Essays on Futures

Oil Prices Fluctuating In the Middle East

Introduction Oil being a commodity is subject to high levels of fluctuations as opposed to the stable investments like bonds and stocks. In particular, Organization of Petroleum Exporting Countries (OPEC) plays a significant role in influencing the prices of oil across the globe. As a result, OPEC controls around 40 percent of the global supply of oil by setting the production levels that caters for the world demand and it can determine the prices of gas and oil by reducing or raising the levels of production. At a particular point in time, OPEC vowed to maintain the prices above $ ...

Galaxy Skis has a tough time ahead of itself when it comes to using the international financial market. This is because it is looking at building a plant in China, where the government frequently supports manipulating its currency in order to maintain a competitive edge over other countries in terms of resource and labor cost (Catalan, 2010). This can be problematic for a company that seeks to do continuous business in the country due to the fluctuating market system and exchange rate, though analysts claim that China’s actions will not have long term effects on the flow of ...

International Investments Diversification

International Investments Diversification The term global portfolio refers to a group of investments, assets and securities held in foreign markets rather that the domestic market. Traditionally, investors have preferred to focus on international portfolio investment when it comes to the investment in marketable securities. As opposed to the only domestic portfolios, the international portfolio yields more value for the same level of risk. Ideally, an investor should analyze the global stock market to identify the markets that are related to their domestic stock/ securities market in terms of risks and rewards (Agati, 2007). This helps investors reduce their anxiety ...

YOURNAMEHERE

YOURSCHOOLHERE C13 Economics Assignment 08 Part 1 Monopolies develop in several ways (Vandewetering, n.d.). There are “natural” monopolies that emerge from the scales of some businesses. Electric generation utilities, for example, require multi-million dollar investments in the plant and more millions to build the distribution infrastructure. At these levels of entry costs, virtually no competition can develop. Some monopolies develop around ownership of a scarce resource. The DeBeers company, for example, controls a large percentage of the world’s supply of diamonds. The third form of monopoly is the result of government action. For example, patent and copyright protection ...

More and more children are becoming a witness of domestic violence. Being a witness of domestic violence has a crucial effect on their development and behavior in future. This complicated situation is constantly being investigated not only by authorities, but also by psychologists in order to decrease the percentage of the cases, and find out possible ways of solution of rooting out the domestic violence at all. Recent research shows that more than 15 million children living in the United States are more likely to live in families where a case of domestic violence appeared once a year; and ...

The Securities and Futures Ordinance of 1991 was a significant leap in Wall Street regulation. The Ordinance consolidated several laws that were created in the past and helped pave the way towards securing Hong Kong’s financial future. The Ordinance created a universally accepted licensing system in dealing with financial commodities, such as securities and other derivatives (Charltons). The Ordinance also only allows for corporations and individuals representing them to receive that licensing. In addition, the Ordinance provides those currently licensed two years to adjust their platforms to the new regulations provided by the Ordinance. Though it is the ...

Executive Summary

Fossil fuels are the predominant source of energy for industrial and transportation consumption. It is however expected that in a few more decades, fossil fuels will have lesser role to play than non-conventional oil and gas sources and renewable energy sources. This paper presents an overview of some of the socioeconomic factors that are driving the global oil industry and their implications for the UK industry. Four key influences are studied to understand the implications for the industry in terms of economic and environmental factors. The steady influence of OPEC is a significant factor in the pricing of crude ...

QUESTION A

Credit Default Swap It is a financial instrument lenders use to hedge default risk. The lender acquires a CDS and pays premiums to the CDS seller who takes the default risk (Lasher 200). If the borrower defaults, then the CDS seller pays the par value of the loan to the lender. The CDS seller also pays the protection buyer accrued interests on the loan during the intervening period.

Cash flows in case of no default

Annual CDS premium = 4% × 1,000,000 = $40,000 Quarterly payments = 40,000/4 = $10,000 A will pay quarterly CDS premiums to B for the three years. At the end of ...

QUESTION A

A Credit Default Swap is a swap that protects the lender from the risk of loss resulting from the default by the borrower. The protection buyer of the CDS (the lender) makes periodic income payments (CDS premiums) to the protection seller who in return guarantees to pay the lender the principal in case the borrower defaults.

Cash flows when there is no default

Notional amount = $1 million Annual CDS premium = 4% × 1,000,000 = $40,000 Quarterly CDS premium = $10,000 If the borrower does not default, the protection seller will make a profit of $120,000 at the end of the third year ($10,000 ...

The overall aim of every investor is to make a profit. There are various investment tools that are designed to meet the specific needs of the investor. Thus, depending on the investment goals and objectives, an investor can opt for an investment option that best suit his needs. There are both long-term investment and as well short term investment tools. The long-term investments are generally considered to be investments that an investor wishes to hold for a period of more than one year. On the other hand, short term investments refer to the investments that are likely to expire ...

Responses to Classmates’ Posts

Response to Post on Question 1: The information shared on the rationale for managing risks are enlightening. There were useful insights which provided valid reasons for managing risks from Galai, Dan, & Crouhy (2014) especially in terms of asserting its importance in tax reduction as well as for ease of control in managing the organization’s resources. One affirms that, although not explicitly stated, the relevance of managing risks are evidenced by the increase in net profits of the firm, which would prove overall profitability and sustaining competitive advantage in the long run. As emphasized in an article on managing ...

High-risk investments mean volatility associated with the returns on investments and stock prices change. Any investment transaction has a risk element. Moreover, the major proportion of the investment theory states that the potential profitability is inversely proportional to the risk level . At this, it is not important whether it goes about the passive investment, active stock transactions or new business projects. Risk allows earning much and provokes losing much because associated with potential losses even in the case of success. It is extremely important to understand quantitative and qualitative characteristics of risks, which affect the amount of the invested ...

China

1. COUNTRY

We have chosen China as a country for analysis

2. RECOMMENDATION We have decided to convert US dollar to Chinese yuan on May 24, 2016. The total cost in dollars according to this option is calculated further in question 9. 3. CHINESE ECONOMY OVERVIEW China’s role in the international arena has been growing in the recent years. Apart from being the most populous country with over 1.3 billion people and one of the largest countries in the world by territory, it has been experiencing substantial economic development in the past decades (Naughton 3). China is the second largest economy in the world after the USA. ...

Introduction

Shanghai and Hong Kong have become important in the global financial sector. Modern banking and finance started in HK and Shanghai in 1845 and 1847 respectively when the first British bank was opened, the Oriental Banking Corporation. The Hong Kong and Shanghai Banking Corporation, a multinational Holdings was founded in 1864 with its Head office in Hong Kong. Other foreign and local banks from Britain, Europe, America and Japan were subsequently opened. The modern Commercial Bank of China was formed in 1897 with its head office in Shanghai. The first stock exchange was established in Hong Kong in 1891 ...

In the case study, it is pointed out that all through the late 1990s, Enron Corporation was nearly universally regarded as being among the country’s most innovative corporations (Li 37). The company went on building power plants and operating gas lines; however, it turned out to be well known for its exceptional trading business. Apart from buying, as well as selling, electricity and gas futures, it engaged in the creation of entirely fresh markets for such eccentric ‘products’ “as broadcast time for advertisers, weather futures, and internet bandwidth” (Li 37). Enron Corporation was established in 1985, and being ...

Currency Hedge

Over the few decades, the financial markets have seen explosion in the derivative markets. Even though notable investors such as Warren Buffet has called derivatives as the weapon of Mass Destruction’’, still, derivatives accounts for a market worth trillions of dollars as companies around the world use these instruments to hedge their risk exposures. Below we have discussed three traditional derivative instruments and how they are used by the companies to hedge their foreign exchange exposure:

Currency Forwards:

Currency Forwards are the derivative contracts as part of which, one party agrees to buy a predetermined amount of one currency for a ...

Introduction

Mark to market, also called fair value accounting, has been one of the most controversial accounting methodologies in financial reporting. Mark to market refers to an accounting process in which the reporting entities report the value of assets and liabilities as per the current market value as opposed to the book price thus making the methodology highly subjective (Association of American Bankers, 2016: Serakibi, n.d.). Therefore, since the reported value is pegged on the prevailing market value, it follows that the value of the financial statement would change as the market changes. In most cases, the change in value ...

Scenario Planning

The concept of scenario planning involves deriving a probable future situation, usually achieved through consistent description of one possible future outcome. Many researchers and other professionals attribute the process of scenario planning with a number of advantages, and highlight different approaches that can be utilized in deriving future scenarios. This paper seeks to evaluate the existing literature regarding scenario planning, the process of undertaking scenario planning, and the associated advantages.Specifically, the paper will evaluate the effects of communication technological advancements on the process of management. The development of future scenarios helps an organization to focus on how the process ...

Introduction

The Tulip Mania that took place between 1636 and 1637 is one of the earliest recorded financial bubbles (Veen, 2012). While there is no universally accepted definition of a financial bubble, the term financial bubble is used to refer to a situation where an asset price exceeds the asset intrinsic value, or the value that could be earned by holding the asset to maturity for an extended period of time (The Federal Reserve Bank of Chicago, 2012). The Tulip Mania fits the description of a financial bubble because at its height, the price of some tulip bulbs exceeded the ...

This paper will cover oil price dynamics for the period starting from 2005 until the present moment of time. Exact price dynamics will be considered as well as a variety of factors influencing the oil price through the above mentioned period of time. The chart showing the dynamics of crude oil barrel price since 2001 is presented in fig. 1. Figure 1. Dynamics of crude oil price per barrel for the period between January 1, 2001 and April 19, 2016 (Trading Economics, 2016). Before the period, which is the subject of this paper, the oil price had been nearly ...

BUSINESS FINANCING

Introduction Business owners and managers seeking financing encounters an essential decision regarding choice of whether to borrow money or to make use new equity capital. Given that equity and debts have very varied characteristics, each of them has different effect on cash-flow, earnings, and taxes as well as on balance sheet. They also have different impacts on any company`s dilution, leverage as well as a host for other financial metrics by which companies are measured. Lastly, each business financing options presents a different kind of relationship in relation to the financing source. Thus, a company`s plan on ...

Introduction

Failure to regulate the derivatives market during President Bill Clinton’s and President Bush eras contributed to the economic crisis that hit the U.S in the year 2008. “The Warning” is a documentary that was aired on PBS Frontline in 2009.In the documentary, a former Chairperson of the Commodity Futures Trading Commission (CFTC), Mr. Brooksley Born talks of her attempts to control the derivatives market while she was at the helm of the CFTC. She says that these attempts failed and legislation was passed to prevent her and the CFTC from regulating the derivatives markets. The passing of this ...

China Stock Market and Currency

Shanghai Stock Exchange (SSE) is one of the largest stock markets in the world. The market has over a thousand listed companies, over 6700 listed securities, and over 1100 stocks. Chinese stock market has witnessed sporadic growth that is fueled by the fast economic growth that has been witnessed over the last thirty years. The economic growth was driven by the adoption of various economic reforms and opening up of China to the world. China is now integrated into the global economy and plays a major role in the stabilization of the regional and as well the world economy. ...

Reasons for the severe decline in Chinese Stock market in 2015

Between June 2014 and June 2015, the CSI 300 Index rose by 150%, reaching the peak at 5,166.3 on 12th June 2015. What follows was a severe decline in the stock index. Within just one month, the CSI 300 index had lost 30% to 3,507 on July 8. Several factors caused the fall.

Short selling

In the run-up to the stock market decline, investors were aggressively involved in short selling and margin trading. Short-selling and margin trading allowed investors to purchase shares using borrowed money thereby increasing the demand for stocks. Investors engaged in short-selling sell stocks borrowed from ...

International Finance

1 a. Discuss the corporate control of your business. Explain why your business in Mexico is exposed to agency problems. b. How would you attempt to monitor the ongoing operations of the business? c. Explain how you might be able to use a compensation plan that limits the potential agency problems? d. Assume that you have been approached by a competitor in Mexico to engage in a joint venture. The competitor would offer the classroom facilities (so that you would not need to rent classroom facilities), while your employees would provide the teaching. You would split the profits with ...

Results and Literature Review

Slavec & Prodan (2012) found out that the strength of an entrepreneur’s social links is a significant factor in financing choice. The bigger the strong-tie network, the less the need for seeking finances to offset debts as the strong ties the entrepreneur has will enable him or her assemble the necessary financial resources. A majority of the respondents indicated that they have strong social ties with family members, financial institutions, accountants and friends whom they play an important role in supplementing the start-up and working capital of their business. This is in line with Slavec & Prodan’s research on ...

Introduction

Following the drops witnessed with the overall prices within the oil industry, it has been recorded that majority of the dependent industries have been reported devaluation in both their asset bases and their stock items. This is the suggestion of the Bushee and Miller (2013) on presenting the oil industry as one industry that is heavily depended upon by a majority of the sectors within commerce and industrialization. Suggestively, this is true based on the use of oil within the manufacturing sector, the energy and allied sectors, the transport sectors, and production industries. With this highlighted, the effect of ...

Introduction

The technique of high-frequency trading has been around for years, but especially close attention and a new surge of interest in it arose after the sensational release in May 2010 of the book by Michael Lewis “Flash Boys”. In fact, it is hard to call high-frequency trading methodology a revolutionary or even new. Although now, talking about it, everyone remembers high-performance computers and automatic programs with elements of artificial intelligence, but if to leave these technological “tricks” and the terms out of the brackets, everything becomes much easier. Actually, we are dealing with a business model, when using a ...

[Economics] As everyone knows, oil is considered to be a raw material. Though there are some unknown oil stocks, oil as well as other minerals is an exhaustive type of resource. Moreover, no matter what scientists say, or give any predictions, in the nearest future we will run out of this mineral. That is one of the reasons why we can observe the price gradually raising now. But to be honest, by 2020 this factor will not influence significantly the price of oil. The explanation to this is because the vast majority of world’s oil stocks have already ...

I will be looking at whether resource prices are rising or falling. I will conduct a deep research into the root of this problem around the world. Through this research it will be easy to establish the solutions to this problem which is not healthy to the economy (Neumayer 68). The research will be conducted through; closed questionnaires, data analysis and use of internet research which includes the use of World Bank and IMF data. Just to take a preview of the essay topic, the history of this problem is from the recent drop in global oil prices that ...