Trimester 1, 2016
This is a group assignment with four members. You can organise your groups on
CloudDeakin (CD). Group sign up is on CD. It is important to register your group; otherwise
you will not be able to upload the assignment.
Importantly, you need to work as a group, not just do one question each. Each member of
the group needs to understand the group responses. This group assignment meets the
Deakin Graduate Learning Outcome 7. In my experience the groups that work well together
get the best results.
Report Format: Acknowledge your work in the appropriate manner.
Words: A guide is provided but in some cases a diagram with explanations
and analysis is more appropriate than just words.
There is no need for an executive summary.
Style: Times Roman 12-pt size, single spaced, double space between
paragraphs, 4 cm left margin. Include your names and student numbers in the header.
Reference your work in the appropriate manner. Remember direct quotes in quotation
marks. If unsure how to reference correctly please ask. In addition, there are guidelines on
the University website.
Submission: All assignments will be marked online. It is important that you keep a
copy. Presentation is important. Write as a business report.
Knowledge, Skills and Attributes
This assignment seeks to:
Advance your knowledge in the key area of hedging.
Challenge you to organise, plan and think.
Enhance your ability to synthesise and analyse information and data.
Consolidate your skills in identifying, retrieving and working with textual, graphical and
numerical information.
Improve your ability to collaborate with others in a shared pursuit of knowledge.
Improve your problem solving skills.
2
Question 1:
Working for GLB Ltd. Treasury Division, an Australian exporter of airport surveillance
systems, one day you are asked to find an avenue to invest your company’s surplus funds
over one year. Based on the in-house research, your company anticipates a 1% increase in
the curve in six months. The 6-month and 1-year zero-coupon rates are respectively 3% and
3.2%. After doing some research yourself, you find two different opportunities:
? your company can buy the 1-year zero-coupon T-bond and hold it until maturity;
? or your company can choose a rollover strategy by buying the 6-month T-bill, holding
it until maturity, and buying a new 6-month T-bill in six months, and holding it until
maturity.
1. Calculate the annualized total return rate of these two strategies assuming that your
company’s anticipation is correct.
2. Same question when interest rates decrease by 1% after six months.
(5 + 4 = 9 marks) (Guide 500 words))
Question 2:
As an analyst for Vandelay Bank Treasury Department, your supervisor has handed you a
chart (Figure 1) showing a recent spike of the Euro against the US dollar. You are asked to
write a report:
(a) to examine and investigate the background and reasons (the risk factors) behind this
dramatic forex rate spike. What are the reasons, if any, resulting in the exchange rate spike
on April 3, 2015?
(b) to assess the forex rate spike within the context of fundamental analysis of forex rate.
(c) to discuss the likely fundamental impacts on the most traded currency pair in the world,
EUR/USD over the next six months. Include a screenshot of the EUR/USD over the last six
months and comment on the movements. (Hint: if you have no other sources for data, you
can download a forex trading platform that will give you real live data. The platform is
known as MT4. There are many brokers however, I recommend you download from Alpari –
www.alpari.com or FXDD, www.fxdd.com. Only a DEMO account (it is free) is needed. Use
the demo platform to take a screenshot.)
(3 + 3 + 4 = 10 marks) (Guide 700 words))
3
Figure 1. EURUSD on Apr 3, 2015
Question 3:
(a) In recent years there has been an increase in the use of technical analysis techniques to trade
foreign currencies as distinct from manage foreign currency risk. Explain how traders use technical
analysis, use an example to illustrate, and distinguish between “trading currencies” and “managing
foreign currency risk”.
(b) It is incredibly difficult to arbitrage exchange rates as liquidity on the major currencies is
so large and relevant information is impounded into the exchange rate instantaneously.
However, there is a strategy known as the “Carry Trade” – this trade was very popular in the
last ten years between the Japanese yen and the USD, and recently between the euro and
the AUD.
(i) What are the principles of the carry trade?
(ii) Construct an example using past data to show a “carry trade” and clearly show the risks.
(4 + 2 +3 = 9 marks) (Guide 600 words)
Question 4:
Using the following quotation method, i.e. indirect AUD 1 = USD 0.8000 as the spot.
(a) Source the cash rates for the AUD and USD to calculate the one year forward rate. Use todays
spot rate. Why do you think a forward exchange contract is the most popular hedging instrument?
(Assume a 360-day year.)
4
(b) Is this rate at a discount or a premium to the AUD? Explain the theory and practice of the
relationship.
(c) “The spot rate in one year will probably be entirely different to the one year forward rate”. Is this
statement true? Explain and source data to support your analysis.
(d) Assume the AUDUSD spot is 0.7748 at present. Evaluate the factors that will likely lead to a
strengthening of the spot rate to 0.7808, and alternatively a weakening to 0.6758 over the next
twelve months.
(3 + 2 + 3 + 4 = 12 marks) (Guide 700 words)
Question 5:
This is a team based assignment and in a work environment a team would be involved in
completing these tasks. Therefore, you need to demonstrate that you have worked as a
team.
Each member of the group is required to submit a reflective report describing the
operations of the group. In the report you are required to evaluate the performance of the
overall group – how the group was organised, planning, distribution of tasks, how initial
answers were reviewed, the problems encountered, solutions, overall effectiveness and
what you learned from the group assignment that is relevant in the work environment.
(10 marks) (Guide 400 words/Group)
(Total = 50 marks)
Previous answers to this question
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Get The Answer MAF704 TREASURY AND RISK MANAGEMENT
Trimester 1, 2016
This is a group assignment with four members. You can organise your groups on
CloudDeakin (CD). Group sign up is on CD. It is important to register your group; otherwise
you will not be able to upload the assignment.
Importantly, you need to work as a group, not just do one question each. Each member of
the group needs to understand the group responses. This group assignment meets the
Deakin Graduate Learning Outcome 7. In my experience the groups that work well together
get the best results.
Report Format: Acknowledge your work in the appropriate manner.
Words: A guide is provided but in some cases a diagram with explanations
and analysis is more appropriate than just words.
There is no need for an executive summary.
Style: Times Roman 12-pt size, single spaced, double space between
paragraphs, 4 cm left margin. Include your names and student numbers in the header.
Reference your work in the appropriate manner. Remember direct quotes in quotation
marks. If unsure how to reference correctly please ask. In addition, there are guidelines on
the University website.
Submission: All assignments will be marked online. It is important that you keep a
copy. Presentation is important. Write as a business report.
Knowledge, Skills and Attributes
This assignment seeks to:
Advance your knowledge in the key area of hedging.
Challenge you to organise, plan and think.
Enhance your ability to synthesise and analyse information and data.
Consolidate your skills in identifying, retrieving and working with textual, graphical and
numerical information.
Improve your ability to collaborate with others in a shared pursuit of knowledge.
Improve your problem solving skills.
2
Question 1:
Working for GLB Ltd. Treasury Division, an Australian exporter of airport surveillance
systems, one day you are asked to find an avenue to invest your company’s surplus funds
over one year. Based on the in-house research, your company anticipates a 1% increase in
the curve in six months. The 6-month and 1-year zero-coupon rates are respectively 3% and
3.2%. After doing some research yourself, you find two different opportunities:
? your company can buy the 1-year zero-coupon T-bond and hold it until maturity;
? or your company can choose a rollover strategy by buying the 6-month T-bill, holding
it until maturity, and buying a new 6-month T-bill in six months, and holding it until
maturity.
1. Calculate the annualized total return rate of these two strategies assuming that your
company’s anticipation is correct.
2. Same question when interest rates decrease by 1% after six months.
(5 + 4 = 9 marks) (Guide 500 words))
Question 2:
As an analyst for Vandelay Bank Treasury Department, your supervisor has handed you a
chart (Figure 1) showing a recent spike of the Euro against the US dollar. You are asked to
write a report:
(a) to examine and investigate the background and reasons (the risk factors) behind this
dramatic forex rate spike. What are the reasons, if any, resulting in the exchange rate spike
on April 3, 2015?
(b) to assess the forex rate spike within the context of fundamental analysis of forex rate.
(c) to discuss the likely fundamental impacts on the most traded currency pair in the world,
EUR/USD over the next six months. Include a screenshot of the EUR/USD over the last six
months and comment on the movements. (Hint: if you have no other sources for data, you
can download a forex trading platform that will give you real live data. The platform is
known as MT4. There are many brokers however, I recommend you download from Alpari –
www.alpari.com or FXDD, www.fxdd.com. Only a DEMO account (it is free) is needed. Use
the demo platform to take a screenshot.)
(3 + 3 + 4 = 10 marks) (Guide 700 words))
3
Figure 1. EURUSD on Apr 3, 2015
Question 3:
(a) In recent years there has been an increase in the use of technical analysis techniques to trade
foreign currencies as distinct from manage foreign currency risk. Explain how traders use technical
analysis, use an example to illustrate, and distinguish between “trading currencies” and “managing
foreign currency risk”.
(b) It is incredibly difficult to arbitrage exchange rates as liquidity on the major currencies is
so large and relevant information is impounded into the exchange rate instantaneously.
However, there is a strategy known as the “Carry Trade” – this trade was very popular in the
last ten years between the Japanese yen and the USD, and recently between the euro and
the AUD.
(i) What are the principles of the carry trade?
(ii) Construct an example using past data to show a “carry trade” and clearly show the risks.
(4 + 2 +3 = 9 marks) (Guide 600 words)
Question 4:
Using the following quotation method, i.e. indirect AUD 1 = USD 0.8000 as the spot.
(a) Source the cash rates for the AUD and USD to calculate the one year forward rate. Use todays
spot rate. Why do you think a forward exchange contract is the most popular hedging instrument?
(Assume a 360-day year.)
4
(b) Is this rate at a discount or a premium to the AUD? Explain the theory and practice of the
relationship.
(c) “The spot rate in one year will probably be entirely different to the one year forward rate”. Is this
statement true? Explain and source data to support your analysis.
(d) Assume the AUDUSD spot is 0.7748 at present. Evaluate the factors that will likely lead to a
strengthening of the spot rate to 0.7808, and alternatively a weakening to 0.6758 over the next
twelve months.
(3 + 2 + 3 + 4 = 12 marks) (Guide 700 words)
Question 5:
This is a team based assignment and in a work environment a team would be involved in
completing these tasks. Therefore, you need to demonstrate that you have worked as a
team.
Each member of the group is required to submit a reflective report describing the
operations of the group. In the report you are required to evaluate the performance of the
overall group – how the group was organised, planning, distribution of tasks, how initial
answers were reviewed, the problems encountered, solutions, overall effectiveness and
what you learned from the group assignment that is relevant in the work environment.
(10 marks) (Guide 400 words/Group)
(Total = 50 marks)
Previous answers to this question
This is a preview of an assignment submitted on our website by a student. If you need help with this question or any assignment help, click on the order button below and get started. We guarantee authentic, quality, 100% plagiarism free work or your money back.
Get The Answer