Stulz, RM 2004, 'Should We Fear Derivatives?', The Journal of economic perspectives, vol. 18, no. 3, pp. 173-192. After reading Stulz (2004) address the following question: How is it that value can be added to a multinational corporation by using foreign exchange derivatives in their risk management? NOTES: You are making an argument that needs to be supported. Firstly, with reference to the literature, and secondly, using an example of a corporation. Your report must be supported with a current / recent example of a multinational corporation which has significant foreign operations and uses derivative securities in their exposure management.
FINA3326 APPLIED FINANCIAL MANAGEMENT GROUP PROJECT (2020) Derivatives in Foreign Exchange Risk Management Stulz, RM 2004, 'Should We Fear Derivatives?', The Journal of economic perspectives, vol. 18, no. 3, pp. 173-192. After reading Stulz (2004) address the following question: How is it that value can be added to a multinational corporation by using foreign exchange derivatives in their risk management? NOTES: You are making an argument that needs to be supported. Firstly, with reference to the literature, and secondly, using an example of a corporation. Your report must be supported with a current / recent example of a multinational corporation which has significant foreign operations and uses derivative securities in their exposure management. (1) Review the literature in the area to support your argument a. Significant emphasis here – see marking guide b. Be concise and include only relevant literature c. You must include more recent literature to update your explanation (note that Stulz was writing pre-financial crisis – consider, did this event validate his approach or change it?) d. Explain any weaknesses in the argument for adding value (not just the strengths). (2) Discuss an example of one (one only) multinational corporation which supports your argument a. Describe the foreign exchange risk exposures that this company faces. What types of exposures are they and what are their magnitudes? i. You should try to be as specific as you can here. 1. What are their assets? Where are they held? 2. How are their cash flows being generated? In what currencies? 3. How significant to the overall business are these exposures? 4. In summary, can you explain the business model of the company and the exposures to which this business is faced? b. Describe how the company manages their exposures. c. Decide whether this has been successful. i. In deciding this you should include your own quantitative analysis 1. This section is open to your imagination, however reading the assigned textbook readings and reading Stulz (2004) may provide you with some ideas… ii. In deciding whether it has been successful you may also include sources, whether external to the company, or from the company’s own reporting – however these must all be properly referenced! Remember the primary overall question above. Structure your report as an answer to this question. The corporation is just an example that you are using to support your argument. You may think that then the implication is that you will be helped by finding a corporation that matches the argument that you are trying to make. However, note that this need not be the case. For if your empirical evidence (or for that matter your research) does not support this argument then explain this. If you find that this is the case, then explain the other side and how your evidence or research supports the counter argument. You may validly take either approach, you will be judged by the strength of your arguments, not by which side you take. • The choice of company is important, spend time here early on. This will assist in being able to structure a coherent report. • Full marks may be achieved regardless of which side your evidence supports. The question will be whether you applied that evidence sensibly or not? Written Report Due date and Submission: 2pm, Oct 13, 2020 via Turnitin on LMS NOTE: Only the student who submits the project will be able to view feedback on LMS. Please share the feedback file with the rest of your group. The marks will be manually allocated to all group members on LMS after SPARK adjustments. Format: A4-pages. Font size: 12, double spacing, Normal margins (about 2.5cm top, bottom, left and right) Maximum Length: 2,000 words (Appendices of tables & graphs can be added and are not in the word count – their use is recommended!). No limit on the use of appendices. Your references page need not be included in the word count. Reference – Reference your work! Use APA 7 referencing style. https://guides.library.uwa.edu.au/apa SPARK SPARK will be used to provide peer feedback and mediate group marking. Please familiarise yourself with the SPARK documentation contained in the Assignment/SPARK-Information folder on LMS. In addition, a short summary is included on the final page of this pdf. Groups Must be formed within tutorials. Maximum members 4. Marks Breakdown • Clarity of Report (Structure / Writing / General Presentation / Graphs / Tables / Use of Appendices) (4 marks) • Literature Review (5 marks) • Company Qualitative Analysis (Company research, business model, exposure measurement) (4 marks) • Company Quantitative Analysis (3 marks) o Explanation of whether the business has been successful in their foreign exchange risk management o This must include an analysis appendix (not in the word count) detailing: ▪ Your data sources ▪ Any modifications to your data before use ▪ Methodology – how were your outputs generated? • Overall cohesion and persuasiveness of your argument (2 marks) • Referencing (this will be strictly marked – reference correctly) (2 marks) https://guides.library.uwa.edu.au/apa SPARK https://uwa.sparkplus.com.au Peer feedback and assessment will be used to allow all group members to comment on and assess the contribution of all group members as well as themselves. To facilitate this SPARK (Self and Peer Assessment Resources Kit) will be utilised. SPARK is a tool designed to aid the development of team- skills and enhance the team experience. SPARK has been developed with the purpose to improve learning from team assessment tasks and make the assessments fairer for students. It is used to help students in a very important skill of giving and receiving feedback. There are two parts for you to complete: self and peer assessments. The program will require you to logon, complete your own self-assessment followed by evaluation of your peers. You can amend your ratings during the period specified by the instructor. Providing respectful comments for your team members in SPARK is strongly recommended. Your final team score will be weighted by the final SPA score you receive from your peers. Your SPA score can range from 0 to 1.2. This score will then be used to weight your team score. For example, a team scores 80% for all team tasks and two individuals in the team receive peer scores of 1.1 and 0.9. Individual 1 score = 80 x 110 = 88% Individual 2 score = 80 x 90 = 72%. Note: No scores above 100% will be created. If a team member does not contribute at all it is the group’s responsibility to refer this to the lecturer as they will be assigned zero if verified. The released SPA factors will be preliminary and only become official after any protests are considered. Any student believing their SPARK assessment was unfair may lodge an objection. Any objection to your assessment ratings must be made in writing. Each objection must clearly outline why you believe your rating is unfair. Your protest will be reviewed and may be discussed with the other members of your team. Objections must be lodged within 3 days from the date that the SPARKPLUS assessments are released. The lodgement of an objection will be considered as a request for reassessment of the entire team. Hence if a student lodges an objection the marks for the entire team will be reassessed and released after the objection has been considered. At all times the unit coordinator retains the right to exercise discretion in relation to application of the SPA factor to the final team mark for all team members. This discretion may be exercised particularly in situations where, in the opinion of the unit coordinator, a team member(s) has / have inadvertently or intentionally, misused SPARKPLUS. Complete the SPARK assessment by 5pm Monday 19th October. This will be open for you to complete on Tuesday 13th October. Not completing the SPARK evaluation for your team will result in a maximum individual SPA factor of 0.50 being applied (refer to the SPARK documentation in the SPARK folder).