Structured Equity Derivatives Essay Example | Topics and Well Written Essays - 4000 words

Structured Equity Derivatives - Essay Example Leverage on equity returns over predetermined ranges. Limit or reduce downside exposure to the underlying equities. Even out, compensate or reduce transaction costs as part of multiple option sophisticated investing strategies. The term equity derivative essentially means a class of financial instruments whose value is at least partly derived from one or more underlying equity securities. Market participant's trade structured equity derivatives in order to transfer or transform certain risks associated the underlying. Options are by far the most common equity derivative; however there are many other types of equity derivatives that are actively traded. Ramaswami et al(2001) have lucidly described the concept of structured equity linked derivatives through the concept of Equity Linked Notes(ELNs).They state as follows, "An Equity-Linked Note (ELN) is an instrument that provides investors fixed income like principal protection together with equity market upside exposure. An ELN is stru ctured by combining the economics of a long call option on equity with a long discount bond position. The investment structure generally provides 100% principal protection. The coupon or final payment at maturity is determined by the appreciation of the underlying equity. The instrument is appropriate for conservative equity investors or fixed income investors who desire equity exposure with controlled risk". The figure below explains the profits at the expiration of a fully protected ELN . Current Industry Scenario Since their launch on the London Stock Exchange in 2005, Listed Structured Products have become popular and flexible investment tools for UK wealth managers and brokers. In there simplest form, they offer ETF like access to underlying that may be otherwise difficult or expensive to trade, such as commodities, emerging markets or property indices. The more structured products, such as Accelerators, provide enhanced upside participation with no worse than market risk. In addition they can reduce other risks, such as eliminating currency risk for non UK investments, or provide an element of capital protection in case of market falls. Another range of products are designed for Income seeking investors. These can offer high annual (or semi-annual or quarterly) coupon payments in return for giving away upside market participation. All Listed Structured Products enjoy the benefits of being traded directly on the London Stock Exchange. These include: Transparency:Live, two-way prices are maintained throughout the trading day Ease of trade:Products trade and settle via CREST as with UK equity Liquidity: Trades of 5m+ can be executed at prevailing market prices Flexibility: Min trade size of 1,000 makes products highly accessible Key Terminology:1 Trackers: Tracks an underlying asset (commodity, Halifax house price index, equity indices etc) Cost efficient means to trade an asset Diversify exposure across an index Stamp duty free Typically long-dated or indeed undated with an indefinite lifespan Reverse Trackers: An inverse relationship with the underlying asset Profit from downwards price movements in the underlying Stamp duty free Capital Protected: Exposure to underlying asset at fixed percentage Capital invested is protected at specified level Stamp duty free Yield Enhancement: Track underlying instrument without leveraged downside Can incorporate many different features which affect

Questions to be answered Essay Example | Topics and Well Written Essays - 1000 words

Questions to be answered - Essay Example If this freezer breaks down due to poor maintenance it will cost them money to repair or replace the broken freezer. Either way, the restaurant needs to have the freezer fixed or replaced in order to keep the products from spoilage and to let the restaurant fully operate. That is why it will cause the restaurant expense if proper maintenance isn’t observed. Second is wastage of resources, for example, ice creams in the restaurant needs to be stored in the freezer to prevent it from melting, if the freezer is broken due to damage or improper maintenance, it will cause the ice cream to melt, and once the ice cream has melted it cannot be served to the guest during the restaurant’s operation, thus causing the restaurant wastage of resources. Third is disruption and inconvenience, for example, if the guest in the restaurant orders an ice cream and the freezer is broken due to damage and improper maintenance as stated above, it will cause disruption and inconvenience to both the guest and restaurant because the order of the guest will be delayed and the restaurant might need to order the ice cream from another outlet causing disruption and inconvenience because of poor maintenance of the equipment. Fourth is erosion of image and reputation, for example, if the restaurant has poor maintenance in their building causing water leaks from the roof and cracks from the wall and allowing termites to crawl out of it, it will give the guest a very bad dining experience and they could also share their unpleasant experience with their friends who are potential customers, thus causing the restaurant’s erosion of image and reputation. Therefore, proper maintenance should always be observed to prevent these consequences from happening. Life cycle costing determines the present value of an asset during its operating life and its end life from initial capital cost, occupation costs and operating costs. It is beneficial to take this approach when managing maintenance because