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Essay / Research Paper Abstract
This 10 page paper answers questions concerning the use of derivatives. The paper starts by explaining the difference between long and short hedging, the use of circuit breakers, whether investors will want to buy or sell Treasury Bond Futures if interest rates will raise, index arbitrage, and when options and futures will be bought and sold. The bibliography cites 190 sources.
Page Count:
10 pages (~225 words per page)
File: TS14_TEdirvquest.rtf
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Unformatted sample text from the term paper:
position where a trader or investor may face losses due to fluctuations in the market prices. Two types of hedging exist; Long hedging and short hedging. Long hedging takes
place where a company has an open position as a result of requiring input. For example, if the company needs to fulfill a contract at some point in the future
and has to buy in commodities where the price can fluctuate, this can be especially risky for company if they will be unable to pass on any increasing cost to
their customers. The purchase of a futures contract allows the company to reduce the level of exposure to risk by purchasing contract
which will fix the price of the commodity to be bought at a fixed point in the future (Veld-Merkoulova and De Roon, 2003). The risk of the price fluctuation moves
from the company to the cellar of the futures contract charges a fee for the contract. Futures contracts not only purchased from the contractors, that are actively traded on me
markets and may be trade many times before the eventual purchaser buys the contract (Howells and Bain, 2004). Short hedging takes place where there is a sale of something in
order to reduce the risk. Short hedging may be seen by a company house and in a foreign currency and wishes to reduce the risk associated with currency exchange rate
fluctuations. However, while long hedging sees a potential risk in terms of opportunity costs, short hedging can result in financial costs if the market moves against the company (Bystrom, 2003).
Determining which type of hedging it is most appropriate depends on the situation of the company. Both types of hedging require either the purchase or the set of something for
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