International Financial Markets Report
Added on 2020-07-23
12 Pages3627 Words54 Views
FinanceCalculus and AnalysisEconomicsPolitical Science
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INTERNATIONAL FINANCIALMARKETS
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1QUESTION 1...................................................................................................................................1A. FTSE future contract is at a forward premium..................................................................1B. Identifying hedging strategy to protect against the market fall.........................................1C. Analysing the speculative strategy in relation with adopting risks...................................3QUESTION 2...................................................................................................................................4Determining the facts of increment and decrement of stock prices as according to CAPMmodel......................................................................................................................................4QUESTION 3...................................................................................................................................5A. Analysing the financial liberalisation and globalisation of financial markets and severefiscal imbalance which will help the emerging economy......................................................5B. Analysing the reason behind international economic downturn which provokes thefinancial crisis.........................................................................................................................6CONCLUSION................................................................................................................................8REFERENCES................................................................................................................................9
INTRODUCTIONProcess of international financial markets is to undertake adequate analysis over thevarious operations such as exchange of securities and to facilitate appropriate deals among theinvestors. In the present report there will be analysis based on various factors and operationswhich in turn is required to analyse strategies like hedging speculative and capital asset pricingmodel. It also comprises with the CAPM model and various key theories of financial marketssuch as liberalisation, globalisation etc. Moreover, report consists of adequate knowledge andinformation relevant with the operational functioning of FTSE 100 indexes and variousdesignators. Additionally, There has been discussion based on the reasons behind the globalfinancial crisis, recession and various economic terms that has had impacts on the financialstability of the nation.QUESTION 1A. FTSE future contract is at a forward premiumIn relation with ascertaining operational framework of FTSE 100 indexes whichcomprises with a forward premium that indicates, domestic interest rate is comparatively higherthan the dividend yields. It defines that, theoretical equilibrium value for the futures prices isassociated with preventing profit arbitrage. In relation with making the adequate increment in theprofitability of the firms there has been application of various approaches which in turn bring thefuture estimated outcomes. Therefore, there can be used if future contracts and substitutionwhich will replicate the principle. Thus, fair prices of the derivatives which in turn brings thereplicating portfolio with equal future pay-offs same as derivatives.B. Identifying hedging strategy to protect against the market fallHedging strategies:It is the techniques which enables market investors to have implication of strategicinstruments which in turn affect the market offset on risk of return as per adverse pricemovements (Ahmed, Coulibaly and Zlate, 2017). Therefore, it will have impacts over investorshedge which will be by making the another investments. Thus, it comprises with awarding theprotection to the investors on the basis of their invested money in the capital shares of thebusiness.1
The 15 million of investment has been made in 100 shares of FTSE and there has beenassumption of negative fall of such shares to the 4900 in October. Moreover, in relation withprotecting the damages will incur due to such fall there has been implication of Hedging strategy(Thrift and Amin, 2017). This strategy comprises with the process of hedging people from thenegative impacts. Moreover, it has been pre-assumed that the share value will fall in October. Soto have satisfactory prevention there has been influences of the adequate insurance policies.Thus, such insurance will not stop the event to happen but it will be assistive in terms ofreducing the impacts of negative fall (Domowitz, 2018). Therefore, to prevent the funds and theimpacts of such down fall there is need to have proper hedging which in turn will be effectiveand adequate to have appropriate analysis over the market derivatives.On the other side, to protect funds from down fall of the market there is need to analysethe losses. Thus, the fall has been assumed at 4900 so that funds will worth at:4900 x £15,000,0005350= £13738317 Therefore, it means that the loss will be:£15000,000 - £13738317= £1261683However, it has been assumed here that the future will fall from 5400 to 4900 which in turninfluences the gains for 500 points * 8 points:500*8= 4000/ short futuresMoreover, the measurements can be stated as for: 1261683/ 4000 = 315.42 that is 315 contracts to be sale.In addition, it can be said that the revenue will be gain by them as:315 X 4000= £1260000 (Profits)2
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