Risk derivatives corrections azad

Risk derivatives corrections azad - Bank ABC Company XYZ...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Profit 2800 2700 2600 2500 50 Loss Bank ABC Company XYZ Company $10% £9.35%% $6.35% £8.5% Assessment question 1: a) Critically evaluate the roles played by hedgers and speculators in the derivative applications. Can you add the recommended reading references shown bellow and remove some of the old ones I have incorporated them in the referencing list and aswell as in text to (technically). However, it would not be very profitable or worthy if you delete few of the old ones because the theories have developed from the writings. So, if you could adjust with it, might be helpful for you to sustain the quality of the report Business is as always full of uncertainty (Smith & Stulz, 1985). Derivatives is the form of financial intermediaries which one way or another manipulate the performance of firm. Hedging and speculation is the biggest examples. Hedging is the financial decision made the firm to adjust business uncertainty to restore firm’s value (Mian, 1996). In contrast, Speculation is a term well known for those investors who love to take risk for their improvement in profitability (Irwin, Sanders, & Merrin, 2009). It denotes the performance and purchase of asset, debt, currency in advance having no adjustment facilities. As highlighted by (Irwin, Sanders, & Merrin, 2009) (Smith & Stulz, 1985) and (Graham & Dodd, 1951) derivatives (Hedge and Speculation) can be the useful way to handle the following actions; Can you add more roles of both parities including their actions when dealing with the derivatives products Thanks for the suggestion. However, I must appreciate if you could offer me any farther role for any of the parties as I have tried to incorporate the most recent theoretical developments of the theories to make your report looks updated. Please let me know if you have any! Market Sustainability: Market always combines shortage and over supply of different commodities. Speculators help to purchase future goods in assumption of having profit by quoting higher or lower price successively. For example, if this time farmers expect to have less production in compare to consumption. Speculators will concentrate for having profit and will hick the price and in result with low production it can sustain for longer period and vies versa. Liquidity: Speculators, by nature assume risk for further profit and invest in market which in return assures market liquidity and efficiency. Not only this, speculators help to reduce the spread as it increased the competition in market. Performance of speculator helps market for the movement of fund and commodity more efficiently.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Risk Matter: Hedger can only perform better with the help of speculators (Graham & Dodd, 1951, p 98). Hedgers reduce their risk with the help of risk takers-speculators. Speculators adjust the risk in market and maintain the economic growth creating bubbles and recession. Risk Adjustment:
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/21/2011 for the course BUSINESS AAF001-1 taught by Professor Dr.tony during the Spring '11 term at University of Bedfordshire.

Page1 / 11

Risk derivatives corrections azad - Bank ABC Company XYZ...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online