個案總覽

Conventional finance theory demonstrates that, under simplistic assumptions, firms cannot add to shareholder value through the use of risk management activities. Modern finance theory has begun to carefully consider and examine those circumstances under which firms can add to shareholder value. This note briefly reviews the major ideas prevalent in both conventional and modern finance literature regarding the potential benefits of risk management.

Introduces and explains the six major interest rate derivative products: swaps, forward rate agreements, Eurodollar futures, bond options, caps/floors/collars, and swap options.

Union Carbide's board of directors is asked to evaluate a proposal from the staff treasurer's that would articulate policies to manage its debt portfolio. The staff proposes that shareholder value will be maximized if the firm manages its exposure to interest rates by matching the duration of its liabilities to that of its assets. Based on statistical analysis, examination of rivals' policies, and reasoning, they argue that the firm, establish a benchmark duration for its liabilities against which all future active management activities be measured.

Spreadsheet Supplement for case 294057