Suppose your boss has asked you to write a report which evaluates the foreign exchange exposure of your company. Besides the exposure of your company, you should also discuss possible hedging strategies, and a recommendation on how to proceed in the report
BAFI1018 S2 2021 Final Assessment Marks: 40% Due Date: The assignment will be released at 1pm on Monday 25 October 2021 (Melbourne Time) and is due by 1pm on Monday 1 November 2021 (Melbourne Time). You will be given 7 days to complete the assignment. Word Count: 1500 words You work for firm XYZ situated in Britain, and your boss has become concerned about the current economic environment, especially as it is related to the different types of exposures that your firm may face in the near future. You are asked to provide a report, which evaluates how your firm is exposed, the risk management implications for your firm, and possible hedging strategies. You are also required to provide a recommendation for what your firm should do. Information about Firm XYZ: 1. The firm imports high quality wool to Britain from foreign suppliers located in Australia and the New Zealand. 2. The firm exports Jewellery to USA from Britain. 3. The firm exports designer clothes from Britain to Australia, New Zealand and Singapore. 4. The firm has a payment of 8,000,000 AUD due in 3 months to their supplier in Australia, a payment of 6,000,000 NZD due in 2 months to their supplier in New Zealand. 5. The firm is due to receive 9,000,000 AUD from their customer in Australia in 2 months, 4,000,000NZD from their customer in New Zealand in 2 months, 700,000 SGD from their customer in Singapore in 1 months, and 9,000,000 USD from their customer in USA in 2 months 6. The firm is concerned with the impacts of the potential high inflation rate due to the recent expansionary monetary policy globally in their exporting and importing business You are required to prepare a report, which should contain the following information: 1. Use the information above to consider the types of exposure your firm may face. 2. Discuss the firm’s risk management implications given their exposure and design hedging strategies for the firm. You also need to evaluate the hedging outcome – what will the outcome be if exposure is hedged and what will the outcome be if exposure is not hedged. 3. You should consider the effect of the current economic environment on foreign exchange market, demand for exports/imports, supply of exports/imports and other relevant economic indicators, and relate this to how this may impact the firm. Particularly, you need to discuss the potential impacts of high inflation in the relevant countries for the firm on the firm’s exporting and importing business Allocation of Marks The assignment accounts for 40% (a total of 40 marks) of students’ final grade for BAFI1018 International Finance. Marks will be allocated as follows: 1. Exposure and risk management (10 marks) Marks will be awarded based on your understanding of different types of exposure related to this firm and on your understanding of the importance of risk management and the available risk management measures including potential hedging strategies 2. Discussion of the impact of economic environment (5 marks) Marks will be awarded based on your understanding of the impact of the current economic environment and your ability to relate this to how this may affect the firm. 3. Design of hedging strategies (10 marks) Marks will be awarded based on the relevance, the effectiveness and the cost of the proposed hedging strategies 4. Hedging outcome (10 marks) Marks will be awarded based on your calculation and evaluation of the outcome if the company’s exposure is hedged using the proposed strategies as well as the outcome if the company’s exposure is not hedged. 5. Communication (5 marks) Marks will be awarded based on how well the report communicates analysis, arguments and viewpoints and how well the report is written. Students are expected to provide accurate and complete citation and referencing where necessary. General Instructions • This is an individual assessment task. • Each student is required to submit a project report, including all the supporting analysis and materials by the due date. The report should be no longer than 1500 words (excluding reference, tables and appendices). Citation and referencing should be provided where necessary. Students should follow the Harvard referencing style. • All report submissions must be made electronically to Turnitin. The report must be using 1.5 or 2.0 spacing and 12 point Times New Roman font. • Unless extension is granted, severe penalties apply for late submission (please refer to the course outline for details). Final Assessment Rubric (Total weighting: 40%) 1. Exposure and risk management (10 marks) 2. Discussion of the impact of economic environment (5 marks) 3. Design of hedging strategies (10 marks) 4. Hedging outcome (10 marks) 5. Communication (5 marks) Project High Distinction (80-100%) Distinction (70-79%) Credit (60-69%) Pass (50-59%) Fail (0-49%) Exposure (10 marks) Marks will be awarded based on your understanding of different types of exposure related to this firm and on your understanding of the importance of risk management and the available risk management measures including potential hedging strategies Excellent understanding of different types of exposure related to this firm, the importance of risk management and the available risk management measures including potential hedging strategies Very good understanding of different types of exposure related to this firm, the importance of risk management and the available risk management measures including potential hedging strategies Good understanding of different types of exposure related to this firm, the importance of risk management and the available risk management measures including potential hedging strategies Some understanding of different types of exposure related to this firm, the importance of risk management and the available risk management measures including potential hedging strategies Poor or no understanding of different types of exposure related to this firm, the importance of risk management and the available risk management measures including potential hedging strategies Discussion of the impact of economic environment (5 marks) Excellent understanding of Very good understanding of Good understanding of Some understanding Poor or no understanding of Marks will be awarded based on your understanding of the impact of the current economic environment and your ability to relate this to how this may affect the firm. the impact of the current economic environment and excellent ability to relate this to how this may affect the firm. the impact of the current economic environment and very good ability to relate this to how this may affect the firm. the impact of the current economic environment and good ability to relate this to how this may affect the firm. of the impact of the current economic environment and some ability to relate this to how this may affect the firm. the impact of the current economic environment and poor to no ability to relate this to how this may affect the firm. Design of hedging strategies (10 marks) Marks will be awarded based on the relevance, the effectiveness and the cost of the proposed hedging strategies Excellent strategies in terms of their relevance, effectiveness and cost Very good strategies in terms of their relevance, effectiveness and cost Good strategies in terms of their relevance, effectiveness and cost Fair strategies in terms of their relevance, effectiveness and cost Poor strategies in terms of their relevance, effectiveness and cost Hedging outcome (10 marks) Marks will be awarded based on calculation and evaluation of the outcome if the company’s exposure is hedged using the proposed strategies as well as the outcome if the company’s exposure is not hedged. Excellent calculation and evaluation of the outcome if the company’s exposure is hedged using the proposed strategies and the outcome if the company’s exposure is not hedged. Very good calculation and evaluation of the outcome if the company’s exposure is hedged using the proposed strategies and the outcome if the company’s exposure is not hedged. Good calculation and evaluation of the outcome if the company’s exposure is hedged using the proposed strategies and the outcome if the company’s exposure is not hedged. Fair calculation and evaluation of the outcome if the company’s exposure is hedged using the proposed strategies and the outcome if the company’s exposure is not hedged. Poor calculation and evaluation of the outcome if the company’s exposure is hedged using the proposed strategies and the outcome if the company’s exposure is not hedged. Communication (5 marks) Marks will be awarded based on how well the report communicates analysis, The report shows excellent communication and writing skills, The report shows very good communication and writing skills, The report shows good communication and writing skills, The report shows fair communication and writing The report shows poor communication and writing arguments and viewpoints and how well the report is written. Students are expected to provide accurate and complete citation and referencing where necessary. minimal grammatical and spelling errors, and complete and accurate citation and referencing. occasional grammatical and spelling errors, and complete and accurate citation and referencing. some grammatical and spelling errors, and generally complete and accurate citation and referencing. skills, frequent grammatical and spelling errors, and generally complete and accurate citation and referencing. skills, very frequent grammatical and spelling errors, and incomplete and/or inaccurate