Essay on Financial Derivatives

Document Type:Coursework

Subject Area:Economics

Document 1

Inherently it is imperative to point out that in as much as derivatives are commonly associated with physical products such as gold or petroleum oriented assets, the primary form of derivatives under discussion are those that are financially oriented. Philippon argues that these are often in the form of stocks and bonds. It is also essential for one to keep in mind that the sale of derivatives is easier than the actual purchase of an asset. It is because in the former the seller of the contract does not necessarily have to own the asset and also can provide the buyer with another contractual derivative which will reduce or balance the value of the first contract (Christner, 38). In this regard, the paper focuses on assessing of financial derivatives and their relevance on Walmart, Inc.

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Philippon implores that the firm purchases commodities from one country in the country’s currency then sells the same products in another country but at a different currency. Therefore Walmart, Inc hedges against the rate of exchange as far as currency is concerned to prevent losses and maximize on the profits. A close look at the stock options associated with Walmart, Inc. shows some promising findings. Walmart, Inc trades in equity primarily in the United States market (Investing. 50, and 95. However it makes sense since the as per 28th September 2018 the most significant strike price was 93. Following the stable performance of the company, the most viable option strategy for use has to be one that does not subject the company to risk and loss, while at the same time provides a range in which the firm can make sound profits (Chem and Mae).

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