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Unformatted text preview: estrictive covenants in the bond or debt agreement. Although options are
not a source of financing to the firm, the presence of this derivative security can help stabilize the firm’s share price. Currency options can be used to hedge, or protect against,
adverse currency movements in international transactions. CHAPTER 16 Hybrid and Derivative Securities 699 Clearly, the financial manager should use hybrid and derivative securities to increase
return (often by lowering financing costs) and reduce risk. By taking only those actions
believed to result in attractive risk–return tradeoffs can the financial manager positively
contribute to the firm’s goal of maximizing the stock price. REVIEW OF LEARNING GOALS
Differentiate between hybrid and derivative securities and their roles in the corporation. Hybrid securities are forms of debt or equity financing
that possess characteristics of both debt and equity
financing. Popular hybrid securities include preferred
stock, financial leases, convertible securities, and
stock purchase warrants. Derivative securities are
neither debt nor equity and derive their value f...
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This document was uploaded on 01/19/2014.
- Fall '13