Question: What types of risk do they use derivatives for? How do they value their options? Did they have a profit or loss on their hedging in 2014? Edit
Answer: Derivatives can either be traded over-the-counter (OTC) or on an exchange. OTC derivatives constitute the greater proportion of derivatives and are not standardized. Meanwhile, derivatives traded on exchanges are standardized and more heavily regulated. OTC derivatives generally have greater counterparty risk than standardized derivatives. Options are powerful because they can enhance an individual's portfolio. They do this through added income, protection, and even leverage. ... A popular example would be using options as an effective hedge against a declining stock market to limit downside losses. Options can also be used to generate recurring income.
Interest expense increased to USD 188 million from USD 163 million in the prior-year period due to recent bond issues. Other financial income and expense amounted to a net income of USD 13 million compared to a net expense of USD 42 million in the 2014 period, mainly due to hedging gains
Other revenues are comprised primarily of alliance revenue, third-party manufacturing sales and miscellaneous corporate revenues, including revenue hedging activities. On October 1, 2013, the company divested a substantial portion of its third-party manufacturing sales. On June 30, 2014, AstraZeneca exercised its option to buy Merck's interest in a subsidiary and through it, Merck's interest in Nexium and Prilosec. As a result, the company no longer records supply sales for these products. In addition, Other revenues in the fourth quarter and full year of 2013 reflect $50 million of revenue for the out-license of a pipeline compound.
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