BAFI1019 Final Assessment
Marks: 40%
Due Date: The assignment will be released at 5pm on Friday 8 March 2024 (Singapore Time) and is due by 5pm Thursday 18 April 2024 (Singapore time).
Word Count: 1500 words (+10% or -10% allowed)
You work for firm ABC situated in Australia, 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 future. You are asked to provide a report, which evaluates your firm’s exposures, the risk management implications for your firm, and possible hedging strategies for the next 12 months. You are also required to provide a recommendation for what your firm should do.
Information about Firm ABC:
1. Firm ABC is a food manufacturer located in Australia.
2. The firm plans to replace their old machine and equipment with the latest models. They will buy machine and equipment from manufacturers located in France and United States. The new machine and equipment will be delivered in 6 months ’ time.
3. The firm exports its products to Singapore, Japen, the United Kingdom.
4. The firm has a payment of 3,000,000EUR due in 3 months and then another 3,000,000EUR due in 6 months to the machine manufacturer in France. The firm need to pay 5,000,000USD to the machine manufacturer in the United States in 2 months and then another 5,000,000USD in 6 months.
5. The firm is due to receive 3,000,000 SGD from their customer in Singapore every 3 months over the next 6 months and then 3,500,000SGD every 3 months after they receive the new machine. They will also receive a payment of 6,000,000 GBP from their customer in the United Kingdom in 3 months and a payment of 50,000,000 JPY from their customer in Japen in 5 months.
6. The firm has 2,000,000 EUR kept in aterm deposit account earning an interest rate of 3.5% per annum in France. The term deposit matures in 3 months.
You are required to prepare a report, which should contain the following information:
1. Discuss and evaluate the types of exposures your firm may face as well as the other main concerns for your firm. In your discussion, you should consider the effects of the current economic climate on the foreign exchange market and the competitiveness of the products produced in Australia and relate this to how these may impact the firm.
2. List the future spot exchange rates (the currency pair and the relevant month) that directly affect your firm and form a forecast (a number is required) for each of these future spot exchange rates. You need to briefly analyse the factors affecting these exchange rates and then form. your forecasts.
3. Design hedging strategies for the firm’s foreign currency exposures. You need to explain why your chosen hedging strategies are better than the other strategies by calculating and then evaluating the hedging outcomes – what will the outcomes be if exposures are hedged using your hedging strategies and what will the outcomes be if exposures are not hedged or using other hedging strategies. Please also discuss the impacts of hedging foreign currency exposures on the firm’s cost of capital and firm value.
4. You need to navigate the digital landscape and use appropriate digital tools, e.g., Refinitiv Workspace, to find relevant information and data to complete the tasks. You need to provide the sources of data used in your report.
Allocation of Marks
The assignment accounts for 40% (atotal of 40 marks) of students’ final grade for BAFI1019 International Finance. This assessment will measure your ability related to the following aspects:
• Analyse factors affecting exchange rate and form. your forecasts (8 marks)
• Evaluate the exposures (5 marks)
• Manage exposures and evaluate the risk management outcomes (14 marks)
• Provide solutions by utilizing and connecting a variety of relevant disciplinary tools and knowledge when solving problems (5 marks)
• Communication (5 marks)
• Digital Proficiency (3 marks)
General Instructions
• This is an individual assessment task. Each student should work independently on this assignment. Working together with other students on this assignment is not permitted.
• Each student is required to submit a project report, including all the supporting analysis and materials by the due date.
• The executive summary, reference list, tables and appendices are excluded in wordcount. Citation and referencing should be provided where necessary. Students should follow the Harvard referencing style.
• All report submissions must be made electronically on Canvas and checked by 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 guide for details).