition Advantages of trading interest rate futures Valuation A real world example Interest Rate Future
More informationThe Long (and Short) on Taxation and Expenditure Policies
Zsolt Becsi Economist Te Long (and Sort) on Taxation and Expenditure Policies O ne of te central issues in te 1992 presidential campaign was ow best to promote economic growt Because muc of te growt debate
More informationLeading Brands and a Commitment to Sustainability
2012 INTEGRATED REPORT We combine Leading Brands and a Commitment to Sustainability to produce Good Food. Responsibly. OUR OPERATIONS Troug independent operating companies and joint ventures, as well as
More informationSession 13. Exchange Rate Risk
Session 13 Exchange Rate Risk Programme : Executive Diploma in Accounting, Business & Strategy (EDABS 2017) Course : Corporate Financial Management (EDABS 202) Lecturer : Mr. Asanka Ranasinghe MBA (Colombo),
More informationPrice Level Volatility: A Simple Model of Money Taxes and Sunspots*
journal of economic teory 81, 401430 (1998) article no. ET972362 Price Level Volatility: A Simple Model of Money Taxes and Sunspots* Joydeep Battacarya Department of Economics, Fronczak Hall, SUNY-Buffalo,
More informationSupplemantary material to: Leverage causes fat tails and clustered volatility
Supplemantary material to: Leverage causes fat tails and clustered volatility Stefan Turner a,b J. Doyne Farmer b,c Jon Geanakoplos d,b a Complex Systems Researc Group, Medical University of Vienna, Wäringer
More informationLifetime Aggregate Labor Supply with Endogenous Workweek Length*
Federal Reserve Bank of Minneapolis Researc Department Staff Report 400 November 007 Lifetime Aggregate Labor Supply wit Endogenous Workweek Lengt* Edward C. Prescott Federal Reserve Bank of Minneapolis
More informationFinancial Constraints and Product Market Competition: Ex-ante vs. Ex-post Incentives
University of Rocester From te SelectedWorks of Micael Rait 2004 Financial Constraints and Product Market Competition: Ex-ante vs. Ex-post Incentives Micael Rait, University of Rocester Paul Povel, University
More informationProduction, safety, exchange, and risk. Kjell Hausken
Production, safety, excange, and risk Kjell Hausken Abstract: Two agents convert resources into safety investment and production wile excanging goods voluntarily. Safety investment ensures reduction of
More informationComparative analysis of two microfinance institutions targeting women : The NGO WAGES 1 in Togo and the NGO FDEA 2 in Senegal
YF / IRAM 8.12.2000 Comparative analysis of two microfinance institutions targeting women : Te NGO WAGES 1 in Togo and te NGO FDEA 2 in Senegal 1 INTRODUCTION TO THE TWO INSTITUTIONS. 11 Commonalities
More informationLiquidity Shocks and Optimal Monetary and Exchange Rate Policies in a Small Open Economy?
TBA manuscript No. (will be inserted by te editor) Liquidity Socks and Optimal Monetary and Excange Rate Policies in a Small Open Economy? Joydeep Battacarya, Rajes Sing 2 Iowa State University; e-mail:
More informationOperating Exposure. Eiteman et al., Chapter 9. Winter 2004
Operating Exposure Eiteman et al., Chapter 9 Winter 2004 Operating Exposure Operating exposure measures any change in the present value of a firm resulting from changes in future operating cash flows caused
More informationOperating Exposure. Eiteman et al., Chapter 9. Operating Exposure. Winter 2004
Operating Exposure Eiteman et al., Chapter 9 Winter 2004 Operating Exposure Operating exposure measures any change in the present value of a firm resulting from changes in future operating cash flows caused
More informationDetermining Exchange Rates. Determining Exchange Rates
Determining Exchange Rates Determining Exchange Rates Chapter Objectives To explain how exchange rate movements are measured; To explain how the equilibrium exchange rate is determined; and To examine
More informationSWAPS 2. Decomposition & Combination. Currency Swaps
SWAPS 2 Decomposition & Combination Currency Swaps Also called Cross currency swaps (XCCY). The legs of the swap are denominated in different currencies. Currency swaps change the profile of cash flows.
More informationEuropean Accounting Review, 17 (3):
Provided by te autor(s) and University College Dublin Library in accordance wit publiser policies. Please cite te publised version wen available. Title A Comparison of Error Rates for EVA, Residual Income,
More informationBest Practices for Foreign Exchange Risk Management in Volatile and Uncertain Times
erspective P Insights for America s Business Leaders Best Practices for Foreign Exchange Risk Management in Volatile and Uncertain Times Framing the Challenge The appeal of international trade among U.S.
More informationFacility Sustainment and Firm Value: A Case Study Based on Target Corporation
Facility Sustainment and Firm Value: A Case Study Based on Target Corporation Autor Robert Beac Abstract Tis paper argues tat increasing te level of facility sustainment (maintenance and repair) funding
More informationCAMBRIDGE PUBLIC SCHOOLS FAMILY AND MEDICAL LEAVE, PARENTAL LEAVE AND SMALL NECESSITIES LEAVE POLICY
CAMBRIDGE PUBLIC SCHOOLS FAMILY AND MEDICAL LEAVE, PARENTAL LEAVE AND SMALL NECESSITIES LEAVE POLICY File: GCCAG Tis policy covers employee eligibility for leave under te related Family Medical Leave Act
More informationApplying Alternative Variance Estimation Methods for Totals Under Raking in SOI s Corporate Sample
Applying Alternative Variance Estimation Metods for Totals Under Raking in SOI s Corporate Sample Kimberly Henry 1, Valerie Testa 1, and Ricard Valliant 2 1 Statistics of Income, P.O. Box 2608, Wasngton
More informationDATABASE-ASSISTED spectrum sharing is a promising
1 Optimal Pricing and Admission Control for Heterogeneous Secondary Users Cangkun Jiang, Student Member, IEEE, Lingjie Duan, Member, IEEE, and Jianwei Huang, Fellow, IEEE Abstract Tis paper studies ow
More informationThe Collar Strategy. Also known as a hedge wrap. Involves a combination of two strategies: Covered call Protective put
The Collar Strategy The Collar Strategy Also known as a hedge wrap. Involves a combination of two strategies: Covered call Protective put The Collar Strategy Ownership of the underlying security Sale of
More information