The International Finance Assignment

BAFI1018

Final Assessment

You work for firm XYZ situated in Australia, and your boss has become concerned about the

current economic environment, especially as it relates 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, and what are possible hedging strategies. You are also to provide a

recommendation for what your firm should do.

Report requirements:

1. Due: 23 October 2020 by 23:59 AEST

2. World limit: 1500 words max (but you should aim 1000 words).

3. All figures/graphs/calculations should be in the appendix

4. All calculations should be labeled. If we do not know what the calculation is for,

we cannot evaluate it.

Below are some details about the financial/economic environment of the firm:

Firm XYZ:

1. Your firm sells goods domestically and abroad.

2. The firm has a payment due in 3 months time worth 400,000 EUR to foreign

supplier.

3. A U.S. importer owes the firm 300,000 USD, due in 4 months.

Economic environment:

1. RBA is considering implementing an expansionary monetary policy by lowering

the cash rate.

2. Economic growth of your foreign markets, where you export your goods, has

declined relative to domestic economic growth.

3. The firm is considering issuing 500,000 USD bonds with a maturity of 1 year.

Your job:

1. Use the information above to consider the types of exposure your firm may face.

2. “S” in the table below means spot rate: search for the current spot rate for the

appropriate currency pair.

3. Propose some hedging strategies, and evaluate the outcomes. Should the firm hedge?

(see detailed marking guidelines below)

4. The table below provides information on the forward rates, exercise rates (based on the

S you find), as well as premiums.

5. Use information on the economic environment to consider how S will be affected, relate

this to how this may impact the firm.

Additional information:

1. Please use the rate information provided in the table. This means you will have

different rates, depending on when you source the information (e.g. exchange

rates change continuously).

2. Look for spot rate forecasts (banks/newspapers offer these) to use for calculating

the profitability of a hedging strategy when you need a future spot rate. State why

you are using this rate (e.g. such and such predict that AUD/USD = X in 3

months, and using this rate…)

Table 1: Relevant information

Currency

pair

Price of

call

Price of

put

Exercise

Put

Exercise

Call

Fwd rate Spot rate interest

S(AUD/EUR) 0.007 0.01 S+0.02 S – 0.15 1.6 see current

available*

see current

available*

S(AUD/USD) 0.006 0.008 S+0.015 S – 0.10 1.35 see current

available*

see current

available*

* see current available = use a reliable source to find the data (e.g. Yahoo Finance)

Notes on the table: To determine the exercise rate of a put, for example for AUD/USD, search

for the current spot rate for the currency pair, and then add 0.02 to the spot.

————————————

Additional notes:

1. Executive summary not required

2. Cover sheet not required

3. Table of contents not required

4. Must provide references

Submission:

1. Online via Canvas

2. Turnitin in required with the report

3. Report should be in Microsoft word or pdf formats only!

Marking guidelines: 40 points of your final grade

1. Exposure: show understanding of different types of exposure, specifically as it

related to the firm (8 points)

2. Hedging strategies: show knowledge of different strategies available in the market ( 5

points)

a. Show calculation of hedge/no hedge decisions under different strategies (15

points)

b. Use currently available information (3 points)

● For example, for interest rates you can find the central bank rate of the

foreign market

c. Show where you source your data from (2 points)

3. Recommendation: which strategy should you use? Why? Use your analysis to

provide the recommendation (5 points)

4. Appendix: exempt from word limit, but should only include figures/data (2 points

 

Order Number			45471455714
Type of Paper			Essay
Writer Classification Level			Undergraduate
Style of Writing			MLA/APA/CHICAGO/
Sources and References			5
Number of Pages			4
	Distinguished (100%)	Proficient (85%)		Basic (70%)	Below Expectations (50%)	Non-Performance (0%)
Thesis Statement	Raises the strongest   objection to the thesis presented in the assignment. The objection is strongly grounded in research and logical reasoning.	Raises a plausible objection to the thesis presented in the assignment. The objection is mostly grounded in research and logical reasoning.		Raises an objection to the thesis presented in the assignment. The objection is somewhat grounded in research and logical reasoning.	Attempts to raise an objection to the thesis presented in the assignment. The objection is minimally grounded in research and logical reasoning.	The objection to the thesis is either nonexistent or lacks the components described in the assignment instructions.
Counter Argument	Provides a strong, thorough rebuttal to the objection. The rebuttal effectively demonstrates that the thesis can withstand the objection and applies the principles of charity and accuracy.	Provides a rebuttal to the objection. The rebuttal mostly demonstrates that the thesis can withstand the objection and mostly applies the principles of charity and accuracy.		Provides a limited rebuttal to the objection. The rebuttal somewhat demonstrates that the thesis can withstand the objection and somewhat applies the principles of charity and accuracy.	Attempts to provide a rebuttal to the objection; however, the rebuttal minimally demonstrates that the thesis can withstand the objection and does not apply the principles of charity and accuracy.	The rebuttal is either nonexistent or lacks the components described in the assignment instructions.
Conclusion	Provides clear and concise closing remarks that comprehensively summarize the essay. The remarks consider the broader controversy and/or further research that could offer additional insight into the moral solution of the business problem.	Provides closing remarks that summarize the essay. The remarks mostly consider the broader controversy and/or further research that could offer additional insight into the moral solution of the business problem. The closing remarks are somewhat unclear.		Provides closing remarks that minimally summarizes the essay. The remarks minimally consider the broader controversy and/or further research that could offer additional insight into the moral solution of the business problems. The closing remarks are unclear and/or vague.	Attempts to provide closing remarks that summarize the essay; however, the remarks do not consider the broader controversy and/or further research that could offer additional insight into the moral solution of the business problem. The closing remarks are unclear and vague.	The closing remarks are either nonexistent or lack the components described in the assignment instructions.
Written Communication: Context of and Purpose for Writing	Demonstrates methodical application of organization and presentation of content. The purpose of the writing is evident and easy to understand. Summaries, quotes, and/or paraphrases fit naturally into the sentences and paragraphs. Paper flows smoothly.	Demonstrates sufficient application of organization and presentation of content. The purpose of the writing is, for the most part, clear and easy to understand. There are some problems with the blending of summaries, paraphrases, and quotes. Paper flows somewhat smoothly.		Demonstrates a limited understanding of organization and presentation of content in written work. The purpose of the writing is somewhat evident but may not be integrated throughout the assignment. There are many problems with the blending of summaries, paraphrases, and quotes. Paper does not flow smoothly in all sections.	Organization and presentation of content are extremely limited. The purpose of the writing is unclear. There is little or no blending of summaries, paraphrases, and quotes. Paper does not flow smoothly when read.	The assignment is either nonexistent or lacks the components described in the instructions.
Written Communication: Control of Syntax and Mechanics	– Displays meticulous comprehension and organization of syntax and mechanics, such as spelling and grammar. Written work contains no errors and is very easy to understand.	Displays comprehension and organization of syntax and mechanics, such as spelling and grammar. Written work contains only a few minor errors and is mostly easy to understand		Displays basic comprehension of syntax and mechanics, such as spelling and grammar. Written work contains a few errors which may slightly distract the reader.	Fails to display basic comprehension of syntax or mechanics, such as spelling and grammar. Written work contains major errors which distract the reader.	The assignment is either nonexistent or lacks the components described in the instructions.
Written Communication: Required Formatting	Accurately uses required formatting consistently throughout the paper, title page, and reference page.	Exhibits required formatting throughout the paper. However, layout contains a few minor errors.		Exhibits limited knowledge of required formatting throughout the paper. However, layout does not meet all requirements.	Fails to exhibit basic knowledge of required formatting. There are frequent errors, making the layout difficult to distinguish as required style.	The assignment is either nonexistent or lacks the components described in the instructions.
Written Communication: Word Requirement	The length of the paper is equivalent to the required number of words.	The length of the paper is nearly equivalent to the required number of words.		The length of the paper is equivalent to at least three quarters of the required number of words.	The length of the paper is equivalent to at least one half of the required number of words.	The assignment is either nonexistent or lacks the components described in the instructions.
Written Communication: Resource Requirement	Uses more than the required number of scholarly sources, providing compelling evidence to support ideas. All sources on the reference page are used and cited correctly within the body of the assignment.	Uses the required number of scholarly sources to support ideas. All sources on the reference page are used and cited correctly within the body of the assignment.		Uses less than the required number of sources to support ideas. Some sources may not be scholarly. Most sources on the reference page are used within the body of the assignment. Citations may not be formatted correctly.	Uses an inadequate number of sources that provide little or no support for ideas. Sources used may not be scholarly. Most sources on the reference page are not used within the body of the assignment. Citations are not formatted correctly.	The assignment is either nonexistent or lacks the components described in the instructions.

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