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Essay / Research Paper Abstract
This 19 page paper consider the use of derivatives such as futures and option used as hedging to reduce exposure to risk in the airline industry. The paper considers the way they are used and undertakes primary research to ascertain if there is any link between the use of derivatives, the level of profit, the level of liabilities and executive salaries. This is undertaken with regression analysis and a chi squared test. The conclusion assesses the value of these tools to airlines. Airlines discussed include Northwest, Southwest, Delta, Continental, American Airlines and British Airways. The bibliography cites 30 sources.
Page Count:
19 pages (~225 words per page)
File: TS14_TEairderv.rtf
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Unformatted sample text from the term paper:
1. Introduction Business requires risk taking. For some industries there are higher inherent risks than others.
Risks may manifest in a broad variety of forms, such as operational risks and financial risks. The usual approach is to seek to minimise or mitigate unacceptable risk following analysis
of the level and probability of the risk. The most common of these is insurance, which tends to be used where there is a high impact but a low probability
of the risk occurring. Where risks are likely to be faced more frequency insurance is not a viable tool and it is for these types of risks, such as changing
prices of inputs for volatile materials or even events such as changes in weather, insurances is impractical (Brockett et al, 2005). The use of derivatives has become more popular in
managing the exposure to risk (Stulz, 2002). It has often been argued that for business to be successful there needs to be the management of the risk. All businesses
face risk, but those who manage that risk most effectively give themselves an advantage over those who face unnecessary exposure (Hoffman, 2002, Mintzberg et al, 1998). Successful and effective
risk management may even be the source of a competitive advantage (Rose, 2001, Porter, 1985), but at the very least it is required to ensure survival (Nellis and Parker, 2000),
if we look to the airline industry this is very clear and a tool used successfully by some companies, such as Southwest and British Airways is that of derivatives.
2. The Hypothesis In this paper we will consider 4 hypotheses concerning the use of derivatives in the airline industry and the result of the use of derivatives. The first hypothesis
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