Part IX CBC Video Case

These questions are based on Canadian Broadcasting Corporation videos that accompany the textbook. In addition to whatever in-class use your instructor may have given them, they're available on this website for online viewing. If directed to do so by your instructor, you can answer the discussion questions online and email the results.
     These videos are intended only for students using the 4th Canadian Edition of Fundamentals of Corporate Finance. To view the video, you'll require a password. Refer to page 472 in your textbook and use the first word appearing in the main text column as both 'username' and 'password.' Use of the word is case-sensitive.
     The free RealPlayer plug-in is required in order to view the videos. If needed, the plug-in can be downloaded from Real.

Hedge It
Playing the Both Ends of the Market: Scott Leckie is the proud owner of a small, but auspicious investment firm, yet his annual salary is paid only if his portfolio makes a minimum return of 10 percent for the year. Scott's trading strategy is quite complex. It requires a lot of concentration, skills, and audacity. He has to constantly stay on the lookout for the latest news and developments, and his decisions have to be swift, yet wise. Scott tries to constructs his portfolio in such a way that stock market price movements in either direction will bring a profit with the least possible risk.
     This video segment introduces the concepts of hedging, arbitrage, and short selling, and reacquaints us with stock market volatility from a totally new perspective. Even though the words "call" or "put option" are not even mentioned during the show, the aforementioned concepts are quintessential in understanding the valuation and trading of derivative contracts.

Additional Resources:
MMI Group Inc.
The Investment FAQ–Hedging
Derivatives Sites on the Web
Derivatives Strategy

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View Hedge It

1		Scott Leckie is selling short stocks that he expects will fall out of grace. He also takes long positions when he identifies stocks that he believes will go up in price. What is riskier? Betting that the stock will go down and sell short or betting that the stock will go up and take a long position?
2		What is the meaning of the word "hedge" as used in this video segment?
3		Explain Scott's convertible arbitrage strategy.
4		What is the effect of stock price volatility on Scott Leckie's investment strategy?