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First, read the case Derivative in Disguise.
https://sk-sagepub-com.ezproxy.umgc.edu/cases/derivative-in-disguise
Then answer the questions. In your initial response to the topic you have to answer all questions:
What type of a derivative is the firm selling?
What is the premium charged by the firm for these derivatives?
Derivative traders always look out to grab arbitrage opportunities. Does the above scheme provide any hidden arbitrage opportunities?
What are the potential risks to the firm once this scheme is launched? If there are any, how should the firm hedge its exposures?
