Learn how a financial call and put option works.
- Everyone loves to have options,…but when financial people talk about options,…they're talking about financial contracts…that give them the right, but not the obligation,…to buy a commodity, currency,…or interest rate at a specific price.…People love options because they're relatively easy…to understand,…the cost to use them is clear and upfront,…and they are effective tools to help individuals…and companies manage financial market risks.…
Options allow companies to manage risks in…foreign exchange rates, commodity prices,…and interest rates.…Options are a bit like corporate insurance…for financial market risks…because risk managers pay an upfront fee to buy options,…but also like insurance, options don't always pay out.…There are two kinds of options,…put options and call options.…A put option pays if a market falls,…a call option pays if a market rises.…
All options have two parties, a buyer and a seller.…They also have fixed duration before they expire…and they have a price that's important…for using or exercising the option.…
Jason Schenker of Prestige Economics discusses nine types of corporate risk, including financial and nonfinancial risks. He explains the difference between direct risks that companies face constantly, as well as indirect risks that usually come from vendors, competitors, and counterparties. Then he covers how risks are typically resolved, either by elimination (divestiture or acquisition), transfer (hedging or insuring), offset (creating a natural hedge), or ownership (keeping the exposure). Finally, he reviews how corporations can actively measure and monitor risk by appointing dedicated risk managers, officers, and committees.
- Understanding risk in corporations
- Risk management process
- Nine different types of corporate risks
- Financial market risks
- Direct and indirect risks
- Risk management solutions
- How corporations actively manage risk