Hedge your bets with futures and options

Article Abstract:

Cash managers seeking growth or income have to manage several kinds of risk, including possible loss of capital from default, risk of lost liquidity, and possible price changes. Futures exchanges offer some appealing options to the money manager, because risk is then divided, and low margin requirements offer high leverage. Adding options on futures makes a virtually unlimited amount of combinations available. 'Call' options give the right to purchase the underlying position at a certain price. A 'put' gives the right to sell underlying instruments at the 'strike' price. A case example is presented in which a construction company cash manager negotiates loan agreements with hedging in mind.

Planning, Usage, Options (Finance), Hedging (Finance), Cash management

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Shop for floating-rate securities in uncertain times

Article Abstract:

Floating-rate securities are attractive investments when the yield curve is flat or the market uncertain. Investors are protected from inflation because these notes are less volatile than fixed-rate securities. Different periodic coupon rates are determined against a specified base rate. Different market valuations, therefore, exist for different coupon base rates. Investors should compare the base rates and the spread between LIBOR and T-bills. Swapping short-refix-period floating securities for securities with longer refix periods permits high yields during times with declining interest rates.

Evaluation, Services, Securities industry, Floating rate notes

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Getting Uncle Sam off your back: how to pull ahead using short-term tax-advantaged cash management tools

Article Abstract:

The Tax Reform Act of 1986 forced businesses to consider tax-advantaged cash management vehicles. Tax-favored short-term issues that have been introduced recently include: fixed period notes such as tax-exempt commercial paper, flexible period notes such as mandatory tender bonds, money market municipal bonds, and put option bonds. The structure and tax advantages of these types of notes are discussed. Money market preferred stocks and adjustable-rate preferred stocks are also described.

Analysis, Taxation, Financial planning, Tax exemption, Tax exemptions

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