Derivatives Markets Essay Example | Topics and Well Written Essays - 4500 words

Derivatives Markets - Essay Example We have already given examples of stock options in an earlier section; we now move on to index options. Stock market indices are well known, not only in the investment community but also among many individuals who are not even directly investing in the market. Because a stock index is just an artificial portfolio of stocks, it is reasonable to expect that one could create an option on a stock index. Indeed, we have already covered forward and futures contracts on stock indices; options are no more difficult in structure. For example, consider options on the S&P 500 Index, which trade on the Chicago Board Options Exchange and have a designated index contract multiplier of 100. On 13 June of a given year the S&P 500 closed at $1241.6. A call option with an exercise price of $1250 expiring on 20 July was selling for $28. The option is European style and settles in cash. The underlying is treated as it was a share of stock worth $1241.6, which can be bought, using a call option, for $1250 on 20 July. At expiration if the option is in the money, the buyer exercises it and the writer pay the buyer the $250 contract the multiplier times the difference between the index value at expiration and $1250. In the United States, there are also options on the Dow Jones Industrial Average, the NASDAQ, and various other indices. There are nearly always options on the best-known stock indices in most countries. Just as there are options on stocks, there are also options on bonds. Interest rate options An interest rate option is an option in which the underlying is an interest rate. It has an exercise rate or strike rate, which is expressed on an order of magnitude of an interest rate. At expiration the option payoff is based on the difference between the underlying rate in the market and the exercise rate. Example: Consider an option expiring in 90 days on 180 day LIBOR. The option buyer specifies whatever exercise rate he desires. Let us say he chooses an exercise rate of 5.5 percent and a notional principle of $10 million. Now let us move to the expiration day. Suppose 180 day LIBOR is 6%. Then the call option in-the-money. The pay off to the holder is $10000000(0.06-0.55) (180/360) =$25000 BOND OPTIONS Options on bonds usually called bond options are primarily traded in the over the counter markets. Options exchanges have attempted to generate interest in options on bonds, but have not been very successful. Corporate bonds are not very actively traded most are purchased and held to expiration. Government bonds, however, are very actively traded nevertheless; options on them have not gained widespread acceptance on options exchanges. Options exchanges generate much of their trading volume from individual investors, who have far more interest in and understanding of stocks than bonds. Thus, bond options are found almost exclusively in the over-the-counter market and are almost on government bonds. Consider for example, a U.S. Treasury bond maturing in 27 years. The bond has a coupon of 5.50 percent, a yield of 5.75 percent, and is selling for $0.9659 per $1 par.

Accounting Information Systems of Air New Zealand Assignment

Accounting Information Systems of Air New Zealand - Assignment Example According to the research findings, it can, therefore, be said that Air New Zealand has a total workforce of 10,453 employees and a reported income of 71$ Million as of August 2012. Air New Zealand can be considered as one of the lifeblood of New Zealand’s economy since it provides services that are essential in the dynamics of commerce. At about 9 am on November 10, 2009, an outage of the computer system of Air New Zealand affected its airport check-in systems as well as its online bookings and call center systems. The outage affected more than ten thousand passengers contributing to the chaos and confusion of affected airports. The disruption not only caused millions of dollars in actual damages to Air New Zealand itself but also to its customers and related business depending on the airline for its logistic needs. On June 18, 2007, Air New Zealand/Eagle Airways Flight 2300 was forced to land on its belly due to the hydraulic system that was being drained via a fatigue crack in its actuator that caused the landing gear to being stuck. There was no recorded fatality in the incident and the damage to the aircraft is repairable. Both incidents while considered accidents could have been prevented if the right information security management system is in place to protect the information assets of Air New Zealand. It should be noted that incidents similar to the ones described may cause the company more in terms of legal if not goodwill costs. Threats not only impact the corporation itself as an entity but also affect its employees, clients, and partners. As predicted on threats not only affect the operation of Air New Zealand, it likewise creates doubt about the safety of its clients and equally affects its financial assets as well as those of its partners. Identification of the threats is therefore not only essential in managing the risks associated to the operation and service provisioning of Air New Zealand it is similarly essential in setting up the inf rastructure that would support its overall security management systems. Threats by any definition is an entity or process if not events that threaten life, disrupt operation, or cause damage to the corporate image of any entity and in this particular case—Air New Zealand—its cause damage to assets of the company, its employee, its clients and even its partners. In the context of information technology in particular Accounting Information System, a threat is a process, thing, or person that will affect the confidentiality, integrity, and availability of the information system, its data, and programs. Natural Disasters and Terrorist Attacks – these are often remediated with the use of backup sites Software Errors and/or Equipment Malfunctions – This will be discussed further at the operational threats Unintentional Acts – These are often done by unsuspecting clients and at times even employees. Strict information security policy is the best way to ad dress these threats. Intentional Acts – This can be done by hackers from the external front and disgruntled employees from the internal front.