Financial Derivatives
Essays

¶ … Financial Derivatives on Sub-Prime Crisis

A trader enters into a one-year short forward contract to sell an asset for $60 when the spot price is $58. The spot price in one year proves to be $63. What is the trader's gain or loss?

This study emphasized the importance roles of financial derivatives, which has been known for the last decade and its effects on the Global financial crisis. It further analyzes the impact of financial derivatives and how it can be controlled to prevent corporations from incurring a lot of risks. It also explains the existence of financial derivatives since 1970, to the recent Global Financial Crisis which occurred in the 2006.

THis work investigates the relationship between the use of financial derivatives and value creation using a series of peer-reviewed literature.It Analyzes evidence on the use of "Financial derivatives and Firm Value" creation from the 8 articles provided on recent empirical studies (articles must not be older than 2007).The literature suggests that hedging has a value adding effect on firms. The effect however depends on that the type of exposure (whether short or long-term) as well as the type of instruments (options, forwards, foreign currency debt and swaps).The effect is more sensitive to endogeneity as well as omitted variable concerns.

Financial derivatives are essentially a financial contract between two people or two entities that depends on something that occurs in the future such as the performance of an asset, such as a stock, a bond, commodity, or a currency Hence the term ‘derivative' , i.e. denoting that their value ‘derives' from underlying assets like stocks, bonds and commodities.). These financial derivatives can range from something as simple as an unregulated private agreement to something that is hedged in by rules and restrictions as well as control.

¶ … Banc One wanted to manage its interest rate exposure without using swaps, what could it do? Specifically, how could it move from being asset-sensitive to either neutral or mildly liability-sensitive without using…