FI.Chapter23 - .f $ 9:r Jt:tH y4/1 C*s'iv*ti"g*s*r:d ffitsk ffia:agerarec'lt,t'lj^n,1 Ju-l,r l-hp5e\n,sl ombardicr Inc a nantfacturer

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$ 9.:r * y4/1' ;:tH. ( ,.f "{ Jt, , -/# C **s'iv*ti"g*s *r:d ffitsk ffia::agerarec'lt ombardicr Inc., a nantfacturer of sno$'nlobiles in Montrcal, has alrvays tricd to cortrol risks. However, its snort:rrobile (tivision's profits depend on a risk ttrat is notoriously hard to colrtrol: thc wcather. Etrrly sigDs of .r cold, snowy rvinLcr. leacl to a brisk sellont, (,hcroas r!'ar !,r tempcraturcs force Bombardier tu c t pfices to shcLi erccss inventory BoDrbardier can't change the weather but it docs its best to nanagc its rveather relar('d risks. ior exlnple, one wnlter thc compn|y offcrocl to pav .i $1,000 rcbate b snorlmobilL' buyers in l6 Mid\,vestcrn cities if the arcir snowfall that wintcr trilrlc(t out to be less than ^n,-l,.rlf rl.F ,\erdce n.\itrll o\Lr the pre\i- or.'s 3 vcars. Not surprisingly, the rebate led to I;h. r .,'1. .. U,,nrb"rJier tl,pn r,\,k ,,r irnF,r tant stcp to lnnit its risks-it bought "snowfntl of,,,rF' ror,.'fh.n,,wurob . .,,l,J. Borrbrr dier paid an optior writcr betrvcen S45 and 5400, depending onthecity nr ('hich the snos,- mobile ivas purchased. In retlrrn, the option 'ritcr fully reimbursed tlombarLti('f cach inn(r it hnLl io pavir ftsbmcr the 51,000 rebaie. l-hp5e \n,,sl.' ,,t'lj^n.,),1 Ju-l ,,r( ' \,rnrple of *errher J, r \','ri\1,. " .r. ... bui rapidlv growing market. The Chic|go Mercantilc Exchange (CME) no{' tridcs a hrge nunbcr of lveaiher bnsed futlrfcs d ),1 oplron{ corlr.r, r.. s.,n', ot th,*< coDlracts are based on thc avcrage montlrh, ielnperatl're, some on snolvfall, and soN€ ur rl ' rrrrL,, r ut tr,,.r di). . rort. ,,. . dr. .'\drldbl, L.' ll( $eill.er ill " \"n( . ,'f U s .'r,J irrrer.r. .,'nal .rtre-, tr.,1, D.., \4urne- r,' Brfli .,, Lily,, \ol -ur- prj.inBl! nr.rr,\ pdrlrcrf.rnt-.,r| I,.,r .,,Ii R.r- .rl lilL, \hu-e . .,rIl rq: .lepcn.i ,,f Weaiher delivativcs rcprescnt just one of In.'rv ,rpnro.,,l'"s , !,'np.,r,(\ ,.rn u\r ro .orrr, lr J. {- \orr re. .,l rhi-,h.rp, rj ro . r\\\ ( ' thuLL. .luc. iorl' wlr) .h.,utd .,,"rn pany try to nrnnage its risks? What ainancr.rl techriques can bc uscd to mannge risk? Cin programs desiSned t() l;nit risks actuallv ir.r. .r.c rl,.m. "rd il 50 \h.,1 . .rfce.r.,ftl. .h"rld LUn,p.rni.- prt in fl.,c, t,, pr. .v. .rl this uniniended conscquence? sou'.cr Marl Co den ond Ed s' are, "weorher Der vdrives are Be.oming. pop! or Hedge,, rhe vt.lt sheet
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Reosons lo Mdnoge Rkk 8t9 In this chapter, we discuss risk managemeni, a topic oI increasint importance to Iinancial managers. The terlJ. risk nanagemenl can mean many thints, but in busi- n€ss ii involves identilying events thai could have adve$e financial consequences and then taking actions io prevent and/or mini]Ilize the damage caused by ihese events. Years a8o/ corporate dsk managers dealt prima ly with insuranc€-they nade sure the firm was adequately insured against fire, iheft, and other casual iies, and that it had adequate liability coverage. Morc recently, the scope of dsk
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This note was uploaded on 06/08/2009 for the course FI 601-602 FI601-602 taught by Professor Prof.geary during the Spring '09 term at New Haven.

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FI.Chapter23 - .f $ 9:r Jt:tH y4/1 C*s'iv*ti"g*s*r:d ffitsk ffia:agerarec'lt,t'lj^n,1 Ju-l,r l-hp5e\n,sl ombardicr Inc a nantfacturer

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