DERIVATIVES During the crisis‚ derivatives were heavily used in the entire financial system which may seem to mitigate the effects by transferring risks from one party to another. The video “Crisis of Credit Visualized” helped me understand how the financial system worked as a whole connected from home owners‚ to brokers‚ to lenders‚ to bankers‚ to investors and many other financial institutions. Apparently‚ most of the people do not understand how derivatives work since it’s quite complicated
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Hedge Fund Strategies Problem Set: Backtesting the Carry Trade (Macro Strategies) Prof. Andrea Frazzini In this problem set‚ you backtest the currency carry trade using the data provided in the accompanying Excel spreadsheet. You can do the problem set using Excel or any other program of your choice. Please answer in the space provided (no more than three pages for questions 1-6). 1. For each month of the sample‚ rank the countries based on their interest rate (hint: Excel has a function
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different sectors‚ competition is driving growth in the banking sector also. The RBI requires all banks to comply with the standardized approach of the BASEL II accord by 31st March‚ 2007. The quantification and accounting of various risks would result in a more robust risk management system in the industry. This paper attempts to project the implications of this transition and its effects on the internal operations of a bank followed by its effects on the banking industry and the economy. The Basel
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1 Introduction In the initial response to the discussion question in week 1 it was stated that‚ the significant population growth across the globe means that there is an increase in demand for providing infrastructure to address the basic needs of humans. This increase in demand‚ if not managed and planned carefully‚ has adverse impact on our environment and its ability to sustain human life. (Akef‚ 2013) Based on the above‚ the importance of incorporation of sustainability issues in all stages
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reflecting the position each party is taking (long or short). In many cases‚ the underlying asset to a futures contract may not be traditional "commodities" at all – that is‚ for financial futures‚ the underlying asset or item can be currencies‚ securities or financial instruments and intangible assets or referenced items such as stock indexes and interest rates. While the futures contract specifies an exchange taking place in the future‚ the purpose of the futures exchange is to minimize the risk of default
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Transaction exposure The transaction exposure component of the foreign exchange rates is also referred to as a short-term economic exposure. This relates to the risk attached to specific contracts in which the company has already entered that result in foreign exchange exposures. A company may have a transaction exposure if it is either on the buy side or sell side of a business transaction. Any transaction that leads to an inflow or outflow of a foreign currency results in a transaction exposure
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Hedge Fund Strategy - Equity Long-Short An equity long-short strategy is an investing strategy‚ used primarily by hedge funds‚ that involves taking long positions in stocks that are expected to increase in value and short positions in stocks that are expected to decrease in value. You may know that taking a long position in a stock simply means buying it: If the stock increases in value‚ you will make money. On the other hand‚ taking a short position in a stock means borrowing a stock you don’t
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closure of the contracts before maturity. ASSET LIABILITY MANAGEMENT. Asset Liability Management relates to management of the risks associated with the following types of risks: 1. Risks arising from liquidity mismatch or liquidity risk‚ 2. Risks arising from movement in interest rates or interest rate risk‚ and 3. Risks arising from movement in exchange rates or foreign currency risks. Spread lock strategy An agreement that fixes the spread between the forward price of an interest rate swap and its underlying
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the Documents Used to Record Business Transactions 1. Issue of a Purchase Order A purchase order (PO) is document issued by the buyer to the seller‚ indicating types‚ quantities‚ and agreed prices for products or services the seller will provide to the buyer. Sending a purchase order to a supplier is a legal offer to buy products or services. If the seller agrees to selling to the buyer it forms a contract between the two. It should include: * The order number‚ so it can be traced and
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CHAPTER 1 INTRODUCTION Derivatives Securities A derivative security is a security whose value depends on the value of together more basic underlying variable. These are also known as contingent claims. Derivatives securities have been very successful in innovation in capital markets. The emergence of the market for derivative products most notably forwards‚ futures and options can be traced back to the willingness of risk-averse economic agents to guard themselves against uncertainties
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