Most publicly traded companies participate in derivative contracts, also known as arbitrage transactions. Think back to the company you selected in the Week 1 Assignment. Assume that you have been asked by your CFO to prepare an analysis of the company's derivative contracts presented in the company's most recent SEC 10-K. Think about the derivative contracts, the risks and benefits presented, and why the company is entering into each contract. Consider how you might go about summarizing the risks and benefits of the derivative contracts.
To prepare:
For the company you selected for the Week 1 Assignment, examine the Item 7 "Management Discussion and Analysis" section of the firm's SEC 10-K.
Summarize three of the derivative contracts into which the company has entered.
Describe each of the three contracts and consider the risks presented by each.
Weigh the benefits each contract might bring to the company (financial consequence or impact).
Consider why the company is entering into each contract.
Consider whether each of these transactions is related to the company's business or outside their business.
Submit by Day 7 a 2- to 3-page analysis of the company's derivative contracts. Your paper must:
Analyze the risks presented by each of the three derivative contracts.
Explain the financial benefit each contract is meant to bring to the company from the company's perspective.
Specify whether these derivative contracts relate directly or indirectly to the company's business.
Evaluate the risks and benefits of the three derivative contracts for the company (for example, whether you think the risk is worth the price or if better alternatives exist that the company could pursue).