(Essay 84) Finance Management
Z_Xiao
Lecture1Introduction.pptxSupply Chain Finance – September 5
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MGMT 45001D Fall 2018
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FX Discussion
You will be required to make two forecasting and hedging decisions
Form is in supporting documents. First forecast is due Sept 19
There will be a second forecast due on October 17
In late November we will see which individual had the lowest variances between the two forecasts. Final marks for the course will be adjusted to the “winning” individual(s) according to the following scale
< 50 basis points = 3 %
< 100 basis points = 2%
< 150 basis points = 1%
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MGMT 45001D Fall 2018
FX Forecast due September 19
Due September 19 in Drop box, with two reasons for your rationale
You will then have a choice to lock in all of your exposure or part of your exposure with a one month forward, or keep it open. You will be assumed to have an AR of US 10,000,000 due on October 17.
October 17 end of day spot rate will be used to evaluate progress
October 17 you will repeat the exercise and then the November 14 spot rate will be used to evaluate winner (FX forecast and hedging strategy)
Winner will be the individual that made the most…depending on their currency strategy, or if everyone loses…the one that lost the least.
Bank of Canada rates will be used as official source.
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| MGMT 45001 D Fall 2018 : FX #1 Forecast and Hedging | |||
| Name: | |||
| Assume you have an Account Receivable (US$ 10,000,000) due on October 17, 2018 and you wish to maximize the amount of Canadian dollars you can obtain by selling the US dollars. What do you do? | |||
| Assume the current exchange rate on September 19 is also the forward exchange rate that the Bank will offer to buy your US dollars one month forward. | |||
| Q1. Provide a one month forecast of what you think the Canadian dollar will be valued at in relation to the US Dollar, as well as two reasons for this forecast. | Forecast | ||
| Reason 1 | |||
| Reason 2 | |||
| Q2. What will be your hedging strategy? You have three choices, pick one. | Option 1: leave your full position open with no hedging, and plan to sell US dollars at the October 17 spot rate. | Option 2: hedge your full position using the one month forward identified above. | Option 3: hedge half of your full position using the one month forward identified above, and leave the other half of your position open with no hedging and sell this half of the position at the October 17 spot rate. |
MGMT 45001D Fall 2018
Individual Paper (FX)
Using the rationales you provided in your FX 1 forecast, provide an explanation as to why or why not those rationales were valid or not, using the actual FX rate at the end of the FX 1 forecast as the “variance” you have to explain.
Research and support that the factors you chose had an influence on the Canadian dollar fluctuations during the month.
This paper is due October 24.
Rubric is included in the assignment description.
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Factors (Group work)
Interest rates (which one is up to you) e.g. 5 year bond, bank rate
A commodity (e.g. gold or oil)
Series of political crises. (e.g. Brexit, foreign political elections, Turkey, Russia, China, trade embargos, political unrest in Korea)
Inflation rate differential between Canada and the US.
Balance of trade
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Rationales Used From Previous Classes
Gold prices decreasing…why?
Government policies….which ones?
Lower interest rates….so what?
Inflation rate….so what?
Trade policies…which ones?
Oil prices….because?
More exports…how?
Increased debt…whose debt?
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Sources for FX Information
http://fxtrade.oanda.ca/learn/intro-to-currency-trading/
http://www.ozforex.com.au/news-commentary/weekly
Factiva provides a very quick and easy tool for tracking currencies (but not forward rates), just select Companies/Markets from the top menu, and choose “Quotes”.
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