Financial management practices

Problem 1. Performance objective:

(a) How do companies use financial derivatives to manage some of their risks?

(b) Identify several types of derivatives.

(c) Why use an options contract rather than a forward contract?

(d) Why let a put option expire; why exercise a call option?

(e) Are swap agreements traded internationally? If so, then provide an example.

Problem 2. Problem-solving: Identify and describe two financial management practices that firms use to manage each of the following:

(a) liquidity risk;

(b) interest rate risk; and

(c) credit risk.

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Finance Basics: Financial management practices
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