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Explain the advantages and risks associated with Equity warrants?
Answer:
The advantages of equity warrants are as follows:-
1. Through this warrant a holder can buy and sell the securities and shares in the market.
2. Prices of these warrants are low so the leverage and the gearing which it provides is high.
3. Due to these prices there are larger capital gains and losses.
4. These warrants can offer gains and protection in the market.
The risks of it are as follows:-
1) The high price of leverage and gearing of warrants is not good for investors as they have to take more losses then gains as the percentage of loss of the warrant increases.
2) The risk which is involved with the value of the certificate which will be provided is that the certificate value can drop to zero due to which the warrant may loose the redemption value.
3) Holder can't have the opinion in voting, shareholding and dividend rights. So, the holder becomes isolated in overall functioning of the company but the holder is affected by the decisions which will be made by the company.
1. Through this warrant a holder can buy and sell the securities and shares in the market.
2. Prices of these warrants are low so the leverage and the gearing which it provides is high.
3. Due to these prices there are larger capital gains and losses.
4. These warrants can offer gains and protection in the market.
The risks of it are as follows:-
1) The high price of leverage and gearing of warrants is not good for investors as they have to take more losses then gains as the percentage of loss of the warrant increases.
2) The risk which is involved with the value of the certificate which will be provided is that the certificate value can drop to zero due to which the warrant may loose the redemption value.
3) Holder can't have the opinion in voting, shareholding and dividend rights. So, the holder becomes isolated in overall functioning of the company but the holder is affected by the decisions which will be made by the company.
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