strategy

Examples of strategy in the following topics:

• Measuring and Protecting against Transaction Exposure

  • Strategy 3: Trident buys the put option.
  • Although this Strategy is worse than Strategy 2, Caterpillar would use this strategy if it believed the Korean won would depreciate, which reduces Caterpillar's obligation.
  • This strategy carries no exchange rate risk and is better than Strategy 1.
  • Unfortunately, this good strategy has a different time horizon than the previous two strategies.
  • Strategy 4: This strategy addresses the time horizon and has no exchange rate risk or country risk.

• Decision Trees

  • They help to identify the strategy that is most likely to reach the declared goal.
  • Decision trees can become very complex, so determining the correct strategy becomes more difficult.
  • There may not be an idea strategy shown on the decision tree.
  • In that case, the decision tree is still useful as a way to map out all of the possible strategies with their costs and benefits.
  • This decision tree highlights the outcomes of different investing strategies.

• Strategic Planning

  • The financial forecast is a key input to strategic planning, a firm's process of defining strategy and making decisions about allocating resources.
  • Strategic planning is an organization's process of defining its strategy, or direction, and making decisions about allocating resources to pursue this strategy.

• Just-in-Time Technique

  • Just in time (JIT) is a production strategy that strives to reduce in-process inventory and carrying costs in a manufacturing system.
  • Just in time (JIT) is a production strategy striving to improve a business return on investment by reducing in-process inventory and associated carrying costs.

• Conflicts of Interest Between Shareholders and Bondholders

  • For example, stockholders have an incentive to take riskier projects than bondholders do , as bondholders are more interested in strategies that will increase the chances of getting their investment back.
  • Conversely, shareholder preferences--as for example riskier strategies for growth--can adversely impact bondholders.

• Managers, Shareholders, and Bondholders

  • For example, stockholders have an incentive to take riskier projects than bondholders do, as bondholders are more interested in strategies that will increase the chances of getting their investment back.
  • Managers may also be shareholders and reap the profits of more risky strategies or may prefer risk-averse empire-building projects.

• Value of a High Dividend

  • The Dogs of the Dow strategy is a well known and rather extreme strategy that incorporates high dividend yields.
  • The strategy dictates that the investor compile a list of the 10 highest dividend yielding stocks from the Dow Jones Industrial Average and buying an equal position in all 10 at the beginning of each year.
  • Proponents of the Dogs of the Dow strategy argue that blue chip companies do not alter their dividend to reflect trading conditions.

• Implications for Variance

  • Here are some examples of the the types of assets that may be included in a diversified strategy:
  • derivatives , such as long-short or market neutral strategies, options , collateralized debt, and futures

• Chapter Questions

  • If you expect the central bank to lower interest rates, define a good investment strategy.

• Financing Balance-of-Payments Deficits and Surpluses

  • Exchange rate regime determines which strategies a country must undertake to finance a balance-of-payments deficit or surplus.
  • A country with a fixed exchange rate can use two strategies:
  • Strategy 1: If a country has a balance-of-payments deficit, it has an excess supply of currency on the foreign exchange markets.
  • Strategy 2: If a country experiences a balance-of-payments surplus, subsequently, that country has a shortage of currency on the foreign exchange markets.