Consider the differences between currency Futures and Forward contracts. When would Futures be used? When would forwards be used? A forward contract is tailor made for a client by his international bank. In contrast, a futures contract has standardized features and is exchange traded, that is, traded on organized exchanges rather than over the counter.
Question 2 of 100 (2B5-LS53) Flag for Review A manufacturer with seasonal sales would be most likely to obtain which one of the following types of loans from a commercial bank to finance the need for a fixed amount of additional capital during the busy season? *Source: Retired ICMA CMA Exam Questions Insurance company term loan. Transaction loan. Unsecured short-term term loan. Installment loan.
Overview of uses[edit] Farmers can use weather derivatives to hedge against poor harvests caused by failing rains during the growing period, excessive rain during harvesting, high winds in case of plantations or temperature variabilities in case of greenhouse crops; theme parks may want to insure against rainy weekends during peak summer seasons; and gas and power companies may use heating degree days (HDD) or cooling degree days (CDD) contracts to smooth earnings. A sports event managing company may wish to hedge the loss by entering into a weather derivative contract because if it rains the day of the sporting event, fewer tickets will be sold. Heating degree days are one of the most common types of weather derivative. Typical terms for an HDD contract could be: for the November to March period, for each day where the temperature rises above 18 degrees Celsius keep a cumulative count of the difference between 18 degrees and the average daily temperature. Depending upon whether the option is a put option or a call option, pay out a set amount per heating degree day that the actual count differs from the strike.
The difference between two type of contract is Futures contracts are standardized whereas Forward contracts are customized. The major terms and conditions: 1)How many units of the underlying asset is the long supposed to acquire or how many units of the asset does the short have to deliver. 2)What is the acceptable grade or grades of the underlying asset that is allowable for delivery? 3)Where should the delivery should be made? Is it possible only at the
Short Term Investment Bonds Long Term Bonds Real Estate Debt o The Inflation-Sensitive Investments category provides exposure to markets, including inflation-indexed, income generating investments. Real Return Bonds Infrastructure Real
REAL OPTIONS AND THEIR INCORPORATION WITHIN CAPITAL BUDGETING A real option is a form of derivative, similar to a forward contract, but with a couple of important differences. A real option infers the right, but not an obligation, to buy an underlying real asset. The holder of a real option will compare the market value of the asset in question, along with the agreed exchange value on the option and can then decide whether to exercise that option or tear it up. This flexibility can come at considerable cost, which we will examine in the next section. The process of capital budgeting focuses on the incremental increase in cash flows associated with an investment decision or investment project.
2. What item costs and revenues are relevant to the decision of how many units of that item to stock? The item costs relevant to the decision of how many units of that item to stock are the liquidation costs if the item has not been demanded. The revenues related to this same decision are the contribution margins of that item if it has been demanded. The two are used in a way that balances these costs and revenues.
What other items affected cash flow? The purchase of treasury stocks and effect of changes in foreign exchange are other
MULTIPLE CHOICE QUESTIONS 1. The statement of cash flows should help investors and creditors assess each of the following except the a. entity's ability to generate future income. b. entity's ability to pay dividends. c. reasons for the difference between net income and net cash provided by operating activities. d. cash investing and financing transactions during the period.
common valuation methods are: Historical Cost/Historical Proceeds Method. For an asset: the amount of cash, or its equivalent, paid to acquire the item, commonly adjusted for depreciation or other allocation. For a liability: the amount of cash, or its equivalent, received when the obligation was incurred—sometimes adjusted for amortization or other allocations. Current Market Value Method. The amount of cash, or its equivalent, that could be obtained by selling an asset in an orderly liquidation.