International Finance

How to calculate the value of a call option and a put option

An option is a claim without liability. It is a claim contingent upon the occurrence of certain conditions. Thus, an option is a contingent claim. More specifically, an option is a contract that gives the holder (buyer) a right, without any obligation, to buy or sell an asset at an agreed price on or before Read More…

International Finance

Markets for derivatives

Conventional markets are concerned with financial securities that have a direct claim to a firm’s earnings. For example, equity instruments have a residual claim on a firm’s earnings in the form of dividends, and debt instruments have a fixed claim on a firm’s earnings, in the form of interests. These markets have mechanisms that facilitate Read More…

International Finance

Derivative instruments

There are about six basic financial derivative instruments or contracts which have evolved over the years. These are forwards, futures, swaps, options, rights and warrants. Forwards It is common to find in business that buyers and sellers are subject to exactly opposite risks. The manufacturer of confectionery is concerned that the price of sugar may Read More…

International Finance

How to evaluate international projects

Multinational capital budgeting can be based on similar concepts to those used in the purely domestic case using the net present value (NPV) analysis, in which project cash flows are discounted using the firm’s weighted average cost of capital, or the internal rate of return method which finds the rate of return equating project cash Read More…