treasury and risk management

treasury and risk management Essay example
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Finance & Accounting
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TREASURY AND RISK MANAGEMENT Table of Contents Answer 1. 4 Section (a) 4 Section (b) 5 Section (c) 6 Answer 2. 6 Section (a) 6 Introduction 6 Argument 7 Conclusion 9 Section (b) 10 Introduction 10 Argument 11 Conclusion 12 References 13 Bibliography 14 Answer 1…

Introduction

60 165 28 -$28.00 Do Not Exercise $32.00 Long Share Profit or Loss = Current Stock Price – Spot Share Price For instance, when current stock price is $121 and the Purchase price is $171, the Long Share Profit or Loss = $(121-171) = -$50. Option Value = Strike Price – Current Stock Price For Instance, when the strike price is $165 and the current stock price is $121, the Option Value = $(165-121) = $44 (In-the-Money) Long Put Profit & Loss = Max [(Option Value – Premium paid), Premium paid] For Instance, when the premium paid is $28, Long Put Profit & Loss = Max [(44-28), -28] = $16 The option will be exercised only when there is a Long Put Profit otherwise the option will not be exercised and the loss will be limited to the initial premium paid. Hence, this strategy is also known as the ‘Protective put’ strategy. For instance, when current stock price is $121 and premium paid is $28, the option should be exercised. Similarly, for different current stock prices, the protective put strategy can be computed. ...
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