Human Resources
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- Date Submitted: 12/10/2010 03:00 PM
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THE GLOBAL FINANCIAL MARKET AND INVESTMENT
A2.
Compare and analyze the recent utilization of derivatives (since 2000) with basic options and hedging strategy as undertaken in the 1990’s. Much media criticism was directed towards investment banks (like Lehman Brothers) which were over-extended in terms of leverage, particularly with CDO’s and Credit Default Swaps, why was there this criticism? And develop the case for simplification of the markets to ensure that derivatives are kept within manageable control.
INTRODUCTION:
Hedging against various entrepreneurial risks has become one of the most important activities within various companies in last two decades. It is utilized by huge multinational corporations (MNCs) as well as by medium and small companies which are active on regional scale. We are witnessing risk management teams creations in companies all around the globe. (Adedeji, A., 2002) .whether in Asia-pacific region, in US or in EU, boards of directors have become more familiar with the necessity of risk hedging in companies they are heads of. There are either whole risk management departments or at least some sections within financial department which carry out company's hedging policy (from one form to another).
ANALYSIS:
Companies should, by their nature, be risk averse. If these companies are strongly convinced that risks they are considering to hedge will turn up in their favor, they do not hedge them. An opportunity for unexpected news to break out is than created. (Dawsan .C 2002).This is one of the reasons why there is certain level of risk hanging over almost every organization all the time. If all companies were rational there, theoretically, would not be any risk left to be exposed to. Even though, companies try to do their best to avoid risk, it has to be admitted that from time to time they are exposed to unnecessary risk by their own fault. Other reasons which have emphasized need of hedging for companies are as follows: possible...
A2.
Compare and analyze the recent utilization of derivatives (since 2000) with basic options and hedging strategy as undertaken in the 1990’s. Much media criticism was directed towards investment banks (like Lehman Brothers) which were over-extended in terms of leverage, particularly with CDO’s and Credit Default Swaps, why was there this criticism? And develop the case for simplification of the markets to ensure that derivatives are kept within manageable control.
INTRODUCTION:
Hedging against various entrepreneurial risks has become one of the most important activities within various companies in last two decades. It is utilized by huge multinational corporations (MNCs) as well as by medium and small companies which are active on regional scale. We are witnessing risk management teams creations in companies all around the globe. (Adedeji, A., 2002) .whether in Asia-pacific region, in US or in EU, boards of directors have become more familiar with the necessity of risk hedging in companies they are heads of. There are either whole risk management departments or at least some sections within financial department which carry out company's hedging policy (from one form to another).
ANALYSIS:
Companies should, by their nature, be risk averse. If these companies are strongly convinced that risks they are considering to hedge will turn up in their favor, they do not hedge them. An opportunity for unexpected news to break out is than created. (Dawsan .C 2002).This is one of the reasons why there is certain level of risk hanging over almost every organization all the time. If all companies were rational there, theoretically, would not be any risk left to be exposed to. Even though, companies try to do their best to avoid risk, it has to be admitted that from time to time they are exposed to unnecessary risk by their own fault. Other reasons which have emphasized need of hedging for companies are as follows: possible...