You are required to prepare a report for the family presenting your analysis, advice and recommendations on some risk management issues facing their global wealth portfolio.
The report should be @2,500 - 3,000 words in length, excluding list of contents, data appendix etc.. There should be a Data Appendix showing your workings.
PowerPoint Presentation Some General Pointers for the CA … This assignment examines theory and practice for what we have done in EF 309 to date. Application of theory-to-data is an important element Application of concepts-to- data/situation is another Your thoughts/synthesis of what key risk factors are, is another Think about what is being asked and check to see if there is any corresponding information in the ppts /loop – there will be Demonstration of PROCESS is very important in my opinion. 1 Some General Pointers for the CA … You are expected to source some data …..for Sections 2&3 Specifically US Treasury yields – no need to obsess about micro details on yield eg I don’t expect the US YC to change dramatically over the next 6 weeks and if it does I will know of course what the time – appropriate 2, 5, 10 yr yields etc will have been. Representative data from a REPUTABLE source is the key requirement. Same for EU yields … and we know where to source them too 2 Section 3 Background Prep References .. https://www.deutsche-finanzagentur.de/en/institutional-investors/federal-securities/green-federal-securities/ Watch The Green Expenditures of the Federal Budget ( 8.24 mins) Watch The German Twin Bond Concept (8.20 mins) Claire Kearney EF 309 2021 3 Some General Pointers for the CA … You are expected to source some data -20 years monthly data for Equities would be great, 10 min 2. The log price calculation in excel - as proxy for monthly rtn eg : = ln (March closing price/Feb closing price) 3. Show how to calculate the basic functions - from the pathway ...Formulas - More Functions - Statistical ..the Average, Standard Deviation, Variance, and for 2 time series Covariance and Correlation. This will be useful for Section 4 of the CA assignment 4 https://www.deutsche-finanzagentur.de/en/institutional-investors/federal-securities/green-federal-securities/ 5 Measures of Bond Price Volatility (contd) Price Value of a Basis Point (PVBP) PVBP also referred to as the dollar value of an 01, DVO1 is the change in the bond price if the required yield changes by 1 basis point. (BP) This measure of price volatility indicates dollar price volatility NOT % Price volatility (price change as a percent of the initial price). Typically, the price value of a basis point is expressed as the absolute value of the change in price. 6 1%=100BP Principles for Approaching the CA As regards the bonds there are some ‘correct’ answers to be calculated – but big figure accuracy is fine with me/ 2 dec places . Correct PROCESS is far more important to me than a single ‘right ‘ answer. Note there may be more than one way to calculate a bond price say for example on a 12-mth bond. So just explain what you choose and why – (can be v. brief ) 7 Principles for Approaching the CA As regards Equities – I am very open to whatever combinations you propose, I have no ‘RIGHT’ selection of stock in mind – that’s the joy of equity investing in an index of 500 stocks, ie; there are many combinations that can achieve broadly similar overall goals. EG high risk, low risk , medium risk. Data – driven analysis using the module tools and metrics IS the foundation for all opinion however You are not REQUIRED to do the work in excel but if you can follow the process from tutorial that will greatly accelerate the process later on 8 Principles for Approaching the CA A report doesn’t need massive introduction and overview and conclusion – concise reporting is a valuable skill I see it in a “Goals & Penalties” light – with the Data Appendix providing the Video Assisted Referee (VAR) input. I invariably start with the Data Appendix to see what’s there It is not an essay – so no great narrative development required in every section 9 EF309 Risk Management Continuous Assessment 2021 Individual Assignment & Report Its 1st January 2021, you’re a wealth management advisor- specific focus on financial risk management, to an Irish family which has a substantial investment portfolio. Continuous Assessment Requirement: You are required to prepare a report for the family presenting your analysis, advice and recommendations on some risk management issues facing their global wealth portfolio. The report should be @2,500 - 3,000 words in length, excluding list of contents, data appendix etc.. There should be a Data Appendix showing your workings. You should employ the risk management tools, techniques and metrics from our module materials to conduct your analysis and inform your recommendations. 1. Recommend a currency risk-management strategy for two foreign exchange transactions pending in 2021. Explain your recommendations and support them with data analysis. Use the data in Tables 1 & 2. (12 marks) 2. The family has held US Treasury bonds since 2010, as a key element of the conservative part of the family’s global investment strategy and has a sizable holding worth approximately $25m in these assets., see Tables 3 & 4. Calculate the current value of this holding and discuss the risks associated with it. (24 marks) 3. The family has heard of the German Federal Government’s 2020 Green Federal Security initiative, and asks your opinion on whether the fixed income holding should be divided in two, and half of the fixed income portion of the wealth portfolio now invested in these new German bunds? Analyse this investment proposition, make a recommendation to the family and explain your reasoning, supported by data analysis. Table 4. below sets out the details of the German Federal Government Green Securities which could be invested in. (22 marks) 4. One member of the family believes passionately that US equities represent the last bastion of safety and value in global financial markets in the current uncertain world and insists that a new investment of $ 25m in two stocks, at the very minimum, be made in 2021. You are not convinced by this idea but as the family insists, will propose three different possible 2-stock US equity portfolios for the family to begin its US equity investment activity. These portfolios should address a spectrum of low risk to high risk. You may select any stocks from the S&P500 index and should support your recommendation with data analysis and explain your reasoning. (22 Marks) 5. In your opinion what are the key financial risks facing investors in developed bond and equity markets in 2021 and in the foreseeable future? Discuss, and explain your reasoning. (20 Marks) Notes for Individual Sections. Q 1. Details of the Foreign Exchange Transactions pending Table 1. 1(a.) A payment of £13million must be made in 90 days-time to Her Majesty’s Revenue and Customs (HMRC) UK, in respect of final settlement of a protracted legal dispute regarding legacy tax issues dating from property disposals made on behalf of the family in the early 2000’s. The FX desk at the family’s commercial bank forecasts that the spot £ STG/€ exchange rate will be £0.8400 per € Euro in 90 days. Current spot rate: £0.8600 per € Euro 90-day forward rate: £0.8693 per € Euro 120-day forward rate: £0.8650 per € Euro UK Deposit Rate (annual %) 1.20% UK Borrowing Rate (annual %) 1.50% Euro Deposit Rate (annual %) 0.10% Euro Borrowing Rate (annual %) 0.50% Family W.A.C.C (ann. %) 3.6% Put option available: Premium 1.50% Strike price £0.8800 per € Call option available: Premium 1.50% Strike price £0.8800 per € Table 2. 1(b.) The family has recently liquidated its property portfolio in California and Florida as adverse climate events have led a re-evaluation of the value of maintaining this property portfolio in the long-run. Settlement of US $17.5m is due in 90 days. The FX desk at the family’s commercial bank forecasts that the spot $ USD/€ exchange rate will be USD $ 1.17 per € Euro in 90 days. Current spot rate: USD $1.190 per € Euro 60-day forward rate: USD $1.210 per € Euro 90-day forward rate: USD $1.215