Microsoft Word - N1548 A2 TAP XXXXXXXXXXdocx 1 N1548 International Financial Management Assessment Period: May/June 2020 (A2) Duration: 24 hour Take-Away Paper Candidates should attempt ALL questions...

I have this test and its due in 12 hrs. I am attaching below the test and in addition the lectures and seminars just so u can use similar formulas and stick to the academic curriculum. in theory questions I don't want you referencing anything. p.s you. can find similar question to for the test in the seminars



Microsoft Word - N1548 A2 TAP 2019-20.docx 1 N1548 International Financial Management Assessment Period: May/June 2020 (A2) Duration: 24 hour Take-Away Paper Candidates should attempt ALL questions in Section A and Section B Instructions: 1) The paper will available from: Wednesday 27 May at 10am (UK time) 2) The deadline for submitting the exam is: Thursday 28 May at 10am (UK time) 3) The exam is an individual work, carried out upholding the values of academic integrity. 4) Information on where to find material that can be used: You should rely on your own knowledge when answering the questions. All assumptions and information needed for the questions are provided in this paper, DO NOT access the internet for help with your answer or to get additional information. 5) Information on where to write the answers: The answers should be typed in Microsoft Word, clearly stating which question you are attempting. 6) Information on word count: For some answers a word limit is indicated; this limit does not include equations and graphs. 7) Information on equations: Equations should be typed using Microsoft Word. 8) Information on format of submission: Submit a MICROSOFT WORD version of the exam paper using the appropriate link on Canvas. 9) To address any queries related to the text of the exam contact the School Office: [email protected] between 10am and 12pm UK time on the day the TAP is released. Only queries received during this time will be looked at. • Please use the email address above and do not contact the convenor directly, this is to replicate as best as possible the examination setting and to guarantee fairness to everyone. Responses will be made available to all students at the same time via the Announcements page on the relevant Canvas module sites. • In the unlikely event that the query has not been answered by 2pm (UK time) then the query will go unanswered. This is to maintain consistency & fairness across all modules. Please therefore remember to check the announcements page for any important updates. If you wish to ensure your question is addressed, please ensure you read all questions through thoroughly as the TAP is released so that you can submit any questions during the 10am-12pm UK time query window. If you experience IT issues, you will need to send a screenshot of your issue and submit it to IT via their help system http://www.sussex.ac.uk/its/help/ 2 Section A [60 marks] Case study: British Powerful Material It is Friday evening, April 1st 2017. Ramon Sanchez, assistant treasurer at the British Powerful Material (BPM), sits in his office in Liverpool Street, London. It’s the weekend, Ramon and his partner have a dinner reservation with another couple at the Shard at 8pm. “I must get this hedging note done as soon as possible”, thinks Ramon. Foreign exchange options? I had better get the story right before the CFO starts asking questions. Let’s see, I am facing crucial decisions related to two situations: one is to hedge a dividend receivable due on October 1st, from the subsidiary BPM Germany. The other is to hedge our upcoming payment to the Korean Company Matsukwon for their spring wireless rooters’ statement (July 1st). With the Korean Won at 1420KRW/GBP and appreciating, I’m glad we haven’t covered the payment so far, but now I’m getting nervous and I would like to protect ourselves. A decision to buy Won on July 1st might be just the thing, but it’s a very critical decision”. Before we discuss the financial situation, let us learn a bit about BPM. British Powerful Material is a £10 billion sales company engaged in, among other things, the development, production, selling and marketing of technology equipment. Although 30 percent of the firm’s sales are currently abroad, the firm has full-fledged manufacturing facilities in four foreign countries: Germany, Australia, Argentina and South Africa. An assembly plant in India exists primarily to solder Korean Rooter boards onto circuit boards and to screw these into Argentinian-made boxes for shipment to South Africa, Australia, and Germany. The German subsidiary has developed half of its sales to France, the Netherlands, and Italy, billing in euros. BPM Germany has accumulated a cash reserve of EUR1,080,000, worth GBP900,000 at today’s exchange rate. BPM has an automatic permission from BPM Germany to repatriate EUR2,000,000 by October 1st. BPM has an agreement to buy 30,000 Wireless Rooter boards at KRW90,000 each semi-annually, and it is this payment that will fall due on July 1st. The classic means of hedging foreign exchange are forward and future contracts. These however, are fixed obligations and inviolable. In many cases, there is a good chance that cash inflows or outflows won’t materialise for different reasons.In such cases, what is needed is somehow the right, not the obligation, to buy or sell a specific 3 currency at a specific price, and this is what an option precisely provides. There are surely other means to hedge including using the money market or swap markets, but each has its own features and could be suitable depending on the scenario a hedger is facing. Returning to Ramon, we find that he has printed a lot of financial information from the markets through the Bloomberg Terminals, and could be summarised as follow: Table 1: Currency Spot rates: GBP/EUR 1.20 GBP/USD 1.34 EUR/USD 1.11 GBP/AUD 1.96 GBP/ARS 6.61 GBP/ZAR 23.40 GBP/KRW 1420 GBP/INR 95.33 Table 2: Forward rates 1month GBP/EUR 1.24 GBP/USD 1.33 EUR/USD 1.14 GBP/KRW1400 2months GBP/EUR 1.26 GBP/USD 1.32 EUR/USD 1.13 GBP/KRW1380 3months GBP/EUR 1.28 GBP/USD 1.30 EUR/USD 1.13 GBP/KRW1360 6months GBP/EUR 1.30 GBP/USD 1.28 EUR/USD 1.12 GBP/KRW1340 7months GBP/EUR 1.32 GBP/USD 1.28 EUR/USD 1.13 GBP/KRW1320 Table 3. PUT option: premium is 1.5% Note: The option is always applicable on the unit currency and premium is paid with the unit currency. For example, for a put or call option with GBP/USD1.28 the option premium is paid in GBP for selling or buying the GBP. 1month GBP/EUR 1.22 GBP/USD 1.34 EUR/USD 1.15 GBP/KRW1410 2months GBP/EUR 1.24 GBP/USD 1.33 EUR/USD 1.14 GBP/KRW1400 3months GBP/EUR 1.26 GBP/USD 1.32 EUR/USD 1.13 GBP/KRW 1380 6months GBP/EUR 1.38 GBP/USD 1.30 EUR/USD 1.13 GBP/KRW1360 7months GBP/EUR 1.30 GBP/USD 1.28 EUR/USD 1.12 GBP/KRW1340 4 Table 4. Call options: premium is 2% Note: The option is always applicable on the unit currency and premium is paid with the unit currency. For example, for a put or call option with GBP/USD1.28 the option premium is paid in GBP for selling or buying the GBP. CALL options 1month GBP/EUR 1.28 GBP/USD 1.33 EUR/USD 1.15 GBP/KRW1410 2months GBP/EUR 1.30 GBP/USD 1.32 EUR/USD 1.14 GBP/KRW1410 3months GBP/EUR 1.32 GBP/USD 1.31 EUR/USD 1.13 GBP/KRW 1390 6months GBP/EUR 1.34 GBP/USD 1.31 EUR/USD 1.13 GBP/KRW1370 7months GBP/EUR 1.36 GBP/USD 1.28 EUR/USD 1.12 GBP/KRW1360 Table 5: Money Market rates of each country: UK 1month 3.4% 2months 3.7% 3months 4% 6months 4.3% 7months 5% US 1month 3.1% 2months 3.3% 3months 3.5% 6months 3.7% 7months 3.9% EU 1month 4.1% 2months 4.3% 3months 4.5% 6months 4.8% 7months 5.1% India 1month 5.1% 2months 5.4% 3months 5.7% 6months 6.1% 7months 6.3% South Korea 1month 4.2% 2months 4.25% 3months 4.40% 6months 4.63% 7months 4.99% Table 6: Yearly Inflation rates of each country (applicable for the next 5 years) • UK: 2.4% • US: 1.8% • Germany: 2% • South Korea: 1.4% • India: 3.8% • South Africa: 3.4% • Argentina: 2.6% 5 Table 7: BPM’s financial information: - Revenue of the year 2017: £10 billion - Total value: £20 billion - Equity value: £7 billion - Required return on equity: 13% - Cost of debt: 8% - Corporate tax: 17% - Average Income tax in the UK: 21% Questions Please answer the following questions to assist Mr. Ramon in his analysis of currency hedging for his report to the Finance department of the company: 1. Analyse and compare the different hedging strategies to hedge the exposures from the expected transactions of Germany and South Korea. You must provide detailed calculations for ALL HEDGING TECHNIQUES that you may think are relevant. (Currency Swap calculation is not required in this question). [20 marks] 2. Identify which hedging technique is most suitable for Ramon’s cases. You must provide precise interpretation to defend the chosen tools. While doing so, explain why the other technique(s) are not suitable. [10 marks] 3. Ramon is now considering a currency swap arrangement to manage the exposure from the