Mlb Players Are over Paid free essay sample

According to My Budget 360 the average middle class working American makes $46,326 a year (â€Å"How Much Does the Average American Make? Breaking Down the U. S. Household Income Numbers. † Par 2. ) Another problem teams are running into after paying their players large contracts is there lack of performance. It is also unfair to some of the lower income teams in the league. They are not able to pay the big name players in the league like many other teams in the league are able to. My argument with this is MLB athletes don’t deserve the amount of money they annually make, and it is unfair to everyday working Americans who are struggling to live the day to day life. To begin with, I believe Major League Baseball players are way overpaid, and have no idea what it is like to live off a regular American salary. According to baseball writer, Richard Cato, many rookie athletes are worried more about how much money there are going to make, before they even think about throwing their first pitch in there major league career. We will write a custom essay sample on Mlb Players Are over Paid or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Almost 10 years ago former cubs pitcher, Mark Prior, argued and argued with team management that his 10 million dollar contract was not going to be enough to support himself and his family (par 5. ) This is where my problem begins with Athletes being overpaid. They complain about not making enough money each year, where middle and lower class Americans manage to live off there much smaller salaries. I personally think the league minimum of $480,000 a year is much too large, and is pretty ridiculous to be complaining about. Just recently former Cardinals star, Albert Pujols, left his team due to the inability to pay the about of money he wanted to make. His new contract is a 10-year 240 million dollar contract that is way too much for any American to make in this sort span of time. In my opinion the MLB should set a top cap that any player in the league is allowed to make in a season and still have a league minimum, but much lower then it currently is. Another problem teams are having after giving their athletes large contracts is there are not performing like they once were, before there had their large contract. Next, there is a large problem with big name athletes getting very large contracts and not performing like they once did in their careers, before that made their multi-million dollar contracts. Athletes begin to get the thought in their head after they sign a large contract, that they are set for life and don’t have to perform like they once did because there have earned the money there have always wanted. Although not all athletes are like this, an example of someone who is not is, Derek Jeter. â€Å"I have never seen a more complete baseball player then Derek Jeter. † According to the New York Times, Jeter has done nothing but improved since signing his very large contract extension. He has continued to be the same player he was when he entered the league and has also became an even better player (par. 1. ) In his 18th year in the league, Jeter continues to play strong and break MLB records, showing he deserves the large contract he is paid. Players who continue to play hard like this through their career deserve to earn a large about of money, but not the excessive amount that he currently is. But this is not the case with all big league players saying large contracts. For example Albert Pujols has just signed the largest multi-year contract in the history of the league, but currently struggles hitting, and has not yet hit a single homerun. After signing this new large contract he has been very unproductive and is showing to be a waste of millions of dollars for his new team. This shows that not all major league players deserve to make these huge multi-million dollar contracts that are being paid. Finally, some teams have and unfair advantage on the amount of big name players they are allowed to sign year to year. If the Major League Baseball officials would decide on a salary cap for each team it would give everyone a more equal chance of signing big name players. I personally think each team should be able to spend the same amount of money each season, to give each team a more equal chance of winning. By doing this it would minimize he amount of big name players could sign year after year, and also give the current lower income teams the ability to sign more big name players. If the league would put a cap on the amount of money a player can make and the amount of money each team can spend, would make the league a much better all around league, giving each team an equal chance of winning a World Series. In Conclusion, Major League Baseball players are wa y over paid. None of these athletes have a clue what it’s like to live off the salary of an average working American. Athletes continue to complain about the amount of money they are making each year, not being enough to support their families, while lower and middle class families are living life just fine making 10 times less the amount of money. Athletes aren’t proving they deserve to make the amount of money they do either, by becoming way less productive after signing there multi-million dollar contracts. When the league puts a set salary cap on each player and each team the league will become a much better thing. It will also make working Americans very happy, knowing athletes aren’t making as much money as they once did. If everyone would have the same contracts, it would also make ticket prices go down making it more affordable for fans to go to games. By having the same contracts, players would all play harder and also make fans of the game happier and more supportive of the players and owners of the league. When the average American can begin to make larger salaries, will be the day athletes deserve to make the large contracts like they currently are. Works Cited â€Å"How Much Does the Average American Make? Breaking Down the U. S. Household Income Numbers. † My Budget 360. N. P. N. D. Web. 25 April 2012. â€Å"Jeter, a True Yankee. † New York Times. 03 Dec. 2006. Academic Search Premier. Web. 25 April 2012. â€Å"Market Correction needed for rookie MLB contracts? † Left Field: The Reuters Global Sports Blog. Richard Cato. 11 June 2009. Web. 25 April 2012. â€Å"MLB Minimum Salary to Increase to $480,000 with New CBA. † Los Angeles Dodgers Payroll. Eric Stephen. 20 Nov. 2011. Web. 25 April 2012.

Corporate Strategies to Hedge Commodity Price Risks Applying Derivatives Essay Example

Corporate Strategies to Hedge Commodity Price Risks Applying Derivatives Essay Example Corporate Strategies to Hedge Commodity Price Risks Applying Derivatives Essay Corporate Strategies to Hedge Commodity Price Risks Applying Derivatives Essay Table of contents List of abbreviationsIII List of figuresIII List of tablesIII 1Introduction1 1. 1Problem and objective1 1. 2Structure of this paper1 2Background Information2 2. 1Definitions of fundamental terms2 2. 2Commodity price risk in different firms2 3Explanation of derivatives3 3. 1Options3 3. 2Futures4 3. 3Forwards6 3. 4Swaps6 4Hedging strategies with derivatives7 4. 1Hedging with options7 4. 2Hedging with futures7 4. 3Hedging with forwards8 4. 4Hedging with swaps8 5Pros and cons of hedging strategies with derivatives8 5. 1Pros and cons of options9 5. Pros and cons of futures9 5. 3Pros and cons of forwards10 5. 4Pros and cons of swaps10 6Practical example of corporate commodity price risk hedging10 6. 1Introduction on firms practical hedging strategy10 6. 2Analysis on this strategy11 7Summary12 Appendix13 Appendix 1: Amounts outstanding of over-the-counter (OTC) derivatives by risk category and instrument- - in billions of US dollar13 Appendix 2: Derivatives financial instr uments traded on organized exchanges by instrument and location- - in billions of US dollar14 Bibliography15 Internet Source16 List of abbreviations CHClearing House IMInitial Margin MBMargin Balance MM NMaintenance Margin No OTCOver The Count VM YVariation Margin Yes List of figures Figure 1: Structure of this paper2 Figure 2: P of each option position4 Figure 3: Flow chart of marking-to-market process5 Figure 4: P of each future position6 Figure 5: Hedging model on fuel oil of Air China11 List of tables Table 1: Summary for 4 option positions4 Table 2: Summary for future positions6 Table 3: Summary for 4 derivatives9 1Introduction 1. 1Problem and objective The risk of commodity price is a ferocious topic in corporate operation. Corporate profit is equal to total revenue minus total cost. For firms, because of the high volatility on commodity price, their inputs and outputs relating to commodity are unpredictable. As a consequence corporate profit will be immensely volatile, which will possibly lead the firm to go bankruptcy if no any preventive actions are taken. For example, producers of commodities probably need to assume unexpected losses, when the price of outputs goes down or the price of necessary raw materials goes up. The situations are similar to wholesale buyers, retailers, exporters and even governments. Volatility of commodities price has great impacts on corporate daily operation. The objective of this term paper is to introduce derivative hedging strategies for corporate managers to reduce or even eliminate future unpredictability, mainly from the perspectives of the role commodity price risks play, what the typical derivative instruments are, where and how to apply these different derivatives in terms of hedging principles thereof, and both advantages and disadvantages when applying each derivative in real business transactions. 1. Structure of this paper Firstly, this term paper highlights problems existing in real world. Secondly, it introduces advanced derivatives theory that can be applied to solve these problems. Thirdly, specific details on the theory will be presented, including explanation, application, as well as pros and cons of each derivative instrument. Then, an example is analyzed to show how companies apply derivatives to hedge commodity risks practically. Last is a summary of this term paper. Following figure shows the body of this paper. 2Background Information 2. Definitions of fundamental terms In financial markets derivative is a contract or security whose value is derived from the value of other more basic underlying variables . One of its most important functions is hedging. In corporate operation, hedging is to secure the companies against potential loss caused by variable risks that arise in international market, such as the commodity price risks. In this paper, commodity means any tangible goods or raw materials that may be sold or traded in the markets, such as energy, gold, or agricultural products. 2. Commodity price risk in different firms Volatility of commodities price influences firms’ daily operation significantly. Producers of commodities, such as farms, oil producers, mining companies, face price risk on output. Wholesalers and retailers, face price risk during the time period from buying from suppliers and selling to customers. Exporters, face the same price risk as well as currency exchange risk. And governments face price and yield risks generating from tax revenues that depend on firms’ operational conditions. 3Explanation of derivatives Derivatives are traded in exchange-traded markets and over-the-counter markets. (See recent derivatives transaction status in appendix 1 and appendix 2. ) Notably, exchange-traded derivatives are default risk free and liquid. However over-the-counter traded derivatives are the opposite. 3. 1Options An option is the contract that gives the buyer the right but not obligation to buy (call option) or sell (put option) an underlying asset at a predetermined price (exercise price) for certain quantity during a fixed period of time (maturity). The buyer of the option pays a particular amount of money (option premium) to the seller to buy a right whereby he can decide whether or not to exercise this option, simultaneously the seller has the obligation to perform if the buyer exercises the option. European options only can be exercised on expiration day, and American options can be exercised at any time before maturity. The buyer of the call option is named long call, while the seller of the call option is named short call. Similarly, the buyer of the put option is named long put, while the seller of the put option is named short put. In commodity market, underlying of commodity option is a commodity, such as oil, wheat, or gold. Commodity options are both exchanges-traded and OTC traded. Following figure shows P of each option. Following table is the summary for these 4 option positions. Table 1: Summary for 4 option positions Market price expectationMaximum profitMaximum lossBreakeven point Long callupunlimitedoption premiumexercise price + option premium Short calldown or stableoption premiumunlimitedexercise price + option premium Long putdownexercise price option premiumoption premiumexercise price option premium Short putup or stableoption remiumexercise price option premiumexercise price option premium Source: author’s own. 3. 2Futures A future is a contract between two parties to buy or sell a specified amount of asset at a specified time period in the future for a certain price. Normally there are two types of futures, commodity futures whose underlying are commodities and financial futures who se underlying are financial assets. They are highly standardized, regulated, and traded in exchange markets with highly liquid and default risk free property. Because of the marking-to-market process, at maturity the settling price is the spot price at expiration date with profit gaining or loss paying from a margin account, which indirectly makes the effective bargain price equal to the predetermined price in the future contract. Notably, to ensure high liquidity of futures, marking-to-market process plays a significant role. The following figure shows the marking-to-market process. Generally there are two alternative ways at maturity to settle futures, either by cash or by actual delivery of underlying, which is clearly defined by futures exchange. Following figure and table show the details of a future. Table 2: Summary for future positions ?Maximum profitMaximum lossBreakeven point Long positionunlimitedexercise pricespot price + cost of carry Short positionexercise priceunlimitedspot price + cost of carry Source: author’s own. 3. 3Forwards A forward contract is a customized and over-the-counter agreement to buy or sell an asset at a specified time in the future for a specified price, where a long position has the obligation to buy and a short position has the obligation to sell. Compared with futures, no marking-to-market process are required. Counterparties can negotiate with each about the parameters of the contract. As a result, a firm who wants to make forward contract needs to find the counterparty by itself. 3. 4Swaps A swap is a customized and over-the-counter agreement to exchange a series of specified assets periodically in the future. Normally the counterparties of a swap contract are a large institution such as a bank and a company. Basically, we can view a swap as a complicated forward. Except currency swaps, counterparties just need to pay the differences between the cash flow they should exchange. Because swaps are bespoken as a result they are less liquid. There are commodity swaps, interest rate swaps and currency swaps. Interest rate swaps is an agreement of two counterparties to change fixed interest and floating interest on predefined nominal principal in the future periodically. Commodity swaps normally vary tremendously among different markets. In a currency swap, counterparties change same value of different currencies in inception and termination, where the exchange rate of the tow currencies depends on the negotiation of counterparties. 4Hedging strategies with derivatives This chapter will focus on the principles of hedging strategies on commodities. . 1Hedging with options If a trader wants to procure a commodity with high volatile price, he can buy a commodity call option to hedge the price risk of going up. Similarly, if a company wants to sell a commodity product, it can buy a long put to hedge the price risk of going down. In practice, because investors want to bet more precisely on the future price of the underlying, an d hedgers with long positions want to save option premiums, a few combinations of options come out, such as a long call and a short put with identical parameters except the different strike price. 4. 2Hedging with futures When the objective of a commodity trader wants to neutralize the price risk as far as possible, usually he will choose to take a position on a future on commodity. A hedger who already owns a commodity asset or doesn‘t own right now but will at some future time expecting to sell it in the future without assuming any price risk, he can apple future hedging strategy to enter into a short position to become a short. Likewise, a hedger who has to buy a certain commodity asset in the future and wants to lock in spot price immediately, he can apply a future to enter into a long position to become a long. . 3Hedging with forwards The principles of hedging strategy with forwards are similar with futures. Whether to use futures or forwards depends on different requirements. Generally, financial assets investors who need high liquidity prefer to choose futures, while commodity investors such as producers who need high customization prefer to choose forwards. 4. 4Hedging with swaps When i nvestors want to hedge risks of interest rates, currencies, or commodities, they can use swaps. In gold swaps, counterparties change fixed lease rate with variable lease rate. In swaps on base metals, counterparties change fixed metal price with average price of near dated metal future. In oil swaps, counterparties change fixed West Taxes Intermediate (WTI is a benchmark in oil price) price with average price of near dated WTI future. 5Pros and cons of hedging strategies with derivatives The following integrated summary of these derivatives depending on pervious analysis makes systematic comparisons. (The options here are exchanged-traded European options) Table 3: Summary for 4 derivatives SUMMERY OF DERIVATIVES FOR GENERAL TYPES OptionsFuturesForwardsSwaps Types of contractstandardizedstandardizedcustomizedcustomized Settlementscash and deliverymost cash and few deliverydeliverydepends on individuals Trading marketExchange tradedExchange tradedOTCOTC Liquidityhighhighlowlow Marketing-to-marginnorequirednono Time of settlementmaturitydailymaturityperiodically Initial investmentoption premiuminitial margin nodepends Default risk assumed byClearing houseclearinghouseBoth partiesBoth parties ProsDefault risk free liquiditycustomization no initial investment Consinitial investment inflexibledefault risk for both party illiquidity Source: author’s own. . 1Pros and cons of options The pros of options are obvious. Firstly, they have no risk to assume more loss than premium but have possibility to get unlimited potential profit. Secondly exchanged-traded options are highly liquid and OTC traded options are flexible. However, the cons of options are also explicit, such as the difficulty to decide when to enter into a long position. Because buying an option needs to pay option premium, if the spot price cannot go above (for a long call) or go below (for a long put) the breakeven point the hedger will suffer a loss, and depends on statistics the possibility of a long position to lose is about 66%. 5. 2Pros and cons of futures It definitely makes sense for most companies whose majors are in businesses but not professional in forecasting the price of commodities price volatility, which can make them pay more attention on their core competences instead of fearing about volatile price. Nonetheless, taking neutralized strategies make hedgers give up the possibility of both profit and loss. Moreover, instead of hedging risks by companies, shareholders can hedge themselves according to their preferences. Additionally, if other competitors of the same industry don’t apply hedging strategies, in fact, it is the hedging company itself that assumes risks, because competitive pressures are the same for other all competitors but different for the hedging company its own. 5. 3Pros and cons of forwards Basic pros and cons have been listed in the table in front of this chapter. Generally, compared to futures, the most explicit pro is that forwards are highly customized and therefore the con is that they are hardly liquid. 5. 4Pros and cons of swaps Basic pros and cons have been listed in the table in front of this chapter. Gernally, compared to futures and forwards the most precise pros is that both counterparties could reap benefits from a swap, such as in a currency swap where a firm with a low rate may get a cheaper loan as other firms with high rates, and the counterparty may get a payment as compensation. However the corresponding cons is that counterparty may need to pay commision to intermediary, because it is difficult to find an appropriate counterparty by itself. 6Practical example of corporate commodity price risk hedging 6. 1Introduction on firms practical hedging strategy Air China is an airline company, whose cost of fuel oil occupies 44. 75% of total revenue in 2008. To hedge the fuel oil price risk, Air China bought a call option with strike K1, meanwhile sold a put option with strike K2, where K1