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What is the major difference in the obligation of one with a long position in a futures (or forward) contract in comparison to an options contract?Answer: A futures or forward contract is a vehicle for selling or buying a stated amount of foreign exchange at a stated price per unit at a fixed time in the future. Determine that if the long holds the contract to the delivery date, he pays the effectual contractual futures (or forward) price, consider whether it is an advantageous price in comparison to the spot price at the delivery date. By difference, an option is a contract providing the long the right to buy or sell a fixed quantity of an asset at a specified price at some time in the future, although not enforcing any obligation on him if the spot price is much more favorable as compared to the exercise price. Since the option owner does not have to exercise the option if it is to his disadvantage, the option has a price, or premium, while no price is paid at inception to enter into a futures (or forward) contract.
Explain Hard capital rationing and Soft capital rationing The NPV decision rule to admit all projects with a positive net present value requires the existence of a perfect cap
Water Wheelies manufactures high-pressure sprinkler heads. These are produced periodically at a rate of 20,000 per month. Demand is steady at 15,000 per month. Each production run
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Calculate the firm’s WACC. Prepare and analyze each planned capital expenditure. Evaluate, rank, and recommend the capital expenditures according to beneficial value to the organiz
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Chain Index Numbers So far, we have constructed index numbers with a fixed base. Sometimes, comparison between the current/given year and the base year becomes meaningless once
At the end of the fiscal year ending June 30, 2003, Microsoft reported common equity of $64.9 billion on its balance sheet, with $49.0 billion invested in financial assets (in the
As the CEO of PG Industries, you are hired at the pleasure of the Board of Directors, who in turn are elected by the shareholders. You are considering Project A which you are convi
Suppose you have recently been contracted as a financial consultant to a London-based engineering company, Alpha Products Plc. The company uses three components as part of their pr
Q. Basic Methods of Risk Management? Risk is inherent in business and hence there is no escape from the risk for a businessman. However, he may face this problem with greater c
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