What strategies could management employ to hedge

Assignment Help Finance Basics
Reference no: EM13256707

The portfolio managers of a firm determined that over the next year interest-sensitive assets are in the amount of $1.5 billion while interest-sensitive liabilities are in the amount of $1.8 billion. Moreover, when considering all of the firm's assets and liabilities, they determined that the average duration of assets is 3.6 years while the average duration of liabilities is 4.0 years. The firm's debt-to-equity ratio is 4-to-1. , what is the interest rate risk facing this institution for net income and market value? Consider and discuss each by thinking about what happens to net interest income and relative asset prices (market values) as interest rates rise or fall. What strategies could management employ to hedge against this risk by buying or selling futures, call options or put options (i.e., for each derivative is it a buy or sell strategy?)?

Reference no: EM13256707

Questions Cloud

The body of knowledge for the profession : Why do all managers and supervisors need to have knowledge and skills related to Human Resource management?
Calculate the cost of leasing the equipment : Reynolds Corporation plans to purchase equipment at a cost of $3 million. The company's tax-rate is 30 percent and the equipment's depreciation would be $600,000 per year for 5 years.
Current carrying value-impaired assets : For several years, a number of Food Lion,Inc., grocery stores were unprofitable. The company closed, and continues to close, some of these locations.
Describe how to improve productivity : Describe how to improve productivity in non-hospital organizations e.g. American Heart Association, Lupus Foundation, Alzheimer’s Association.
What strategies could management employ to hedge : What strategies could management employ to hedge against this risk by buying or selling futures, call options or put options (i.e., for each derivative is it a buy or sell strategy?)?
Investing on project if funds are available : If fund were available, would you invest in one, both or neither project? Why?
Define what is the percentage ionization of the benzoic acid : what is the percentage ionization of the benzoic acid in the resulting solution. Ka(benz acid)=6.5 * 10^-5
Federal law on the basis of a persons race : Federal law requires that employers not discriminate on the basis of a person’s race, sex, national origin, or age over 40.Is this also an ethical requirement?
What is the weighted average life : You have a portfolio with an average duration of 6.5 years and a value of $1 million. If interest rates rise by 150 basis points, what will be the approximate value of your portfolio if you make no changes?

Reviews

Write a Review

Finance Basics Questions & Answers

  Downward push on the prices of commodities

Developing countries have often attempted to make cartels so as to counter the actual or perceived inexorable downward push on prices of their exported commodities.

  Determine the required amount to pay expenses

You will require to pay for your son's private school tuition [1st grade through 12th grade] a sum of $8,000 per year for Years 1 through 6, $10,000 every year for years 7 through 12.

  Compute the sales tax

Suppose you are shopping for office supplies and furnishings for your corporation, Financial Outsourcing, Corporation Use the comparative shopping web search engines in the Library to conduct the following research.

  Case study-andrew and stephanie wilson

Identify and describe the key elements that must be taken into consideration when assessing whether a credit facility is 'not unsuitable' for a borrower.

  Southwest airlines acquisition strategy for airtran

Describe what the management rationale (motive) behind the acquisition of AirTran, whether you agree with the management or you differ with the management strategy.

  Determining the bonds-duration

An insurance company is analyzing three bonds and is using duration as the measure of interest rate risk. What is the duration for each of the bonds? What is the relationship between duration and the amount of coupon interest that is paid?

  High or low operating leverage

Suppose if you were running a start up business would you prefer to have a business with high or low operating leverage?

  Objective type questions on financial strategies

Objective type questions on Financial strategies and is it true or false that Corporate shareholders are exposed to unlimited liability

  Find some problem areas in the cost of capital analysis

Find some problem areas in the cost of capital analysis and do these problems invalidate the cost of capital procedures we are discussing in this unit?

  Capital asset pricing model-kellogg common equity

Using the data and results from the previous questions, find the expected return on Kellogg common equity according to the Capital Asset Pricing Model (CAPM).

  Return calculations and distributions

A particular stock had a return last year of 4%. However, you look at the stock price and notice that it actually did not change at all last year. How is this possible?

  Journalize the transactions

Garza Corporation had the following transactions during the current period. Garza issued 5,000 shares of $1 par value common stock to attorneys in payment of a bill for $30,000 for services provided in helping the company to incorporate.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd