Part I - Investment Risk In my opinion, it’s a bit difficult to determine which kind of risk will represent the greatest effort, because there are so many differences between a company and the other one. For example, the interest rate will affect heavily on a company with a high debt ratio. And if a company has too much fixed costs, it will lose more than a company with more variable costs under the economic risk. ALL risks will influence our company a lot, but I think the market risk will have greater effort as sometimes these risks are disaster. A very good example that is still ongoing is the Nokia. Several years ago, Nokia was the biggest company that conducted and sold phones. They are famous for the quality of the case until now, which means you cannot break it even you throw it. But now, they are facing the loss of marketing rate as people are more care about the feeling and function. As Samsung and Apple provide smart phone, which satisfy consumers a lot, Nokia encounters the market risk. Although they have conducted smart phone like IPhone, and even cooperate with Microsoft to change the situation, I think it’s not easy to act like before.
Part II - Financial Options
Please define the following:
1). Call Option – gives its owner the right to buy a share of stock at a fixed price.
2). Put Option - gives its owner the right to sell a share of stock at a fixed strike price.
3). Exercise Value - which is any profit from immediately