The president's phone rings. It's the Joint Chiefs. (Now legal in 11 states.) A large alien spacecraft has appeared over Washington, and radiation emanating from the ship suggests the warming up of a death rate. One kind of doomsday call.
Another has to do with the bond market.
"Call" in this case has to do with calling in a debt. When a bond is issued, it has a maturity date. You buy a $1,000 bond from Canadian MapleWorks at 10% interest, maturing in 10 years. So you'll get $100 a year (that's the 10% interest) every year for each of the next 10 years.
The doomsday call allows the bond issuer to call the bond in early. So, under certain conditions, Canadian MapleWorks could decide to pay out a fixed amount to buy back all its bonds (or, to put it another way, to call them in).
It's doomsday for the bond holder, because now they don't get their full 10 years of interest. They have to settle for whatever the pre-arranged amount is (set out as part of the stipulations when the bond was issued).
The purpose for the call is to provide a safety valve in case interest rates drop. If rates fall and Canadian MapleWorks can now issue bonds at 7% interest instead of 10% interest, they'd be better off exercising the doomsday call on the 10% bonds and then replacing them with 7% versions. Ultimately, they'd pay out less to borrow the money.
The whole doomsday call thing is popular in Canada, maybe because life in the great wide North is more precarious, with the potential for frostbite in April and beaver attacks year 'round. Whatever the case, a lot of Canadian corporate bonds include a doomsday call, to the extent that they are sometimes known as "Canada calls."
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Finance: What is a Derivative?23 Views
finance a la shmoop what is a derivative? well it's derived it's a something taken
from something else like a derivative of hot weather is thirst a derivative of [Girl takes sip of glass of water on a beach]
hunger is well you know crankiness that's diva thing you get there...
derivative of a 1/32 quarterback rating in the NFL is like serious wealth yeah
yeah discount double shmoop yeah look for it be on there with aaron
and a derivative of a stock or bond or other security is a something which
derives its value based on the performance of that underlying security
there are basically two flavors of derivative put options ie the right to [Ice cream flavors appear]
sell a security at a given price over a given time period and a call option, ie
right to buy a security at a given price over a given time period
well the price of that option is derived from the price of the security and a few
other factors like strike prices and duration and all that stuff
colonel electric the downgraded new version of General Electric is trading [Colonel Electric appears in a suit]
for 25 bucks a share a derivative of its share price is sold in the form of a
call option with a $30 strike price expiring about 90 days from now on the
third Friday of the end of that month well investors pay a price albeit
probably a small one for the right to then pay 30 bucks a share for colonel [Call option appears for colonel electric]
electric at any time in the next 90 ish days until that option expires making the bet
that the stock will go well above 30 bucks a share in that time period that
call option is thus a derivative of the colonel electric primary stock price got
it if you really want to get personal well here's the ultimate form of
derivative [Baby laying down]
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