managing that risk. In particular‚ sufficient direction and information is provided to examine both a forward hedge and a money-market hedge. The learning objectives of the case are as follows: * To explore the magnitude and effect of exchange-rate risks. * To illustrate exchange-rate risk management through two conventional hedges—a forward-contract hedge and a money-market hedge. * To demonstrate market parity and identify how preferences arise from unique company characteristics
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Background Pine Street Capital is a market-neutral hedge fund in the technology field and is facing market risk and has to decide which way to use in order to hedge the risk. It can either use short selling of NASDAQ or options hedging strategy. Each strategy has its own advantage in different economic conditions. As the fund has just gone through a volatile period in NASDAQ’s history‚ PSC has to choose between two choices. Choice 1: Continuing to hedge market risk by short selling Choice 2: Switching
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York‚ NY 10017 Subject: New market for hedge funds Dear Mr. Dimon: It is a pleasure for ABS Consultants to be working with J.P. Morgan Chase & Co. As follow-up to our initial conversations‚ we have considered various trends occurring within the financial arena‚ and have identified one trend specifically within the space of alternate investments that would most benefit your firm. The concept underlying this trend is the lack of accessibility to hedge funds for non-accredited retail investors
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Overview of Bayou Hedge Fund Group and the man behind it: 1. What is Bayou: Bayou Capital is a Hedge Fund company. 2. What happened to it: Founded in 1996 with 450 millions raised from investors. Furnished for the first 2 years. But losses started mounting ever since. Eventually‚ Bayou collapsed in 2005. And 2 founders were pledged to guilty due to a serious fraud and conspiracy. 3. Who is this man behind the fraud: Sam Israel III A rich kid from New Orleans. The Israel’s founded a commodities
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PROBLEMS 1. (Short hedge and long hedge) Another type of hedge situation is faced when a party plans to purchase an asset at a later date‚ such as a bread maker. Fearing an increase in wheat prices‚ the bread maker would buy futures contracts. Then‚ if the price of wheat increases‚ the wheat futures price also will increase and produce a profit on the futures position. That profit will at least partially offset the higher cost of purchasing wheat. This is a long hedge‚ because the hedger‚ the
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I believe that Chris Hedges book War is a Force That Gives Us Meaning is spot on how war affects a person and a society. Chris Hedges believes that war is negative and that it degrades the ones who participate in it. War changes the people that fight in it and just like a drug war becomes an addiction‚ once you get a taste of it is hard to stop. War brings out the nationalism of those who fight in it and at the core of nationalism is racism. How People Change People change during war‚ and not
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liquidity. Alternative investments include hedge funds‚ managed futures‚ real estate‚ commodities and derivatives contracts. Definition of ’Hedge Fund’ An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged‚ long‚ short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark). Legally‚ hedge funds are most often set up as private
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from what they brought in‚ Baker only made a $3‚871.20 profit on the deal when they expected to make a $59‚383.30 profit. To manage the exchange-rate risk of their deal with Nova‚ Baker could have hedged in the forward market or hedge in the money market. In order to hedge in the forward market‚ Baker would have to strike a deal with the bank where the bank would provide Baker with a guaranteed exchange rate for the future exchange of currencies (forward rate). These contracts specified a date‚ an
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duration than the spot market (Shapiro‚ 2010). The hedger will look to hedge their risk of currency depreciation by locking in a fixed exchange rate to be paid at a future date. The forward contract is calculated based on the forward rate and the swap rate. The forward rate is the interbank exchange rate and the swap rate is the market exchange rate (Shapiro‚ 2010). The forward contract would essentially allow the hedger to hedge
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years before) July 1993. 3. To Hedge or Not? Do you think Tiffany should actively manage its yen-dollar exchange rate risk? Why or why not? Explain the benefits and costs of hedging. 4. What to Hedge? If Tiffany were to manage its exchange rate risk‚ then identify what exposures should be managed via such a hedging program (e.g.‚ hedge sales‚ hedge gross profit‚ or hedge cash flows‚ etc.). Explain why. 5. Forward or Options? If Tiffany were to hedge the yen-dollar exchange rate risk‚
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