This article summarizes the motivations behind the reason why many corporates use (currency) options for risk management. Firstly, the paper would generalize the term of Financial Derivatives and how they benefit investors. Furthermore, it review a great deal of previous scholar works done on the field of risk management by corporates and on general options.
In addition, the following case study of the company named ABC using a protective put strategy in order to hedge its investment in BCA is explored in both situation of increase and decrease in share price in order to understand how companies manage risks. Even though options can be an effective tool that helps companies be successful in grow their firm values options can also become worthless due to a minor modification of share price.
Inhaltsverzeichnis (Table of Contents)
- Executive Summary
- Introduction
- Literature Review
- Risk Management in Corporates
- Hedging strategy and Empirical Literatures
- Currency Options
- Case study
- Background information
- Alternatives for Daniel Inc.
- The strategy
- Scenario 1
- Scenario 2
- Benefits and drawbacks of using options
- Conclusions
- References
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This article aims to explain the use of currency options in risk management for corporations. It explores the benefits of financial derivatives for investors, reviews prior research on corporate risk management and options, and provides a case study to illustrate how companies can use a protective put strategy to hedge against currency fluctuations.
- The role of risk management in corporate success
- Financial derivatives as tools for risk mitigation
- The use of currency options in hedging strategies
- Case study of a protective put strategy for currency risk management
- Benefits and drawbacks of using options in risk management
Zusammenfassung der Kapitel (Chapter Summaries)
The introduction highlights the importance of risk management for corporations and how globalization has led to new challenges, including currency fluctuations. It introduces the concept of financial derivatives as instruments for hedging against these risks, particularly focusing on currency options.
The literature review section delves into prior research on risk management in corporations, hedging strategies, and the specific application of currency options. It provides a theoretical foundation for the subsequent case study.
The case study section presents a detailed analysis of a hypothetical company named ABC using a protective put strategy to hedge its investment in BCA. It examines the strategy's performance under different scenarios, including both increases and decreases in the share price. This analysis aims to illustrate the practical application of currency options in mitigating currency risk.
Schlüsselwörter (Keywords)
The main keywords and focus topics of this article include risk management, financial derivatives, currency options, hedging strategies, protective put strategy, currency fluctuations, corporate finance, and multinational corporations. This article primarily focuses on the practical applications of currency options in managing financial risks for corporations, particularly in the context of international business and investment.
- Citar trabajo
- Tuan Tran (Autor), 2015, How Companies Use Currency Options in Risk Management, Múnich, GRIN Verlag, https://www.grin.com/document/298380
