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【正文】 llow insurers to transfer their risk to bond holders by selling bonds whose cash flow payments depend on the level of insurable losses NOT occurring. 22 9 McGraw Hill/Irwin Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved Hedging Ex Kellogg produces cereal. A major ponent and cost factor is sugar. ? Forecasted ine sales volume is set by using a fixed selling price. ? Changes in cost can impact these forecasts. ? To fix your sugar costs, you would ideally like to purchase all your sugar today, since you like today’s price, and made your forecasts based on it. But, you can not. ? You can, however, sign a contract to purchase sugar at various points in the future for a price negotiated today. ? This contract is called a “Futures Contract.” ? This technique of managing your sugar costs is called “Hedging.” 22 11 McGraw Hill/Irwin Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved Types of Futures Commodity Futures Sugar Corn OJ Wheat Soy beans Pork bellies Financial Futures Tbills Yen GNMA Stocks Eurodollars Index Futures SP 500 Value Line Index Vanguard Index SUGAR 22 13 McGraw Hill/Irwin Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved SWAPS birth 1981 Definition An agreement between two firms, in which each firm agrees to exchange the “interest rate characteristics” of two different financial instruments of identical principal Key points Spread inefficiencies Same notation principal Only interest exchanged 22 15 McGraw Hill/Irwin Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved SWAPS example (vanilla/annually settled) XYZ ABC fixed rate 10% % floating rate libor + .25 libor + .50 Q: if libor = 7%, what swap can be made 7 what is the profit (assume $1mil face value loans) A: XYZ borrows $1mil 10% fixed ABC borrows $1mil % floating XYZ pays floating % ABC pays fixed % 22 17 McGraw Hill/Irwin Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved SWAPS example cont Settlement date ABC pmt x 1mil = 105,000 XYZ pmt x 1mil = 72,500 cash pmt by ABC = 32,500 if libor rises to 9% settlement date ABC pmt x 1mil = 105,000 XYZ pmt x 1mil = 92,500 cash pmt by ABC = 12,500 22 19 McGraw Hill/Irwin Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved SWAPS example cont settlement date XYZ Bank pmt x 1mil = 105,000 XYZ pmt x 1mil = 72,500 Bank pmt to XYZ = 32,500 settlement date ABC Bank pmt x 1mil = 72,500 ABC pmt x 1mil = 107,500 ABC pmt to bank = 35,000 bank “swap gain” = +35,000 32,500 = +2,500 22 21 McGraw Hill/Irwin Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved Ex Settlement Speculate Example You are speculating in Hog Futures. You think that the Spot Price of hogs will rise in the future. Thus, you go Long on 10 Hog Futures. If the price drops .17 ce
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