Analysing the various financial risks to companies - Free Essay Example

Sample details Pages: 9 Words: 2832 Downloads: 1 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? Derivatives It is a kind of financial Security whose price is derived from or dependent upon one or more underlying assets.  The derivative itself is simply a contract between two or more parties. Its  value is determined  by variations  in the underlying asset.  Some common underlying assets include  stocks, bonds,  commodities,  currencies and interest rates. Derivatives are mostly characterized by high leverage.  Forward contracts, Future contracts, swaps and options  are the most common types of derivatives. Derivatives are generally used as a mechanism to hedge  risk, but can also be used for  speculative purposes. For example, an American investor buying shares of a European company  of a European exchange (using Euros to do so) would be exposed to exchange-rate risk while holding that stock. To hedge this risk, the investor could buy currency futures to lock in a specified exchange rate for  the future stock sale and currency conversion back into US Dollars. Don’t waste time! Our writers will create an original "Analysing the various financial risks to companies" essay for you Create order Hedging is the process of taking a short-term position in the futures market that is equal to, yet opposite, ones position in the cash market in order to prevent that cash position against loss due to adverse price fluctuations. This form of risk management can be achieved through various types of futures and options contracts traded on a several exchanges, and are usually used by corporations, money managers the ability to hedge means that industry can decide on the amount of risk it is prepared to accept. It may wish to eliminate the risk entirely and can generally do so quickly and easily using the Mismanaging price risk means achieving greater control of either the cost of inputs, or revenues from sales, or both; planning for the future based on assured costs and revenues; and eliminating concerns that a sharply adverse move in a metals price could turn an otherwise flourishing and efficient business into a loss maker. Hedging is the opposite of speculation and is basically under taken in order to reduce an existing physical price risk, by taking a compensating position in the futures market. Speculators come to the futures market with no initial risk. They assume risk by taking futures positions. Hedgers reduce or eliminate the chance of further losses or profits, while the speculators risk losses in order to make profits. Speculation Speculation  is an action that does not promise safety of the initial investment along with the return on the principal sum. Speculation typically involves the purchase of  equity or lending of money,  assets  or  debt  but in a way that has not been given thorough analysis or is thought to have low  margin of safety  or a significant risk of the loss of the principal investment. Speculators may rely on an asset appreciating in price because of number of factors that cannot be well enough understood by the speculator to make an investment-quality decision. Some such factors are shifting consumer tastes, buyers changing perceptions of the worth of a stock  security, fluctuating economic conditions, economic factors associated with  market timing, the factors associated with solely chart-based analysis, and the many influences over the short-term movement of securities. There are also some financial vehicles that can be classified as speculation. For example, trading  commodity futures contracts, such as for oil and gold, is, by definition, speculation. Short selling is also, by definition, speculative. Financial speculation can involve the  buying, selling, holding, and  short-selling  of  stocks, commodities,  bonds,  currencies,  collectibles,  real estate, derivatives, or any valuable  financial instrument  to profit from fluctuations in its price, irrespective of its underlying value. Arbitrage An  arbitrage  is a type of transaction or portfolio. Actually, the term is used in two different ways, so it refers to either of two very different types of transactions or portfolios. People also speak of arbitrage as an activity the activity of seeking out and implementing either of the two types of arbitrage transactions or portfolios. An  arbitrageur  is an individual or institution who engages in such arbitrage. An arbitrage is a portfolio or transaction that makes a profit without any  risk. For example if a  futures contract trades on two different exchanges. If, at one point in time, the contract is bid at  USD  45.02 on one exchange and offered at USD 45.00 on the other, a trader could buy the contract at one price and sell it at the other to make a risk-free profit of a USD 0.02. Such arbitrage opportunities reflect minor pricing differences between markets or related instruments. Profits per transaction tend to be small, and they can be consumed entirely by  transaction costs. Accordingly, most arbitrage is done by institutions that have very low transaction costs and can make up for small profit margins by doing a large volume of transactions. Option Strategies   Option strategy  is the buying and/or selling of one or range of  option positions and possibly an  underlying  position. Options strategies can support movements in the underlying that are bullish, bearish or neutral. In the case of neutral strategies, they can be further divided into those that are bullish on volatility and those that are bearish on volatility. The option positions taken can be  long  and/or short  positions in  calls  and/or  puts  at various strikes. Before you purchase or sell options you need a strategy, and before you choose an options strategy, you need to be aware of how you want options to work in your portfolio. A particular strategy is victorious only if it performs in a way that helps you meet your investment goals. If you expect to increase the income you receive from your stocks, for example, youll choose a diverse strategy from an investor who wants to lock in a purchase price for a stock shed like to own. One of the advantages of options is the flexibility they offer; they can complement portfolios in many different ways. So its worth taking the time to recognize a goal that suits you and your financial plan. Forwards A forward  is a non-standardized contract between two parties to purchase or sell an asset at a specified future time at a price agreed today.   It costs nothing to enter a forward contract. The party agreeing to purchase the underlying asset in the future assumes a  long position, and the party agreeing to sell the asset in the future assumes a  short position. The price which is agreed upon at the inception of the contract is called the  delivery price, which is equal to the  forward price  at the time the contract is entered into. The price pertaining to underlying instrument, in whatever form, is paid before control of the instrument changes. This is one of the many forms of purchase/sell orders where the time of trade is not the time where the  securities themselves are exchanged. Futures A standardized exchange-traded contract that requires delivery of a commodity, currency, bond or stock index, at a specified price, on a specified future date. Unlike options, futures require an obligation to buy. The risk to the holder is infinite, and because the pay off pattern is symmetrical, the risk to the seller is unlimited as well. Money lost and gained by each party are equal and opposite in a future contract. In other words, futures trading is a zero-sum game. Futures contracts are forward contracts, meaning they represent a promise to fulfill a certain transaction at a future date. The exchange of assets occurs on the date mentioned in the contract. Futures are different from generic forward contracts in that they contain standardized terms, trade on a formal exchange, are regulated by overseeing agencies, and are guaranteed by clearinghouses. In order to make sure that payment will occur, futures have a margin requirement that must be settled daily. Currency Risk Many Corporations use derivatives for hedging foreign-currency risk, or foreign-exchange risk, which is the risk that a change in currency exchange rates will  adversely impact business results.   Lets consider an example of foreign-currency risk with XYZ Corporation, a hypothetical U.S.-based company that sells widgets in Germany. During the year, XYZ Corp sells 100 widgets, each priced at 10 euros. Therefore, our constant assumption is that XYZ sells 1,000 euros worth of widgets:   When the dollar-per-euro exchange rate increases from $1.33 to $1.50 to $1.75, it takes more dollars to purchase one euro, or one euro translates into more dollars, meaning the dollar is weakening or depreciating. As the dollar weakens, the same number of widgets sold translates into greater sales in  dollar terms. This shows how a weakening dollar is not all bad: it can boost export sales of U.S. companies.    The above example shows the good news event that can occur when the dollar depreciates, but a bad news event happens if the dollar appreciates and export sales end up being less. In the above example, we made two very important simplifying assumptions that affect whether the dollar depreciation is a good or bad event:   (1) we assumed that XYZ Corp. manufactures its product in the U.S. and therefore its inventory or production costs is in  dollars. If instead XYZ manufactured its German widgets in Germany, production costs would be incurred in euros. So even if  dollar sales increase due to weakening of the dollar, production costs will go up too! This effect on both sales and costs is called a  natural hedge: the economics of the business provide their own hedge mechanism. In such a case, the higher export sales are likely to be mitigated by higher production costs.   (2)  Ãƒâ€šÃ‚   We also assumed that all other things are identical, and often they are not. For example, we ignored any secondary effects like whether XYZ can adjust its prices and effects of inflation. Most multinational corporations are faced with some form of foreign-currency risk even after natural hedges and secondary effects.   Now lets illustrate a simple hedge that a company like XYZ might use. To minimize the effects of any USD/EUR exchange rates, XYZ purchases 800 foreign-exchange futures contracts against the USD/EUR exchange rate. The gain in each futures contract has a value equal to above the $1.33 USD/EUR rate. (Only because XYZ took this side of the futures position, somebody   the counter-party will take the opposite position):   If the dollar were to depreciate instead, then the increased export sales are mitigated (partially offset) by losses on the futures contracts. Hedging Interest-Rate Risk   Companies can hedge  interest-rate risk  in various ways. Consider a company that wants to sell a division in one year and at that time to receive a cash windfall that it wants to park in a good risk-free investment. If the company believes that interest rates will drop between now and then, it could buy (take a long position on) a  Treasury  futures contract. The company is effectively locking in the future interest rate.  Here is an example of a perfect interest-rate hedge used by XYZ Corporation. The Company had two interest rate swaps outstanding at September 30, 2004,  designated as a hedge of the fair value of a portion of fixed-rate bond. The change in fair value of the swaps exactly offsets the change in fair value of the hedged debt, with no net impact on earnings.   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   XYZ is using an  interest rate swap. Before it entered into the swap,  the company was  paying a  floating interest rate  on some of  its bonds. For example, a common scenario would be to pay  LIBOR  plus something and to reset the rate every six months. We can illustrate these floating rate payments with a down-bar chart:  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   Now lets look at the impact of the swap, illustrated below. While receiving floating-rate payments the swap arrangement requires XYZ to pay fixed rate of interest. The received floating-rate payments as shown in the upper half of the chart below are used to pay the pre-existing floating-rate debt.   XYZ is then left only with the floating-rate debt, and has therefore managed to convert a variable-rate obligation into a fixed-rate obligation with the addition of a derivative. The variable-rate coupons that XYZ received exactly compensates for the companys variable-rate obligations. Commodity or Product Input Hedge   Companies that depend on raw-material inputs or commodities are sensitive, sometimes significantly, to the price change of the inputs. Airlines, for example, consume lots of jet fuel. In the past, most airlines have given a great deal of consideration to hedging against crude-oil price increases. For example XYZ ltd produces agricultural products, herbicides and biotech-related products.  It uses futures contracts to hedge against the price increase of olive and corn inventory. XYZ ltd uses futures contracts to prevent itself against commodity price increases; these contracts hedge the committed or future purchases of, and the carrying value of payables to growers for  olive and corn inventories. Pension funds Many pension funds are starting to like the idea of derivatives. As funds and their sponsors search for more effective ways to manage risk, they are realizing that derivatives can alter the nature of that risk in ways that are not possible in the cash markets. Pension funds are exposed to many risks, some of which they take actively while others they may be taking passively. Funds actively take equity and credit risk, for example, because they feel they are being adequately rewarded. Passive risks include movements in the present value of their liabilities due to changes in interest and inflation rates. Many funds do not believe they are being adequately compensated for these risks. The importance of derivatives is that they can be used to improve the return profile of their active risks, and to neutralize unwanted passive risks. These passive risks are usually created by a mismatch between a funds assets and its liabilities. A pension fund can use interest rate swaps, for example, to remove the risk that a change in interest rates will have an impact on its funding level. Or it can enter into an inflation-linked swap so that it is no longer exposed to changes in the experienced rate of inflation. The up-front costs of neutralizing these risks can be low. But as with any investment strategy, there is a downside as well as an upside. A pension fund that enters into an interest rate swap is no longer vulnerable to a fall in interest rates but neither will it benefit from a rise. Similarly, if a fund uses inflation swaps to protect itself against a rise in inflation it will no longer benefit from a fall. Another passive risk pension funds face is that of corporate sponsor default. An interesting possibility for some funds would be to neutralize this risk by buying protection for any funding deficit in the credit default swap (CDS) market. This strategy would entail paying an annual premium to counterparty, and receiving a pre-agreed sum of money that would cover the deficit if the sponsor defaulted. The size of the premium would depend on the credit quality of the sponsor. Hedge funds A  hedge fund  is not highly regulated  investment fund  that is typically open to a limited range of investors who pay a  performance fee  to the funds  investment manager. Every hedge fund has its own investment strategy that basically determines the type of investments it undertakes and these strategies are highly individual. As a class, hedge funds embark on a wider range of investment and trading activities than traditional  long-only investment funds, and invest in a broader range of assets including  long  and  short  positions in  shares,  bonds  and  commodities. Hedge funds often try to  hedge  some of the risks inherent in their investments using a variety of methods, notably  short selling  and  derivatives. Hedge funds dominate certain specialty markets such as distressed debt and trading within derivatives with high-yield ratings. Modern portfolio theory segregates the return on an investment portfolio into market related component multiplied by beta, a measure of volatility, and alpha, the specific return associated with portfolio that is independent of the market. Alpha measures a Hedge fund managers skill in creating excess return over the market benchmark. Alpha does involve leverage, but the risk can be mitigated with the cash freed up by the use of derivatives is invested in assets that have no correlation with the passive part of the alpha. A market neutral hedge fund, for example, should offer an Alpha return with no correlation to the stock market. Advantages of Hedge Fund Investing Mostly hedge funds bank on the prosperity of only one investment and are not overly diversified investments. Aggressive investment strategies such as short-selling or borrowing money to purchase more assets (leverage buying) can legally be utilized Extremely huge gains in the millions are the potential reward for investing in hedge funds Disadvantages of Hedge Fund Investing Hedge funds are extremely risky and huge sums of money can be lost in the blink of an eye The performance fee for the hedge fund manager may encourage them to take bigger risks with investors money which may result in large losses There are very few government regulations regulating hedge fund investments

Essay on The Dangers of Eating Disorders - 795 Words

The Dangers of Eating Disorders How a person perceives their body is influenced by what it looks like to them and what it looks like to others. Our society teaches us through media and social pressure that body image is important. Feeling attractive is an important part of self worth and for many, feeling attractive means matching a certain ideal appearance. Most of us will never be able to look like this ideal, but the message we get is that we risk social failure if we do not try hard enough. When we believe this message we may feel incompetent and depressed and have low self-esteem because we cant meet impossible standards of appearance. The two main types of eating disorders Anorexia Nervosa, and Bulimia Nervosa, also†¦show more content†¦Impulsive behavior and certain other psychological problems may be more common in people with binge eating disorder. Dietings effect on binge eating disorder is also unclear. 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Mis in Telecom Free Essays

These days each victorious organization has defined business processes and set of rules to ensure that the business related decisions adhere to the standards set by the organization. Management Information System (MIS) plays a significant role in successful definition, design, development and implementation of the company’s core business processes/systems; as they are supported by state of the art robust Computer Systems/Techniques to ensure NO Data Loss, Minimum Down Time and Maximum Mean Time Between Failures, which are key components for the continuity of the business over all. Moreover, MIS provides the support for strong Disaster Recovery methodologies so that the business remains operative in case of different types of disaster situations. We will write a custom essay sample on Mis in Telecom or any similar topic only for you Order Now In the telecom industry of the present ERA, MIS has a significant role to play.Starting from Data Cleansing Acquisition, going through the phases of Data Loading an d Processing, implementation of business and production processes amp; Trend analysis; MIS finally enables the respective decisions makers with the following: * State of the art integrated information systems for critical decision making * Robust Telecom system to run the complete business step * A Central/Distributed System for analytical reporting regarding different segments of the business Collectively, MIS enables storage and processing of the complete business information; with overall purpose to make that information available on demand in the required format. To ensure smooth and efficient services of the business, every telecom setup is well-equipped with the MIS and it would not be wrong stating â€Å"strong and efficient the MIS, more reliable and worthy telecom services†.Without making use of the vast facilities/features of the MIS (Application Software, Database Management Systems, Web site publishing, Call Centre and CRM setups etc. a telecom setup is just an old-style, non-reliable, disintegrated and poor performing setup; with no possibility of the comparative features like Minimum Data Loss, No Down Time and Maximum Mean Time Between Failures. In these days, having strong MIS incorporated in the core business, Telecom Setup is recognized as fastest growing establishment in the country. As an example, if we just talk about the Billing System of any Telecom establishment (Pre-Paid, Post Paid and Traditional Landline systems), it is a surprising fact that all their billing is supported by an efficient, complete MIS; which is scalable up to no limits and can support top management with any kind of business decisions.If a telecom setup suffers a severe damage to the operative MIS; and it becomes non-operational and different related segments face an MIS down time; which may result in following critical problems: * Poor image of the organization in front of their hundreds of thousands of the customers. * Severe damage to the integrity of the business data * Severe financial losses (just consider the billing system is down and customers are making calls all around the places) * No support to any type of business users’ like CRM amp; Call centre setups. Concluding the essential role of MIS in telecom, â€Å"NO MIS in Telecom means, NO Telecom Setup at all† How to cite Mis in Telecom, Papers

Identification of Problem in an Organisation Sample for Students

Question: Identify the Proble in an Organsation. Answer: Problem statement Longer break hours at the workplace hampers the work processes and the employees performance Brief explanation It has been seen that in France, generally the employees takes longer hour breaks which critically hampers the work processes by delaying the work. There are several negative effects of the longer hour breaks which can be understood by evaluating the work done by the people in France. The work is then not able to be completed by the suitable time and the delay makes them stay for longer hours at the Office. Background In order to enhance the work processes, it is supposed to be very important to maintain the time schedule as per the work is required. The break hours needs to be reduced in order to utilize the tie for some useful work. On the other hand, the personal life of the employees gets hampered by staying for longer hours at the office. The employees get tired when they reach their respective houses and this generates the negative impact on the minds of the people concerned. It hampers the efficiency and the effectiveness of the work process which finally lowers down the desired profitability of the organization (Miner, 2015). Symptoms There are few of the symptoms which reflect the occurring of the issues within the organization. These are issues between the employees, team problems, organization-wide problems and organizational problem-solving steps. If there is any issue between the employees of the concerned organization then it can lower down the profitability of the firm throughout the concerned market segments (March 2013). Sometimes these conflicts affect the growth and development of the business processes to a great extent. Protagonists The manager plays the most important role in an organization by managing the work processes effectively and efficiently as it helps in evaluating the growth of the organization to a large extent. There needs to be some main character in order to reduce the issues coming between the executions of the work processes to a great extent (Naylor et al., 2013). The analysis of the issues is crucial as it will help in evaluating the significant growth of the organization and thus, the manager's needs to allow sufficient time for the break hours and should motivate the employees regarding their work. This will help in bringing out the positive results for the organization. Analysis of the problem Two of the frames for analysis of the issues can be considered as required behavior and transformation. These two frames have been selected as there requires crucial requirement to analyze the behavior of the employees regarding the execution of the work processes. First is the required behavior which reflects the behavior and the efforts required from the employees to enhance the overall performance of the concerned firm and next is the transformation which will help in changing the time schedules by reducing the break hours of the concerned employees (Siemens, 2014). This can be explained with the help of two of the OB theories such as theories of motivation and theories of attitudes and behavior. Motivation theory provides required motivation to the employees as to provide their best efforts whereas theories of attitudes and behaviors help in correcting their attitude towards the business process of the firm References March, J.G., 2013.Handbook of Organizations (RLE: Organizations)(Vol. 20). Routledge. Miner, J.B., 2015.Organizational behavior 1: Essential theories of motivation and leadership. Routledge. Naylor, J.C., Pritchard, R.D. and Ilgen, D.R., 2013.A theory of behavior in organizations. Academic Press. Siemens, G., 2014. Connectivism: A learning theory for the digital age