5512 group report 借鉴 PDF

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Group No.

Harry Chan

Student Name

Nguyen Pham Thien Huong

Student ID

S3515641

EXAM COVER SHEET

EXAM DETAILS

Course Code:

BAFI 3200

Course Description:

International Finance

Select one Date:

May 7, 2017

Select one Start time:

8.00 am

Select one Duration:

24 hours

Total number of pages 7 (incl. this cover sheet) ALLOWABLE MATERIALS AND INSTRUCTIONS TO CANDIDATES Students should download the paper at the agreed time, and work offline. 1.

On completion, submit via Turnitin

2.

This is an OPEN BOOK ASSESSMENT

3.

Read the case first, then make notes, then answer the questions

4.

Calculators – ALLOWED

5.

Dictionaries – ALLOWED There are five (5) questions at the close of the case scenario. Attempt ALL questions and ALL parts of questions

6. There are (7) questions that follow after the case study. Treat these questions indecently of the case study (they are not related to case study) Attempt ALL questions and ALL parts of questions This exam paper adds to xx marks and comprises 50% of the total marks allocated in this course. 7.

To obtain a pass in this course, you must achieve at least 50% overall in course assessment

Nguyen Pham Thien Huong S3515641

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8.

This is an individual assessment and it must be your own work.

9.

On completion submit your responses using the Turnitin location on BlackBoard.

PART A: Mayer Imports: Hedging Foreign Exchange Risk – Case study: F. Mayer Import Pty. Ltd (F. Mayer) was founded in 1957 that imports high-end European gourmet food products such as pasta, butter, cheese, chocolates or dry goods, etc., for distribution in the Australian markets (Bloomberg, n.d.). In 2008, although there was a financial crisis over the world, F.Mayer still had more than 15 percent at an average compound annual growth rate. So it is clear that the consumption of high-end gourmet food products increased significantly in this period. In addition, another factor that influenced strongly in F.Mayer’s profit margins, were the strong of AUD in exchange rate AUD/EUR between 0.70 and 0.80 for two years period. However, as an importer, the AUD/EUR trade of F.Mayer is very large, thus as the exchange rate of AUD to EUR (AUD/EUR) was continuous decreased at 0.6900. This also meant that it was one of the great threat to F.Mayer’s profit margins because of the weaker of AUD. Deeply analysis, F.Mayer used AUD to buy EUR for importing products from European, in the past as 1 AUD there was up to 0.8 EUR that F.Mayer could buy, which means the import price was very low, then the demand of this foreign product would increase. By contrast, because of the lose value of AUD against EUR, with 1 AUD F.Mayer could only buy 0.69 EUR, which means the import price would increase and the demand of these product in Australian market would decrease. For instance, according to Cathy L. Jabara (2009), she analyzed that as the weaker of US dollar, the cost of foreign goods should raise in US market and it as well as reduced the demand of US’s import. As a result, Stephen Goode (Chief financial officer of F.Mayer) and the company owner should be recommended some potential protection plan to protect his profit such as proposed hedging foreign currency risk. With the increase in demand of using high-end gourmet goods in Australian market, the import volumes of F.Mayer from Europe grew strongly. Thus, Euro risk exposures of F.Mayer had steadily enlarged more than €70 million each year and then, in 2011, F.Mayer has been managing its exchange rate exposure by Vanilla forward contract. This Vanilla forward contract is an agreement between the buyer (client) and the seller (bank) for purchase or sale foreign currency in the future but the exchange rate is fixed at the time the contract is signed despite the future exchange rate increases or decreases (Raiffeisenbank, n.d.). However, the disadvantage of this contract to F.Mayer was there was not any formal hedging policy and Goode and the business owner had to make daily decision on when, how long and how much they need to hedge the foreign currency risk. In addition, their decision was based on their prediction and analysis on AUD/EUR, thus, in case the future exchange rate went down after the contract, their profit had to suffer a large pain. Fortunately for F.Mayer, between 2010 and 2013, the exchange rate in AUD/EUR was dramatically increased over between 0.7 and 0.8, as a result, F.Mayer received lots of profit from this contract. On the other hand, in Australian market, there was an increasing competition trend in food industry. In this trend, most of consumers required high quality product but good price that mean the wholesaler must reduce their price as low as possible in order

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to maximize the profit margins. So, to minimize the cost of import products, the wholesaler need to find source of quality goods with great price, well deal at transportation price and hedge foreign exchange rate (Laurel Delandey, 2016, The Balance). In particularly, one of the most factor that affect strongly in the import cost is exchange rate. It has an influence directly on the trade surplus or deficit and when domestic currency goes down, the import becomes more expensive despite the export is stimulated significant. By contrast, when the domestic currency increase, it will hamper the export while the import is made cheaper (Investopedia, 2017). Therefore, to different from its major competitors, F.Mayer has established great management strategy in currency exposure by purchasing goods at a favorable foreign exchange rate which allows F.Mayer not only achieves higher profit margins but also improves their competition in Australian market. So, it is clear that wholesale prices and competitive advantage of each company is influenced by the budget foreign currency rate significantly.

According to F.Mayer’s bank, there were three proposed hedging solutions given, so here is some critique the merits on these hedging methods with the spot AUD/EUR at 0.6980 and the foreign exchange rate contract (FEC) at 0.6910.

Solution 1—Purchase an AUD Put/EUR Call Option In this solution, the bank provides two options for F.Mayer which are purchase an put option for AUD or call option for EUR. In addition, the bank also provides other two strike and premium prices for F.Mayer. For the first price, the bank suggests strike price at E = 0.6910 which is at the money with 2.13 percent of AUD face value for premium price (approximately 146 AUD/EUR for each pip), therefore, F.Mayer does not need to pay any fee in this case. However, in case F.Mayer afraid there will a decrease in AUD/EUR, they should purchase an EUR Call Option at E = 0.6910 against AUD or purchase an AUD Put Option against EUR at E = 0.6910 (for 1 AUD get 0.6910 EUR despite the AUD/EUR decrease). Similarity with the second prices which are strike price E = 0.6860 and Premium is approximately 124 AUD/EUR for each pip.

Solution 2—AUD/EUR Collar Option—Buy an AUD Put/EUR Call and Sell an AUD Call/EUR Put—Zero Premium For solution 2, the bank also provides two prices for F.Mayer. The first price includes buy put option at strike price Ep1 = 0.6860, sell the call option at strike price Ec1 = 0.6940 and buy put option at strike price Ep2 = 0.6810, sell the call option at strike price Ec2 = 0.6983. Thus, to avoid a weaker of domestic currency (AUD), F.Mayer should buy EUR call at Ec2 = 0.6983 (buy €0.6983 with 1 AUD) and F.Mayer can sell EUR put at Ep2 = 0.6810 if the AUD/EUR increase more than 0.6983 in case F.Mayer is a risk lover and

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want to achieve lots of profit. Conversely, the first price is more safety for F.Mayer, they can buy EUR call at Ec1 = 0.6940 and sell EUR put at Ep1 = 0.6860, so the loss in contract in this case is quite lower than the second price.

Solution 3—AUD/EUR Knock-In Forward—Buy an AUD Put/EUR Call and Sell an AUD Call/EUR Put with Up-and-In Trigger—Zero Premium This solution is quite similar to the solution 3, however F.Mayer can buy AUD put option at a strike of 0.6890. However, if the AUD/EUR in the contract’s period trades at 0.7140, F.Mayer can sell AUD call option with call strike price of 0.6890. This solution although looks good if the AUD becomes weaker only because it is very hard to predict whether the AUD/EUR trades at 0.7140 or not. In case the AUD/EUR trades at 0.7100, F.Mayer still have to sell AUD at low rate with strike of 0.6890.

Use a payoff diagram and map out: a. F.Mayer’s exposure, given a budget rate of AUD/EUR 0.69: Payoff

Payoff AUD/EUR = 0.69 Long call AUD/EUR = 0.69

Payoff

Short call Payoff

Long put

AUD/EUR = 0.69

AUD/EUR = 0.69

Short put

b. A foreign exchange forward contract at an AUD/EUR of 0.6910: Payoff

Payoff

Long forward AUD/EUR = 0.6910

Nguyen Pham Thien Huong S3515641

Short forward AUD/EUR = 0.6910

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c. The payoff after applying Solution 1 of the hedging strategies: Payoff

Payoff

Strike

Long call Break even rate

Break even rate

Short call

Strike References List Bloomberg, 2017, “Food and Staples Retailing Company Overview of F. Mayer (Imports) Pty. Ltd., Viewed on 7 May 2017 Raiffeisenbank, n.d., “Vanilla forward” Viewed on 7 May 2017 Investopedia, 2017, “Interesting Facts About Imports and Exports”, Viewed on 7 May 2017 http://www.investopedia.com/articles/investing/100813/interesting-facts-about-imports-and-exports.asp Delaney. L, 2016, “6 Ways to Save Money Importing”, Viewed on 7 May 2017

Jabara. C, 2009, “How Do Exchange Rates Affect Import Prices? Recent Economic Literature and Data Analysis”, U.S. INTERNATIONAL TRADE COMMISSION, Viewed on 7 May 2017.

Supplemental Questions 1 – 23 ODD # QUESTIONS (S3515641: 3+5+1+5+6+4+1 =25) Question 1: (2 marks) S(HKD/NAD) = 0.8800; S(SGD/NAD) = 0.3500  SGD/HKD = S(SGD/NAD) / S(HKD/NAD) = 0.3500/0.8800 = 0.3977 Question 3: (2 marks) S(SGD/CNY) = 0.2036; 6-months F(SGD/CNY) = 0.206535; iCNY = 5%

Nguyen Pham Thien Huong S3515641

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F(SGD /CNY )=S (SGD /CNY )×

(

1+r SGD 1+r CNY

)

 rSGD = [(0.206535/0.2036)*(1+ 5%/2)] – 1 = 0.0398  iSGD = 0.0398*2 = 0.0796 = 7.96% Question 5: (7.5 marks) i.

A = 0.8743; B = 0.0072 ; C= 0.8182

iv.

A = 0.0082; B = 0.9352; C = 1.1440

ii.

A = 0.9961; B = 1.0693; C = 1.2222

v.

A = 1.0727; B = 0.0088; C = 1.0040

iii.

A = 113.280; B = 113.636; C = 138.985

Question 7: ( 2 marks) i.

(0.94652 - 0.93646)/0.93646 = 1.075%; A

iv.

(0.000876 – 0.000881)/0.000881 = -0.568%; D

ii.

(66.760 – 65.392)/65.392 = 2.1%; A

v.

(0.74951 – 1.3378)/1.3378 = -43.97%; D

iii.

(0.99285 – 1.00384)/1.00384 = - 1.1%; D

Question 9: (10 marks) a) under 31.1%; b) 3.1; c) 1.2; d) 10.24; e) 5.93; f) 1.5; g) 1.89; h) under 51.5%; i) 1251.95; j) over 69.3% Question 11: (4 marks) ¿

a)

( )

( )

P 3% Q=S =0.03 × =0.013 P 7%

b) c)

P = 1,200,000,000*0.013 = 15,600,000 (USD)

Question 13: (7 marks) a)

The six-month forward spread is: (1.2508-1.2342) * 1,000,000 = 16,600 (USD). The advantage of this forward hedge is if the exchange rate decrease under strike price, the investor will achieve a profit and by contrast, as the exchange rate increase over strike price, the investor will gain lost in profit.

b) As borrow $ at low rate (3% p.a) and invest £ at higher rate (5% p.a), the investor absolutely achieve profit by using a 6 month hedge in case the USD/GBP is great. In case the USD/GBP goes down below the strike price despite great interest rate, the investors still be hurt by losing their profit. Question 19: (5 marks) (¥/$) 0.0091 & (£/¥) 0.0061 => (£/$) = 0.000056 -> profit can be made (£/¥) £0.0061& ($/£) 1.5558 => ($/¥) = 0.0095 -> lost profit Question 23: (3 marks) PPP is used to compare the different in currency of countries through a market “basket of goods” approach

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Supplemental Answer sheet MAR

MAR

KS

KS

2

Q1

1

2

Q3

1

7.5

2

Q5

Q7

10

Q9

A B Q11

i

1

C

ii

1

D

iii

2

A

iv

3

v

2

i

1

ii

1

B

iii

0.5

A

iv

0.5

Bi

v

0.5

A

0.5

Biii

B

0.5

Biv

C

5

Q19

D

3

Q21

E

3

Q23

Q13

C A Q15

F G

27

H I J K

50

24

Nguyen Pham Thien Huong and S3515641

B

Q17

Bii...