The use of Derivatives markets and products by a company Essay

The use of Derivatives markets and products by a company - Essay Example Derivatives serve as ideal substitutes for complex investment strategies at a minimal cost. (Haugh and Lo 2001) Firms using derivatives have lesser risk exposure than which do not use.(Hentschel and Kothari, 2001) The banks who have used interest rate derivatives have shown higher growth in lending than those banks who do not use derivatives. (Brewer, Minton, and Moser 2000) From Micro-economic point of view, derivatives in different forms have the following functions. Swaps: These are mostly OTC contracts having longer period than options and futures and serve the purpose of meeting needs single client of a Bank or any institution. They afford firms to have new investment opportunities to hedge against any risks in currency rates, interest rates, and credit default etc. It is the periodical payments that represent the risks undertaken by these contracts and not their notional value. Futures: These are capable of increasing market efficiency and liquidity. Depending on national and international laws, this type of derivatives display very high transparency and are used to hedge and speculate in financial and commodity segments. Options: These are similar to futures but do not reflect clearly the underlying assets and do not give unique empirical results unlike options. The notional value does not represent the risk undertaken but the premium paid for opening and closing signify the extent of investment. Repos: These are unique to inter-banking transactions between RCB and European inter-bank system and are meant for finance liquidity rather than to hedge or speculate. The use of derivatives by a company is proposed to be demonstrated in this paper by the example of Glaxo Smithkline (GSK), world's one of the largest pharmaceutical giants. GSK uses derivatives among various finance instruments to finance its operations and manage market risks. The company's derivatives are mainly foreign currency contracts, interest rates and currency swaps. It uses them for swapping of its borrowings and liquid assets into currencies needed for the entire group of the plc. It uses derivatives to guard against changes in foreign exchange currency rates and interest rates. The derivatives are not used for speculation but only used to hedge against its own risks stemming from targeted business operations. It neither issues nor holds derivative financial instruments for trading purposes as a company policy. They are initially shown at cost in the Balance Sheet and revalued subsequently on the relevant reporting dates at fair value. The ones that are treated as hedges are designated as fair value hedges, cash flow hedges or net investment hedges. Changes in fair value of derivatives designated as fair value hedges are shown in the income s tatement with corresponding entries in the hedged asset or liability. Those designated as cash flow hedges are reflected in equity to the extent they are effective. The remaining portion that is not effective is reflected in profit and loss account at the same time. Those deferred in equity are later taken to income statement when the hedged asset results in

Vietnam War from 1945 to 1975 Essay Example | Topics and Well Written Essays - 1250 words

Vietnam War from 1945 to 1975 - Essay Example The implications of US involvement will also be presented, including the domestic response which followed. This paper is being carried out in order to establish a more vivid understanding of the US and its involvement in the Vietnam War, taking note of all the controversies and the implications of the War. Body The Vietnam War came about because of the conflict between France and Vietnam in 19501. France occupied the Indochina region during the mid-1800s and went on to rule the region until 1954 when it was defeated in the first Indochina War. China then recognized the Democratic Republic of Vietnam, the government of which was declared by Ho Chi Minh. Vietnam was later divided based on the provisions of the Geneva Convention and North Vietnam was supported by the Soviet Union and China and South Vietnam by the US2. President Eisenhower at that time utilized South Vietnam to counter communism and with American funding with the military leader Ngo Dinh Diem using such funds to abuse t hose who opposed him and his victims included college students, monks, and suspected communists3. Diem also claimed that North Vietnam was trying to take over its territories and this resulted in conflicts and violent confrontations4. North Vietnam was very much determined to fight until the opposition lost the will to fight. During Kennedy’s term, guerrilla tactics were also employed by the US military along with the deployment of US troops and helicopters into the region. Diem was later overthrown and caused much chaos in South Vietnam. The war continued to escalate under Johnson’s term with additional troops deployed and bombing raids carried out5. Communist Vietnam was also persistently supported by China and Russia with both parties determined to drag out the war. This caused division within Vietnam, with anti-war and pro-war factions creating a greater momentum for the communist parties. Possible negotiations between parties were further halted when Nixon ordered even more aggressive attacks via air raids6. North Vietnam was also persistent in its fight and the war raged on until 1975 when Saigon was captured and Vietnam was reunited under communist control. The US pulled out its troops in 1973, but still persisted in aiding South Vietnam until the fall of Saigon. In 1975, after 25 years of fighting and significant losses on both sides, the war ended7. The primary reason for US involvement in the Vietnam War was its concern on communist countries expanding their territories and possibly having more power in Asia8. For this reason, arrangements were set up with France, for the latter to establish a non-communist rule in the south9. Due to American influence, national elections in the south were stopped because of fears of a communist win. This angered Ho Chi Minh who then launched a guerrilla war in the south, but the US knew that it did not have the power to intervene due to international law restrictions with Russia naturally vetoing the U S10. Support for the south was then made through military equipment and troops, but the Vietcong proved to be more effective in its guerrilla warfare. The government of South Vietnam was about to collapse when the US decided to send in its troops11. The US used the Domino Theory to justify its actions. Based on this theory, one communist victory would likely lead to a communist takeover in the Indo-China region and in other parts of Southeast Asia where the US had political and