Finance: Options, Mortgage, FCPA, Labour Problems, LIBOR, Hedging Cost

FINANCE
STUDENT ID:
[Pick the date]

Question 1
1) The given statement is true. This is because a low exercise call option would have a
high premium and hence loss would be higher. But the advantage would be in the
form of higher potential upside if the asset price does increase.
2) The given statement is false. This is because the value loss on account of time would
be greater when the holding period id greater.
3) The given statement is true. This is because using derivative based options is just one
of the choice available and other options such as borrowing or investing abroad can
also provide a natural hedge.
Question 2
1) Correct option is B as the truck driver would not be impacted by the underlying price
and hence is a spectator. This is not true for farmer or the food manufacturer as these
are interested parties.
2) Correct option is A as mortgage lacks any financial engineering unlike other options.
3) Correct option is C as the underlying action can be equated with the transaction cost
decline.
Question 3
1) In 1977, an important federal act was enacted in US named as Foreign Corrupt
Practices Act. It aimed at ensuring that US businesses do not indulge in bribing in
their foreign operations and also have greater accounting related transparency. This
act has led to reduction in bribing incidences related to international businesses
coupled with more ethical business practices by US business along with higher
corporate governance standards in international business operations (Arnold, 2015).
2) The footwear and clothing industry related labour and ethical problems are mentioned
as follows.
 The issue of low wages which exists due to lack of requisite legislative protection
coupled with weak enforcement.
 High incidence of child labour in order to lower costs and maximise profits.
 Compromised safety and health standards for workers which can lead to loss of
life, injury and various accidents.