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Should a firm hedge? Why or why not?
Answer: Firms may not need to hedge exchange risk in a perfect capital market. But firms can add to their value by hedging if markets are not perfect. First, if management identify about the firm’s exposure better than shareholders, the company, not its shareholders, should hedge. Second, firms may be capable to hedge at a lower cost. Third, if default costs are important, corporate hedging can be justifiable because it decreases the probability of default. Fourth, if the firm faces progressive taxes, it can decrease tax obligations by hedging which stabilizes corporate earnings.
Credit enhancement of an asset-backed security implies the existence of support for one or more of the bondholders in the structure. Credit enhancement levels var
Discuss the relationship between financial decision making and risk and return. Would all financial managers view risk-return tradeoffs similarly
Define intermediation The financial system makes it probable for surplus and deficit economic units to come together, exchanging funds for securities, to their mutual advantage
Do mergers result in layoffs? Whole employment in the banking industry in fact has increased slightly over the last ten years. A few mergers do result in layoffs. Though, many ba
Long-Term Solvency Ratios (Financial Leverage Ratios) Debt-Equity Ratio = Total Debt / Total Equity à It is a measure of a company's debt utilization. It gives the ex
Q. Show the Disadvantages of adjusted discount rate? (1) The risk premium rates resolute under this method are arbitrary. Therefore this method mayn't give objective results.
In convertible bonds, bondholders get a right to convert their bonds for a specific number of shares of the bond issuer. This privilege allows bondholders to take
Yanni and Joanna need some investment advice. Joanna has sold $660,000 worth of Woolworths Limited (WOW) shares that she inherited late last financial year. She has $616,000 remain
Suppose that the Fed buys $1 million of bonds from the First National Bank. If the First National Bank and all other banks use the resulting increase in reserves to purchases bonds
What are the assumptions of MM(Modigliani Miller) approach?
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