You are the financial manager of a construction company that wants to reduce the volatility of its cash flows by making its cash flows less sensitive to changes in the price of concrete. It will do so by buying a call option on the Invesco Materials ETF with a strike price of $65 and buying a put option on the ETF with a strike price of $55. Both options are European and expire in 3 months. This option strategy protects you from ___ . Suppose 3 months from now the materials ETF trades at $50. What is the payoff of this option strategy? Suppose we replace all the options with identical European options that expire in 1 year. We would expect that the cost of this new option portfolio to be ___

Q: financial risk management 1. The buyer of the option is not obligated to complete the deal and will…

A: As you have asked multiple questions, we will solve the first question as per policy. Request you to…

Q: "You are an institutional investor interested in selling a certain security that is traded in an OTC…

A: Solution:- Bid price means the price at which the dealer is ready to buy the security and offer…

Q: If you sell a put option contract on Exxon, with the most heavily traded strike price today.  What…

A: Solution:- Derivative is a financial contract which derives its value from an underlying asset,…

Q: Company SilverBrigde has a stock price of €75. SilverBridge is exposed to a competitive risk which…

A: GIVEN ÷ Stock price = €75 Strike price = €70

Q: Sell Disney Stock "Short"

A: Stock refers to a type of security that shows the fractional relationship in the company. It is used…

Q: You have been working as a treasurer at Citibank for the past five years and have previously used…

A: Option is a contract which gives the buyer the right, but not the obligation, to buy (call) or sell…

Q: You buy an American call option priced at $0.025/€ on €225,000 at a strike price of $1.50/€. You…

A: In case of call option , option will be exercised if stock price is more than or equal to the strike…

Q: Dimi regrets that he didn’t buy stocks. He thinks it would be better to buy a stock of Air…

A: We have to create a portfolio of long stock and short call. We need to find the payoff for a range…

Q: Looking at the opinion of Wong from Areca Capital, which forex exposures would be most relevant for…

A: Forex transactions: Companies engaged in international trade are exposed to changes in the…

Q: The value derived from exercising an option immediately is the exercise value. No rational investor…

A: Derivative securities are instruments that derive their value from the underlying securities. These…

Q: Suppose that a firm is facing an upward-sloping yield curve and needs to borrow money to invest in…

A: Multiple questions related to yield, yield curve, credit rating and cost of borrowing appear here.…

Q: ky asset sell for $150, a European Call on this with a strike price of $120 and term to maturity of…

A: Options are the derivative products that derive value from underlying assets and give an opportunity…

Q: You hold a European put option on Italian Firm Spaghetti SPA. with a strike price of €100. Things…

A: Stock Price €                                                                          2.00…

Q: n option trader believes that, in the next month or so, trading conditions in an underlying are…

A: The call option and put options gives right to buy or sell the stocks on the maturity at specified…

Q: b) Analysts at Delfonica Capital have taken the view that due to ZPZ-Bank's loan book being o…

A: Put option gives the opportunity to sell the stocks on the expiration period but there is no…

Q: What are the impact of the simulation process and evaluate the dynamic hedging of a European call…

A: An option is a type of financial instrument that is based on the value of underlying securities,…

Q: Which of the following statements is​ FALSE?       A. You invest today only when the NPV…

A: The objective of the question is to identify the false statement among the given options related to…

Q: iscuss which of the following statements is true. D I. An American call option is more expensive…

A: Step 1   European options are extensively traded; they trade at a smaller volume than American…

Q: The value derived from exercising an option immediately is the exercise value. No rational investor…

A: “Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…

Q: Consider a call option on a stock, ABC Corp. with a price of $74.20 and a strike price of $85.88.…

A: Call option is the derivative product and gives the opportunity to buy stock on the expiration but…

Q: Alice is a Financial Risk Manager in a large offshore bank in Kuala Lumpur. She intends to buy…

A: Intends to buy additional stocks valued at RM50 million Funds will be received after 3 months

Q: To hedge, a user of an energy resource wants price protection from rising prices. The user decides…

A: Options are the derivative instrument that can be used by the investors to hedge their risk of loss.…

Q: The exotic option with payoff max[average(St)-K, 0], where t belongs in time interval [0, T], is an…

A: Exotic option is different from regular option like plain vanilla option. These options are…

Q: (Ⓒ) Suppose that the • Stock price of a stock is $59. Risk - free interest rate is 10% per annum •…

A: To determine if an arbitrage opportunity exists, we can compare the cost of creating a synthetic…

Q: Which of the following is not consistent with Prospect Theory decision making, If a suit and tie…

A: Prospect Theory, suggests that people's decision-making is influenced by how potential outcomes are…

Q: You recently found out that when the market is in recession, ALL assets seem to suffer from some…

A: Part (a): Answer: Liquidity risk is a critical measure used to calculate efforts to turn a security…

Q: What will be the trader's potential maximum loss, maximum profit and break even points of the…

A: A call option gives the right but not the obligation to buy at the strike price. In a bull spread…

Q: A call option with a strike price of $50 costs $2. A put option with a strike price of $45 costs $3.…

A: Options are market securities which can be purchased or sold in anticipation of the movement of the…

Q: Financial risk management  1. The two primary advantages of options are their limited risk…

A: As you have asked multiple questions, we will solve the first question as per Bartleby policy.…

Q: . I own a call (put) on Euros. If the value of Euros goes up, then the _________. a) the value of…

A: A currency option gives investors the right, but not the obligation, to buy or sell a specific…

Q: Your friend is planning to sell IBM stock in 30 days who believes that IBM's price will be very…

A: In this question, we are required to determine the action to be taken by the friend to protect…

Q: The Sisyphean Company has a bond outstanding with a face value of $1,000 that reaches maturity in 8…

A: Bond price will be sum of present value of all interest payments and present value of face value…

Q: If the manager of a gold mine wants to protect its operations against a market price decline, while…

A: It is a financial instrument whose value/price is determined by the given assets. Options, forwards,…

Q: ange Corporation has just made a Euro bid on a project located in Fra ere will be a 15% signing…

A: There is a need for protection against exposure to international currency otherwise there is the…

Q: Which of the below statements is false about real options?  A. Real options increase firm value…

A: Real options are also such options which will be providing various types of opportunities for…

Q: A put option in finance allows you to sell a share of stock at a given price in the future. There…

A: Put options are exercised when the market share price is less than the Put price, in which the loss…

Q: You are an options dealer who deals in non-publicly traded options. One of your clients wants to…

A: To ensure a profit, let's consider the strategy you can employ in this scenario:Buy the put option…

Q: None

A: When you invest in a company like Nestle, which is based in a different country, the money you make…

Q: compare or contrast forwards and options:

A: Options are the financial derivatives used to cover up the risks in the derivatives market. in an…

Q: December call and put options. The call option has a strike price of $50 and the put option has a…

A: A short strangle is an option strategy that consists of selling out of the money call option and put…

Q: Determine the impact on earnings of the above hedges for the first and second 30-day period.…

A: In the given scenario, we should calculate the impact of the hedges for the first and second 30-day…

Q: Learn Corp. (Ticker: LC), an education technology company, is considered to be one of the least…

A: Characteristics of a call option on a particular stock have been provided. There are several…

Q: Suppose a financial manager buys call options on 50,000 barrels of oil with an exercise price of $88…

A: The call options give the manager the right (but not the obligation) to purchase oil futures…

Q: you buy a put option contract on Tesla Inc, with the most heavily traded strike price today. What…

A: Options are very good derivative products and by payment of small premium you get right to sell or…

Risk Management Techniques

Risk management is the procedure of recognizing, analyzing, monitoring, and preventing the risks and threatening factors of investments and business. Risks can arise from various factors including internal controls, market changes, natural disasters, and failure in productions. Risk management techniques enable entities to control and minimize the risks as well as the threatening factors of the business and it also helps to improve the business.