BX3031 Multinational Business Finance
Assignment SP3 2015
This assignment is a group case study report. All group members are required to participate in the group discussions, meetings as well as the assignment-related writings and works. The assignment / case study report should follow the required format and referencing system. Any issue arising during the assignment preparation should be promptly reported to the subject coordinator.
In the interests on maintaining a meritocratic process regarding marking practices, each group member is required to peer review and rate your other group members’ performance in terms of group activities participation as well as overall group process and output. This is compulsory (please see rubrics below for details). If you are not present in group activities, your personal group participation will be rated at zero. The peer rating document must be individually completed and emailed to the lecturer by every student on the same day that you submit the report. If you failed to do this it will result in your personal group participation to be marked as zero.
The case study report is required to be submitted through “Safe Assign” on LearnJCU. Please check LearnJCU for the guidance on how to make a Safe Assign submission. To take advantage of this template’s design, use the Styles gallery on the Home tab. You can format your headings by using heading styles, or highlight important text using other styles, like Emphasis and Intense Quote. These styles come in formatted to look great and work together to help communicate your ideas.
By the third year of your studies, you should have acquired the habit of meeting deadlines for your work, by organising your study time appropriately. Remember, it is a good idea to try to complete a task in advance of the actual due date. In BX3031 the policy for assignments is as follows.
1. The assignment due date provided in the subject guide was 5 pm on Friday, 8th January 2016. An electronic version should be submitted through Learnjcu SafeAssign gateway. Please ensure that you have signed, scanned and attached the School of Business Assignment Coversheet. A copy of the cover sheet is available online at:
2. The lecturer may decide to nominate a personal extension date to students, especially in cases of illness or personal issues (medical certificate/counsellor’s statement required); or inescapable, unexpected, documented work commitments. Importantly, you should contact your lecturer before the due date if you are likely to require an extension.
3. This assessment must be submitted through Safe Assign on LearnJCU. Students may not email or fax an assignment without prior approval from the Subject Coordinator/Lecturer.
4. In the absence of any extension being granted, late submission of work will result in a penalty of 5% of the possible mark for each day late.
Task 1 (15 marks)
Assume the date is 09/09/2015. You currently work for Queensland Sugar Limited (QSL), which is responsible for marketing Australian raw sugar exports on behalf of Australian sugar millers and growers. You have been tasked with producing a risk management proposal in which you are required to develop an effective hedging strategy to assist QSL to manage its transaction exposures to price risk up until the due delivery date of a sugar tranche on 08/11/2015. Raw sugar is traded internationally on the basis of US dollar prices. The size of the tranche is 3,300,000 long tons of sugar (1 long ton = 2240 pounds).
The proposal you present includes a strategy of taking short positions in ICE#16 futures contracts (International Continental Exchange (ICE) contract number 16) involving the whole consigned tranche in order to manage the firm’s exposure to spot price volatility for raw sugar.
In your proposal, you also make mention that you expect the Australian dollar to appreciate against the US dollar over the next few months, which would therefore decrease the value of the consigned sugar in Australian dollar terms. Accordingly, you decide to simultaneously manage foreign currency risk over the hedging period by using foreign currency futures.
Your analysis should provide comparisons between the following results:
(i) implications for using the spot market and not hedging; and, (ii) the implications for using futures contracts to hedge over the time period. Ideally, your analysis should also show balances relating to an outstanding margin account (margins are provided within the contract specifications) in relation to changes in the prices over time. Furthermore, your analysis should identify any instances whereby margin calls would be executed on QSL.
A useful resource regarding ICE futures contracts is available at the following online address.
Data and supplementary materials for Task 1
A Microsoft Excel spreadsheet containing the appropriate contract specifications, in addition to date and price data to complete Task 1 is available on learn@jcu within the assessment/assignment folder. This includes data for both the ICE #16 futures price as well as AUD futures contract prices for the corresponding periods.
Assume the nearest futures price to be the current spot price (i.e. 09/09/2015). This is the price at which you may acquire a position in both futures contract. Since the spot price and the futures price converge at the expiry date, this implies the hedge will remain in place until 08/11/2015.
(day/month/year) ICE 16 futures prices
(US cents/lb) AUD/US futures prices
09/09/2015 26.0000 0.7439
10/09/2015 25.7000 0.7401
11/09/2015 25.8300 0.7332
12/09/2015 26.4500 0.7487
13/09/2015 26.5500 0.7432
14/09/2015 23.9000 0.7421
15/09/2015 23.8000 0.7338
16/09/2015 23.7000 0.7421
17/09/2015 24.2300 0.7321
18/09/2015 25.7800 0.7313
19/09/2015 26.0300 0.7212
20/09/2015 26.3200 0.7321
21/09/2015 26.7800 0.7398
22/09/2015 26.0300 0.7361
23/09/2015 24.0300 0.7391
24/09/2015 24.5400 0.7401
25/09/2015 23.9800 0.7356
26/09/2015 24.8900 0.7329
27/09/2015 25.0300 0.7214
28/09/2015 24.0100 0.7014
29/09/2015 23.9900 0.7001
30/09/2015 22.9800 0.6978
01/10/2015 23.3000 0.7034
02/10/2015 23.2500 0.7098
03/10/2015 23.2000 0.7150
04/10/2015 22.8900 0.7158
05/10/2015 22.9900 0.7204
06/10/2015 23.0400 0.7256
07/10/2015 22.9000 0.7354
08/10/2015 22.7500 0.7398
09/10/2015 22.6500 0.7372
10/10/2015 22.9800 0.7435
11/10/2015 22.7800 0.7521
12/10/2015 22.8900 0.7498
13/10/2015 22.5000 0.7431
14/10/2015 21.9900 0.7290
15/10/2015 22.8700 0.7010
16/10/2015 22.7100 0.6932
17/10/2015 22.3400 0.6901
18/10/2015 24.0100 0.7023
19/10/2015 24.1000 0.7067
20/10/2015 23.7600 0.7123
21/10/2015 23.9800 0.7233
22/10/2015 22.6700 0.7245
23/10/2015 23.1500 0.7265
24/10/2015 23.8700 0.7277
25/10/2015 25.8700 0.7298
26/10/2015 26.0400 0.7315
27/10/2015 25.0300 0.7345
28/10/2015 25.7600 0.7598
29/10/2015 24.0900 0.7534
30/10/2015 23.9100 0.7478
31/10/2015 23.0400 0.7398
01/11/2015 23.1400 0.7376
02/11/2015 24.1500 0.7356
03/11/2015 24.0300 0.7312
04/11/2015 24.2000 0.7245
05/11/2015 25.5400 0.7132
06/11/2015 24.8900 0.7015
07/11/2015 25.5500 0.7040
08/11/2015 24.9100 0.7123
Contract specifications for ICE #16 future contract
Contract specifications for AUD/US future contract
Task 2 (10 marks)
After a successful run at QSL, you leave to take a position in risk management working for a local regional airline which is motivated to begin running international routes. At present, the airline does not have a hedging strategy in place to mitigate price risk for fuel inputs into their production. In line with its international expansion strategy, the airline is considering whether to use futures contracts in heating oil (as a proxy/substitute for jet fuel) to hedge their input price risk exposure.
Based upon the findings and insights that you have developed from the previous task working at QSL, you are required to provide a brief advising the CEO about the risks to using these futures contracts in order to hedge risk. In particular, you should advise the airline about potential advantages and disadvantages of using futures contract to hedge risk in general as well as any potential impacts on business liquidity affecting ongoing operations.
Maximum word limit is 500 words.
Each group member is required to peer review and rate other group members’ performance in terms of group activities participation as well as overall group process and output. This is compulsory. For example, if fellow group members are unanimous that you were not present in group activities, your personal group participation will be rated at zero. This implies that if the group mark is 20 then the zero weighting will result in a mark of zero (20*0.00 = 0). The peer rating document must be individually completed and a hard copy needs to be submitted to the lecturer by every student on the same day that you submit the report.
Individual peer review rating for group process and contribution to the case study
You were not prepared or participate in the overall group process and related activities You were prepared or participate at a very low level in the overall group process and related activities You did participate in the overall group process, but had not adequately prepared to make a contribution. You attended, and had evidently prepared somewhat for group work. Your participation was sound and mostly adequate You attended all group activities and actively involved in overall group process, well prepared for group report at a high standard.
Weight: 100% Rate as “no contribution” Rate as “low” Rate as “low to average”” Rate as “average” or “above” Rate as ‘outstanding”
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