Although options are not a source of financing to the

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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.

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