MOS 1023 Finance Lecture 3

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Western University
Management and Organizational Studies
Management and Organizational Studies 1023A/B
Maria Ferraro

MOS 1023 Finance Lecture 3Intro Financial principle of risk People tend to be risk averse Derivatives help investors manage risk Derivatives have been around a long time and new ones are being inventing all the timeDerivatives Trading indirect claims on securities Cost is lower to buy an option than to buy the actual share Operating leverage and financing leverage Leverage is getting a higher result return for the same or less effort investmentOptions Engage in options based on future expectations Buyer of the option has the choiceseller is obligated to fulfill contract if buyer exercises right SellerwriterOption Terminology European options can only be exercised on the expiration date American options can be exercised on any day up to the exercise date most common Bermudan options
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