Please i need some topics to develop in derivatives class for class presentation
ID: 2732349 • Letter: P
Question
Please i need some topics to develop in derivatives class for class presentation. The lecturer said we should not choose anything tough but simple topics that we will be able to explain.
It could be a company that is set to make a profit but could not meet up with their goals based on their problem. What is it that they could have done that they failed to do? Point out 2 or 3 areas where they fail? suggest what they could have done to avoid this problems (this could be hedging. What is the implication on ground? What others have done that works for them. Please make this power point short, simple and clear
Explanation / Answer
Industry: Metals (Steel)
Core business: Manufacture and supply of steel utensils
Basic raw material: Steel
Business Process: The orgnization has to buy steel in huge quantities to manufacture it's entire product line of utensils. For this the organization has to enter into contracts with suppliers for steel. These contracts are to be entered a couple of months in advance to book the order. The price is fixed at the time of entering the contract.
However, when supplying the utensils, the price of steel is fixed on the day which goods are sold.
On account of the above, the organisation has to suffer price fluctuations of steel which leads to losses.
How to handle this: In order to avoid the above losses, the organisation can enter into forward contracts where the price is fixed and the loss is minimum.