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“active hedging may also benefit debt-holders by reducing the agency costs of debt”
sir what are agency costs of debt?
and am i right when i construe from this sentence that, hedging makes the company seem less riskier to finance providers hence benefits them if their investment is in that company?
The agency problem is that taking on more risk may be good for the shareholders, but may not be good for debt lenders (because more risk in the company means more risk of the company not being able to repay the debt).
Hedging the risk reduces the problem for the debt lenders.
Hello,
Can you please explain the part c of boullain march 2020 regarding marked to market settlements and how they have been calculated and also explain the margin concept given. thank you in advanceI do explain the nature of the margin in my free lectures – it is a deposit required at the start of the futures deal. As the price of the futures changes from day to day then the dealer will require the margin to be increased or decreased.
There are 81 contracts and so the initial deposit is 81 x $3,500 = $283,500.
From day to day the futures price changes and so the margin will need to change due to the difference in the futures price.
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