Metallgesellschaft-07

Metallgesellschaft-07 - $ $&"""#$ What...

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Unformatted text preview: ! # $% ! # $% & " " '( )* + + ! ! " #$ What happened if oil prices fall? (in late 1993) What Cause funding problems for MGRM Cancel its long-term contracts with its customers Terminate its hedging program Cause about $1.3 billion loss , 1 ! # $% ! # $% )* - ( " " . + ! & / ' ! "/ " + ! 1 % + ! '( & + * '" (2 2 ' ! % " ' 2 ) 3 4 4 0 ! # $% " MGRM’s contract price reflected a premium of $3 to $5 per barrel MGRM Oil prices : the firm could suffer massive losses the 5 2 ! # $% 1 ++ ' 7 <! 00 , 89 :; ' "> - +. / / ' " ? )* + & " " ! = / + ! 6 ! # $% ( * " 1 +" =" )* : & ' A == === ' ! " '" " === === ' < !" B @ ! # $% ( * " 1 + )* ! ++ == === ' !/ *! ( +. +2 "2' ' ! / 0 111 11 3 4 & / 5 C 3 ! # $% 1/ ++ " 'B ! D < " < ! " E" E/ ! D 2 4 ! " ! "B ++ 6 & / 2 < "> ! ( / '2( ? = ! # $% Cost of Carry Convenience yield ¡ ¡ ¡ ¡ ¡ ¡ ¡ Forward Price =Spot price Forward =Spot " If Cost of Carry Convenience yield Cost Contango Market : F > S Contango ¢ ¢ ¢ ¢ ¢ ¢ ¢ If Cost of Carry Convenience yield If Backwardation Market : F < S £ £ £ £ £ £ £ A stack-and-roll strategy appeared to offer a means of avoiding carrying costs because short-dated futures markets for oil product historically have tended to exhibit backwardation. ! # $% " &F ++ ! E 0 === / ,= === !&& + 7! G "! )* - 00 === ! C= & < + A " +$ 4 ! # $% A +8 ++9 - ' " B ! ! ! , ! # $% ! # $% A / " " / ++! +4 6 5. 5 + " 0: :0 ! & 7 ! ( 22 ( . + ! && ! ' 6 ++ '( ) ; + 0 5 ! # $% . +$ + < + '( + 0: ' > " ? .) / ! 5 ! # $% D +- !& . + " ( ; 4 " = 0? 0> 6 ! # $% F " !. [email protected] ++ ; @ 6 ! # $% F " / C ! # $% " =2" / + + + + + 8 $ 9 4 !" A: 0 A> 0 0 B ! 0 111 1 0 /0 1 A> 0 A? 0 = ! # $% D A " 2 E (/ . B 7 ! # $% ! # $% D A " " 2F . B F E (/ + 0 AC , / :4 D . , AD , 0 + , ! # $% A " " 8 ! # $% A " " 0 ! # $% 1 / * 7* E (/ I ( . I J= 0 C 0 C 0 > 0 >, C: 0 >, C? J 0 : 0 >E >> J, H I, 0 :, E: J " 0 :, E> , 1 5 ! # $% 1 F ( H . / 7 > =2 ? / * 7* E (/ " E >2 >K? 2 ?4 F 8F >J7IE? ) F > =2 6?4 === 8 : F > 22 >K? F 2 ?4 " 8 >J I:? J , 111 ? 111 F 111 ? 111 1 ? 111 J 0 111 ,0 ,E ?0 ,E ? 111 ,E 0 ?0 ,E J, 1 00 0D 00 0D ? 111 0D 0 ?0 0D ,=== 5,,= C,,= C=== ,,= C,,= 6 9 ! # $% 1 / 7* E (/ I . " H I I, J= 0 C 0 C J 0 > 0 >, C: 0 >, C? J 0 : 0 >E >> J, 0 :, E> 0 :, E: , 1 @ ! # $% 1 F / 7* E (/ . " H / 7 E > =2 ? F 8F >J7IE? : ) 8 F F " 8 F >J I:? > =2 6?4 === J , 111 ,1 CF D1 CF ? 111 0 1 ?1 10 J 0 111 ,E 0, ?E 0, ? 111 0 1 ?1 10 J, 1 00 0D 00 0D ? 111 C ? 11C ,=== 5= 5 C= 5 C=== 5 C= 5 C ! # $% 1 I / E F I J= 0 C 0 C 0 :, E: J 0 E 0 1: EE 0 F I, 0 1: F1 J, ( H . 0 0, E? J * " 0 :, E> 0 D ,= 10 ! # $% 1 / * . E F E >2 >K? 2 ?4 F 8F >J7IE? ) 8 F > =2 6?4 === : F > 22 >K? F " 8 >J I:? 2 ?4 ? 111 D 111 J ( HF / 7 > =2 ? " 0 111 ? 111 1 ? 111 J F 111 ,: 0, , 1> > ? 111 0, : , 1> > J, E 111 01 1: D0 :1 ? 111 : 1 ,0 :1 0=== >5 @ ? @6 @ C=== >@ ? @6 @ , ! # $% 1 " / E I . HF I J= 0 C 0 C 0 E 0 1: EE 0 0, E? J 0 F 0 1: F1 J, 0 :, E> 0 :, E: J I, 0 D , ! # $% 1 / E F 7 " . HF / E > =2 ? F 8F >J7IE? : ) 8 F F F " 8 >J I:? > =2 6?4 === J D 111 ,1 CF 0F ,1 ? 111 0 1 ?1 10 J F 111 ,? 0? ,E >C ? 111 0 1 ?1 10 J, E 111 01 1: D0 :1 ? 111 C ? 11C ,=== >0C6C? C= 5 C=== 5 C= 5 ,, 11 ! # $% * 8 F / * . E (/ H . HF * " (! ( C,,= C= 5 @6 @ C= 5 , ! # $% " Defense of MGRM’s Hedging Defense Hedging Program Program Consider losses from MGRM’s hedging program to be sunk costs. Culp & Miller find out the program had a net profit had it been continued by April 1995. They find that the program had a positive expected net present value at the end of 1993. The Deutsche Bank was not only a creditor to MG but also one of its largest shareholders, therefore it should have been willing to continue financing MGRM’s hedge program. ,0 12 ...
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