Acknowledgement Benefits of Risk Management on Investments and Portfolio Assets The report on the above subject/topic is submitted in partial fulfillment of the requirement of MBA Program of AICISM AMITY, Noida. The report has been prepared based on information/data collected through primary survey and published information available from various sources. The data and the statistical ingredients, including the contents of the report, are either drafted/ authored by me or copied from specific authorized or acknowledged sources, the reference of which is mentioned at the bottom of the respective page/pages in the report. The conclusions and recommendations made in this report are, to the best of knowledge and judgment, based on the inferences drawn and observations made by me from the primary or secondary source data collected, compiled and analyzed by me, during the course of the project. Date: Gaurav Patidar (A0633512011) CERTIFICATE This is to certify that the dissertation report of ‘Benefits of Risk Management On Investment and Portfolio Asstes’ is a bonafide work submitted by Gaurav Patidar(A0633512011) undermyguidance and support. This report relates to the marketing stream specialization. I further declare that the information presented in the project is true and original, to the best of my knowledge. Place: Noida Dr. Renita Dubey Date: Executive Summary This Report addresses the issue whether the introduction of derivatives impact the underlying stock (price and volatility). The systematic and the unsystematic risk of the individual security indicate that the spot market has changed after the introduction of the derivatives trading and that t... ... middle of paper ... ...rses after much debate in the year 2001. In the developed economy the instrument was introduced way back even before our economy getting liberalized. Derivative securities have penetrated into the Indian market and investors are using these securities for different purposes, such as risk management, profit enhancement, speculation and arbitrage. Advantages of using derivatives Prices in an organized derivatives market reflect the perception of market participants about the future and lead the prices of underlying to the perceived future level. The prices of derivatives converge with the prices of the underlying at the expiration of the derivative contract. Thus derivatives help in discovery of future as well as current prices. The derivatives market helps to transfer risks from those who have them but may not like them to those who have an appetite for them.
Caterpillar Inc. also faces the risk of its cash flow and earnings being affected by fluctuations in the exchange rates of currency, commodity prices, and interest rates. To control for this, the company’s Risk Management Policy ensures prudent management of interest rates, commodity prices, and exchange rates of foreign currency by allowing the use of derivative financial instruments. According to the policy, the derivative financial instruments are not supposed to be used for the purpose of speculation. In its pricing strategy, Caterpillar Inc. faces the risk of difficult shipping of its products. This risk can be encountered by offering its products on instalments and lease to its loyal customers (Caterpillar, Inc. (CAT), 2011).
Metallgesellschaft (MG) took 1.8 billion dollars in losses not because their underlying positions and rationale were unsound, but because they were unable to roll over their stack hedge positions in the way that they anticipated and because they underestimated the amount of cash needed to fund their positions. The basic strategy employed by MG, or more specifically, Arthur Benson, who crafted MG’s derivatives strategy, was to sell contracts on petroleum and to hedge this exposure with a stack hedge. He had successfully implemented this strategy just a few years earlier at another firm. This stack hedge was then rolled forward upon expiration. MG sold forward contracts to its customers, selling them a fixed amount of gasoline at a fixed
Obviously, financial establishments can endure breathtaking misfortunes notwithstanding when their risk management is top notch. They are, all things considered, in the matter of going out on a limb. At the point when risk management fails, be that as it may, it is in one of the many fundamental ways, almost every one of them exemplified in the present emergency. In some cases, the issue lies with the information or measures that risk directors depend on. At times it identifies with how they recognize and impart the risks an organization is presented to. Financial risk management is difficult to get right in the best of times.
The authors of this article have outlined the purpose, aims, and objectives of the study. It also provides the methods used which is quantitative approach to collect the data, the results, conclusion of the study. It is important that the author should present the essential components of the study in the abstract because the abstract may be the only section that is read by readers to decide if the study is useful or not or to continue reading (Coughlan, Cronin, and Ryan, 2007; Ingham-Broomfield, 2008 p.104; Stockhausen and Conrick, 2002; Nieswiadomy, 2008 p.380).
The expanding global market has created both staggering wealth for some and the promise of it for others. Business is more competitive than ever before, and every business, financial or product-based, regardless of size or international presence is obligated to operate as efficiently as possible. A major factor in that efficient operation is to take advantage of every opportunity to maximize profits. Many multinational organizations have used derivatives for years in financial risk management activities. These same actions that can protect multinational organizations against interest rate futures and currency fluctuations can be used to create profits for those same organizations.
My formal learning of the financial industry began at McGill University where I am currently completing an undergraduate degree in Economics and Finance. At McGill, I was exposed to various segments of finance such as Investment Management, Real Estate Finance and Corporate finance. However, I am primarily interested in asset management, especially the use of derivatives to create structured investment products. The use of derivatives is a novel approach to investing and controlling for risk and requires significant mathematical skill. However, having topped my class in econometrics and statistics, I was able to develop a deeper understanding for these investment strategies.
This assignment is concerned with your understanding of the key issues relative to portfolio analysis and investment. In completing this assignment you are to limit your scope to the US stock markets only. Use the Cybrary, the Internet, and course resources to write a 2-page essay which you will use with new clients of your financial planning business which addresses the following issues and/or practices:
Finance theory does not provide a complete framework for explaining risk management under the fluctuated financial environment in which firm operates. Hence, for corporate managers, they rank risk management as one of their top priorities. One of the strategies to reduce risk is by hedging. This paper will discuss the advantages and disadvantages of hedging risk using financial derivatives.
According to Investopedia (Asset Allocation Definition, 2013), asset allocation is an investment strategy that aims to balance risk and reward by distributing a portfolio’s assets according to an individual’s goals, risk tolerance and investment horizon. There are three main asset classes: equities, fixed-income, cash and cash equivalents; but they all have different levels of risk and return. A prudent investor should be careful in allocating each asset class to his portfolio. Proper asset allocation is a highly debatable subject and is not designed equally for everybody, but is rather based on the desires and needs of the individual investor. This paper discusses the importance of asset allocation, the differences and the proper diversification within the portfolio.
Since the listing of KOSPI 200 futures in May 1996, the derivatives market has grown into one of the key derivatives markets in the world. In the meantime, the market has achieved a higher level of excellence in market operation and secured a trading system and fair market management, and consequently figures as a decent reference among derivatives markets. The brief history of Korean derivatives market related to the products is as follows:
In partial fulfillment of the Dissertation in Semester - IV of the Master of Business Administration (Batch of 2013 - 2015)
There are many different forms of securities that can be sold and each has its set of issues. Firstly, we can sell securities in the form of assets, such as mortgage repayments. This is a very low risk ...
...ting in hedging activities in the financial futures market companies are able to reduce the future risk of rising interest rates. By participating in the financial futures market companies are able to trade financial instruments now for a future date (Block & Hirt, 2005).
Derivatives were the first instruments developed to secure the supply of commodities and facilitate trade. Derivatives market can be traced back to the Middle Ages, they originally developed to meet the needs of farmers and to protect them from a decline in the price of their crops in case there was a crop failure.
Using the Modern Portfolio Theory, overtime risk assets will provide a higher expected rate of return, as compensation to the investors for accepting a high risk. The high risk will eventually lower collecting asset classes to the portfolio, thus reducing the volatile risk, and increasing the expected rates of return. Furthermore the purpose of this theory is to develop the most optimal investments portfolio which would yield the highest rate of return while ascertaining the risk for the individual or corporate investor.