I&R Articles - Article 2 slides
6 important questions on I&R Articles - Article 2 slides
What is the quiet life hypothesis?
- The older the manager, the more hedging he or she will use
- Aged managers who are close to retirement will prefer linear hedging among all hedging instruments
What is the risk incentive theory of hedging?
- This means, if low return value is an option, the prefer a medium firm value over a high value.
- Managers prefer completely hedge againt uncertainty with linear hedging strategies.
- Risk-Neutral managers use:
- Put cash
- collar
- linear
- Risk-Averse managers use:
- Linear
- collar
- put cash
What is meant by a collar strategy?
- Capping the upside potential at the same time compared to put cash.
- More stable than put cash
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What are the main findings of this table and relate those to the theories:
negative and positive variables
the value of variable parameters
What is meant with operational hedging?
Is hedging the firm risk exposure by means of non-financial instruments, particularly through operational activitiesExamples:
- relocating production facilities to get a better match of costs to revenues
What is natural hedging?
- financing an operation in local currency
The question on the page originate from the summary of the following study material:
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