Some financial professionals consider forward contracts another kind of derivative security. Why do you think this is so? A derivative security is a contract whose…

In what way(s) are quality-leading companies changing their approach to the control of working capital? Quality-leading companies are finding many ways to improve their production,…

A forward contract locks in an interest rate or exchange rate for a specified future time. It insulates the company from changes to that rate…

In general, alternative hedging devices are reasonably good substitutes for one another. However this statement is not quite true for at least three reasons: (1)…

Financial managers can use a derivative security to hedge the asset to which the derivative is connected by creating an opposite exposure to the asset….

Insurance products are contingent claims. The insured party pays a premium for the contract (for example, an automobile policy). Should the specified condition (for example,…

To the extent that risk means future uncertainty, both parties bear risk when interest rates are floating that they do not bear when rates are…

Why would any company purchase a floor, since it keeps its interest payments up when interest rates fall? While borrowers do not purchase floors by…

Either they wish to lower the cost of their financing or better match their financing to the cash flows from their operations, thereby providing some…

A collar limits the amount of interest rate movement that can affect a borrower. A collar with a wide band has very little effect, cutting…