The purpose of this assignment is to give you the opportunity to more fully understand the uses of derivative securities. By objectively undertaking this assignment, you will be aware of the practical uses of derivative securities to assist in hedging the day-to-day activities of corporations.
You have heard that derivatives can hedge many of the variables which affect the bottom line figure of your corporation but which you generally have no control over and which are not in the line of the business of your corporation. You therefore must devise strategies involving exchange traded derivative securities to control for potential adverse movements in these variables.
Choose a corporation (you may make up a company although this makes it a lot less interesting). Describe the activities of this corporation and some of the main risks that face this corporation. Tailor this description of risks to what you expect to discuss in Part II.
Describe strategies which would involve the use of derivatives contracts to control for some of the risks described above. In describing these strategies, refer to specific derivative contracts and the specific exchanges they are traded on. Also, discuss the advantages and any limitations of your strategies.
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