Case Reflection Paper For Case- INTERNATIONAL BUSINESS

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Please read Case Study 2.1 Electronics International Ltd. on pg. 57-59. Case Study 2.1 presents Electronics International Ltd. and its potential direct investment into a western African country, Zempa.  There is not one correct answer to this case, and perhaps the best scenario may occur when you think outside of the box a bit.

READING IS UPLOADED

Instructions:
Please provide well- written and well-reasoned answers to the following

discussion question

 

Follow the guidelines in the Case Reflection Paper rubric below.

Question 1:

Assume that you are the managing director in this case. What strategy should Electronics International adopt in this situation? Should the company continue exporting or make a direct investment?

Question 2:

Are there any other alternatives open for Electronics International?

Submission Instructions:
All responses in this discussion forum must be professional, well-reasoned, well-written, and free from profanity.  This discussion assignment should reflect the fact that this is a written product for a graduate professional program.  All responses should be professional, and if you disagree with a submission, keep it professional.   If ideas are not your own, please reference them with the appropriate internet link or written resource link.  Although I do not wish to restrict discussion, I reserve the right to fail and delete any discussion contribution that does not show proper respect for any international culture and ethnicity and/or is obscene in nature.

 

Turn-it-in is enabled on all papers.

IMPORTANT: Papers need to be in doc format.

 
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Using foreign exchange knowledge of financial market to solve assignment problem

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BAFI1002 Financial Markets – Group Assignment (Stage 2)

Semester 1, 2021

 

Due Date: 9th May (Friday Week 10), 10 PM (Melbourne Time)

Weighting: 20%

Formatting & Presentation [2 marks]

The report must be professionally presented using Times New Roman, size12 font, double-spaced for the main text, and single spaced for tables, figures & appendices. Figures and graphs should be clearly labelled and numbered. Any information obtained from sources external should be referenced according to AGPS Harvard Style or APA style. A word limit of maximum of 1700 words applies with a tolerance of + 10%, excluding appendices and tables.

 

Overview

Your team works for a renowned FX trading company, Snowy River Ltd. The company specialises in trading major currencies such as Australian Dollar (AUD), British Pound (GBP), Canadian Dollar (CAD), Euro (EUR), Japanese Yen (JPY), New Zealand Dollar (NZD), Swiss Franc (CHF) and US Dollar (USD). The company also trades various foreign exchange related derivatives for its clients. In addition, it provides general advice to other clients who trade for themselves. The firm’s chief trading executive, Pete Fernandes, has requested your team’s expertise in trading foreign currencies in order to improve firm’s trading strategy and profits. You have been asked to prepare a detailed report in this regard. In your report you must address the following questions:

Scenario 1 [5 marks]

You have been asked to select one of the three market views developed by your group in stage 1. Using this market view, devise a speculation strategy that enables your organisation to take advantage of your predicted changes in the exchange rates. You should specify which currencies you will buy or sell.  As part of your strategy you must create a portfolio as of 3rd of May 2021. This portfolio will comprise of the currency pair analysed in your market view.

The senior management has allocated you 400,000,000 units of currency as the initial balance for your speculation strategy if you are speculating on AUD, GBP, CAD, EUR, NZD, CHF or USD and 25,000,000,000 units if you are speculating on JPY. For instance, if you are speculating on AUD/EUR and decided to short the EUR then you have been allocated 400,000,000 EURs for this purpose. The corresponding long position should be calculated using bid/ask rates provided in Table 1. Please note that you must speculate on one currency pair only (two currencies). You must then take long and short positions as of 3rd of May 2021 in the respective currencies in accordance with your market view as a price taker [2.5 Marks]. These long and short positions will constitute your portfolio’s current opening position. Based on your initial position you must estimate the opening AUD value of your portfolio using the mid rates in Table 1 and update your position summary table below with your speculative position [2.5 Marks]. Mid rate = (bid rate + ask rate)/2

 

 

Comm / Terms Bid Ask Mid
AUD/USD 0.7161 0.7163 0.7162
AUD/EUR 0.6069 0.6073 0.6071
EUR/AUD 1.6471 1.6474 1.6473
AUD/GBP 0.5470 0.5473 0.5472
GBP/AUD 1.8275 1.8280 1.8278
AUD/JPY 75.75 75.78 75.77
EUR/USD 1.1795 1.1799 1.1797
GBP/USD 1.3087 1.3092 1.3090
USD/JPY 105.78 105.81 105.80
EUR/GBP 0.9010 0.9015 0.9013
EUR/JPY 124.79 124.83 124.81
GBP/JPY 138.45 138.50 138.48
AUD/CAD 0.9432 0.9440 0.9436
EUR/CHF 1.0750 1.0759 1.0755
GBP/CHF 1.1929 1.1938 1.1934
USD/CHF 0.9115 0.9117 0.9116
USD/CAD 1.3175 1.3179 1.3177
NZD/USD 0.6539 0.6542 0.6541

 

Table 1: Exchange rates on April 22, 2021. Mid rate = (bid rate + ask rate)/2

 

Currency

 Opening Position (current) Position in AUD (Current) Net

Trades

 Net Position (Expected) Net Position in AUD (Expected) Change in Position (AUD)
AUD            
CAD            
CHF            
EUR            
GBP            
JPY            
NZD            
USD            
Net Position (AUD)            

 

Table 2: FX portfolio position summary

Note: Indicate long positions with a positive sign and short positions with a negative sign (e.g. a short position of 45,000,000 GBP should be indicated as –45,000,000). Mid rate = (bid rate + ask rate)/2

 

Question 2 [7 marks]

Senior management is concerned about the recent developments in the financial markets. There is a general belief that market volatility has been relatively high, yet it might climb even higher than expected in the near future due to the current global health crisis. You have been asked to conduct a thorough risk assessment of your speculative positions undertaken in question 1. For this purpose, the firm’s foreign currency analyst has provided you with the 2-month benchmark rates of these major currencies:

 Currency Benchmark Interest Rates 2-Month Benchmark Rates

(%)
AUD 2-Month Bank Bill Swap Rates 0.095
GBP 2-Month GBP LIBOR 0.073
CAD 2-Month Treasury Bills 0.150
EUR 2-Month Euro LIBOR -0.495
NZD 2-Month Bank Bill Yields 0.270
CHF 2-Month CHF LIBOR -0.744
JPY 2-Month JPY LIBOR -0.059
USD 2-Month USD LIBOR 0.205

Table 3: Benchmark interest rates on April 23, 2021.

 

Using the interest rates above, calculate the implied forward bid, ask and mid rates for the currency pairs in Table 4 (next page) [3 Marks]. You must then calculate the value of your FX portfolio at the end of June using the calculated bid/ask rates. Report the expected value of your position in each currency in the position summary in Table 2 [2 Marks]. Finally, you must calculate expected profit/loss (gain or loss over the opening position) on your portfolio in AUD [1 Mark]. The AUD value of the net expected position must be calculated using the estimated mid rates.

Comm / Terms Bid Ask Mid
AUD/USD      
AUD/EUR      
EUR/AUD      
AUD/GBP      
GBP/AUD      
AUD/JPY      
EUR/USD      
GBP/USD      
USD/JPY      
EUR/GBP      
EUR/JPY      
GBP/JPY      
AUD/CAD      
EUR/CHF      
GBP/CHF      
USD/CHF      
USD/CAD      
NZD/USD      

Table 4: Implied forward rates at the end of June 2021. Mid rate = (bid rate + ask rate)/2

Explain your final portfolio position to the senior manager. Given the implied forward rates for June, discuss whether your speculative positions will generate profits for the company. You must explain ending positions for each currency (and it’s AUD value using mid rates) in your portfolio? Do your portfolio have any exposure to exchange rate risk? What recommendations, if any, will you make to the senior management? [1 Mark].

 

 

 

 

 

 

 

 

 

Formatting & Presentation [2 marks]

The report must be professionally presented using Times New Roman, size12 font, double-spaced for the main text, and single spaced for tables, figures & appendices. Figures and graphs should be clearly labelled and numbered. Any information obtained from sources external should be referenced according to AGPS Harvard Style or APA style. A word limit of maximum of 2000 words applies with a tolerance of + 10%, excluding appendices and tables.

Submission

1. Students are required to register their groups online via Canvas.

1. Go to the course site on Canvas. Submit your assignment under the submission point. Only one submission is required per group. It’s the responsibility of the group members to ensure that the assignment is submitted on time.

1. The report must have the university prescribed cover sheet and the following details:

· Student names and student numbers of those who have contributed to the report

· FX Session attended

· Assignment Group Number

· Name of FX Session Instructor

Feedback & Marking

A rubric with marking criteria will be made available on Canvas. You are strongly encouraged to ask questions during the FX sessions and other learning activities so that you can obtain feedback on your understanding of the concepts and issues being discussed. FX sessions running in week 8 will focus specifically on the discussion of this assignment and related concepts. Questions specific to this assessment should be addressed to your session instructor . Contact details can of all instructors can be found on Canvas

Late Submissions

Late submissions of assignments without special consideration or extension will be automatically penalised at a rate of 10% of the total marks available per day (or part of a day) late. For example, if an assignment is worth 20 marks and it is submitted 1 day late, a penalty of 10% or 2 marks will apply. This will be deducted from the assessed mark. Assignments will not be accepted if more than five days late, unless special consideration or an extension of time has been approved.

Special consideration is available for unexpected circumstances outside students’ control. For more. More information regarding special consideration is available at https://www.rmit.edu.au/students/student-essentials/assessment-and-exams/assessment/extensions-of-time-for-submission-of-assessable-work

 

BAFI1002 Financial Markets – Group FX Assignment (Stage 2)

 
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Discussion: The Buy Versus Rent Decision

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Read the HBR case study Time Value of Money: The Buy Versus Rent Decision and calculate the best route for the graduate’s housing situation, developing your understanding of time value of money (TVM) concepts and calculations. Describe your assumptions, methodology, and results in your discussion narrative, and attach a simple spreadsheet supporting your analysi

In May 2013, Rebecca Young completed her MBA and moved to Toronto for a new job in investment banking. There, she rented a spacious, two-bedroom condominium for $3,000 per month, which included parking but not utilities or cable television. In July 2014, the virtually identical unit next door became available for sale with an asking price of $620,000, and Young believed she could purchase it for $600,000. She realized she was facing the classic buy-versus-rent decision. It was time for her to apply some of the analytical tools she had acquired in business school — including “time value of money” concepts — to her personal life. While Young really liked the condominium unit she was renting, as well as the condominium building itself, she felt that it would be inadequate for her long-term needs, as she planned to move to a house or even to a larger penthouse condominium within five to 10 years — even sooner if her job continued to work out well. Friends and family had given Young a variety of mixed opinions concerning the buy-versus-rent debate, ranging from “you’re throwing your money away on rent” to “it’s better to keep things as cheap and flexible as possible until you are ready to settle in for good.” She realized that both sides presented good arguments, but she wanted to analyze the buy-versus-rent decision from a quantitative point of view in order to provide some context for the qualitative considerations that would ultimately be a major part of her decision. FINANCIAL DETAILS If Young purchased the new condominium, she would pay monthly condo fees of $1,055 per month, plus property taxes of $300 per month on the unit. Unlike when renting, she would also be responsible for repairs and general maintenance, which she estimated would average $600 per year. If she decided to purchase the new unit, Young intended to provide a cash down payment of 20 per cent of the purchase price. There was also a local deed-transfer tax of approximately 1.5 per cent of the purchase price, and a provincial deed-transfer tax of 1.5 per cent, both due on the purchase date. (For This document is authorized for use only by JAE BOK LEE ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or 800-988-0886 for additional copies. Page 2 9B14N024 simplicity, Young planned to initially ignore any other tax considerations throughout her analysis.) Other closing fees were estimated to be around $2,000. In order to finance the remaining 80 per cent of the purchase price, Young contacted several lenders and found that she would be able to obtain a mortgage at a 4 per cent “quoted” annual rate1 that would be locked in for a 10-year term and that she would amortize the mortgage over 25 years, with monthly payments. The money that Young was planning to use for her down payment and closing costs was presently invested and was earning the same effective monthly rate of return as she would be paying on her mortgage. Young assumed that if she were to sell the condominium — say, in the next two to 10 years — she would pay 5 per cent of the selling price to realtor fees plus $2,000 in other closing fees. SCENARIO ANALYSIS In order to complete a financial analysis of the buy-versus-rent decision, Young realized that her first task would be to determine the required monthly mortgage payments. Next, she wanted to determine the opportunity cost (on a monthly basis) of using the lump-sum required funds for the condominium purchase rather than leaving those funds invested and earning the effective monthly rate, assumed to be equivalent to the mortgage rate. She would then be able to determine additional monthly payments required to buy the condominium compared to renting, including the opportunity cost. Young wanted to consider what might happen if she chose to sell the condominium at a future date. She was confident that any re-sell would not happen for at least two years, but it could certainly happen in five or 10 years’ time. She needed to model the amount of the outstanding principal at various points in the future — two, five or 10 years from now. She then wanted to determine the net future gain or loss after two, five and 10 years under the following scenarios, which she had determined were possible after some due diligence regarding future real-estate prices in the Toronto condo market: (a) The condo price remains unchanged; (b) The condo price drops 10 per cent over the next two years, then increases back to its purchase price by the end of five years, then increases by a total of 10 per cent from the original purchase price by the end of 10 years; (c) The condo price increases annually by the annual rate of inflation of 2 per cent per year over the next 10 years; and (d) The condo price increases annually by an annual rate of 5 per cent per year over the next 10 years. FINAL CONSIDERATIONS Young realized she had a tough decision ahead of her, but she was well trained to make these types of decisions. She also recognized that her decision would not be based on quantitative factors alone; it would need to be based on any qualitative considerations as well. She knew she needed to act soon because condominiums were selling fairly quickly, and she would need to arrange financing and contact a lawyer to assist in any paperwork if she decided to buy. 1 In Canada, quoted mortgage rates are based on semi-annual compounding, compared with personal loans and most U.S. mortgages based on monthly compounding.

1. Determine the required monthly payments for the mortgage.

2. Determine the “opportunity “ costs, on a monthly basis, of using the required funds for closing ( that is, down payment plus all closing costs), rather than leaving those funds invested and earning the monthly effective rate determined in part (a)

3. Determine the monthly additional payments required to buy versus rent ( include the monthly opportunity costs determined in part (b))

4. Determine the principal outstanding on mortgage after :

a. Two years

b. Five years

c. Ten years

5. Determine the “ net” future gain or loss after two, five and ten years under the following scenarios, which Rebecca Young has determined are possible after some “ due diligence” regarding future real-estate prices in Toronto condo market:

A) The condo price remains unchanged.

B) The condo price drops 10 per cent over the next two years, then increases back to its purchase price by the end of the five years, then increases by a total of 10 per cent from the original purchase price by the end of 10 years.

C) The condo price increases annually by the annual rate of inflation of 2 per cent per year over the next 10 years.

D) The condo price increases annually by the annual rate of inflation of 5 per cent per year over the next 10 years.

6. As Rebecca Young, what decision would you make? Describe any qualitative considerations that could factor into your decision.

 
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Finance

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Which of the following statements is most correct? (Points : 1) If annual compounding is used, the effective annual rate equals the simple rate. If annual compounding is used, the effective annual rate equals the periodic rate. If a loan has a 12 percent simple rate with semiannual compounding, its effective annual rate is equal to 11.66 percent. Both the first and second answers are correct. Both the first and third answers are correct. 2. Why is the present value of an amount to be received (paid) in the future less than the future amount? (Points : 1) Deflation causes investors to lose purchasing power when their dollars are invested for greater than one year. Investors have the opportunity to earn positive rates of return, so any amount invested today should grow to a larger amount in the future. Investments generally are not as good as those who sell them suggest, so investors usually are not willing to pay full face value for such investments, thus the price is discounted. Because investors are taxed on the income received from investments they never will buy an investment for the amount expected to be received in the future. None of the above is a correct answer. 3. Suppose someone offered you your choice of two equally risky annuities, each paying $5,000 per year for 5 years. One is an annuity due, while the other is a regular (or deferred) annuity. If you are a rational wealth-maximizing investor which annuity would you choose? (Points : 1) The annuity due. The deferred annuity. Either one, because as the problem is set up, they have the same present value. Without information about the appropriate interest rate, we cannot find the values of the two annuities, hence we cannot tell which is better. The annuity due; however, if the payments on both were doubled to $10,000, the deferred annuity would be preferred. 4. Which of the following statements is correct? (Points : 1) For all positive values of r and n, FVIFr, n > 1.0 and PVIFAr, n > n. You may use the PVIF tables to find the present value of an uneven series of payments. However, the PVIFA tables can never be of use, even if some of the payments constitute n annuity (for example, $100 each year for Years 3, 4, and 5), because the entire series does not constitute an annuity. If a bank uses quarterly compounding for saving accounts, the simple rate will be greater than the effective annual rate. The present value of a future sum decreases as either the simple interest rate or the number of discount periods per year increases. All of the above statements are false. 5. Alice’s investment advisor is trying to convince her to purchase an investment that pays $250 per year. The investment has no maturity; therefore the $250 payment will continue every year forever. Alice has determined that her required rate of return for such an investment should be 14 percent and that she would hold the investment for 10 years and then sell it. If Alice decides to buy the investment, she would receive the first $250 payment one year from today. How much should Alice be willing to pay for this investment? (Points : 1) $1,304.03, because this is the present value of an ordinary annuity that pays $250 a year for 10 years at 14 percent. $1,486.59, because this is the present value of an annuity due that pays $250 a year for 10 years at 14 percent. $1,785.71, because this is the present value of a $250 perpetuity at 14 percent. There is not enough information to answer this question, because the selling price of the investment in 10 years is not known today. None of the above is correct. 6. A recent advertisement in the financial section of a magazine carried the following claim: “Invest your money with us at 14 percent, compounded annually, and we guarantee to double your money sooner than you imagine.” Ignoring taxes, how long would it take to double your money at a simple rate of 14 percent, compounded annually? (Points : 1) Approximately 3.5 years Approximately 5 years Exactly 7 years Approximately 10 years Exactly 14 years 7. You deposited $1,000 in a savings account that pays 8 percent interest, compounded quarterly, planning to use it to finish your last year in college. Eighteen months later, you decide to go to the Rocky Mountains to become a ski instructor rather than continue in school, so you close out your account. How much money will you receive? (Points : 1) $1,171 $1,126 $1,082 $1,163 $1,008 8. If a 5-year regular annuity has a present value of $1,000, and if the interest rate is 10 percent, what is the amount of each annuity payment? (Points : 1) $240.42 $263.80 $300.20 $315.38 $346.87 9. At an inflation rate of 9 percent, the purchasing power of $1 would be cut in half in 8.04 years. How long to the nearest year would it take the purchasing power of $1 to be cut in half if the inflation rate were only 4%? (Points : 1) 12 years 15 years 18 years 20 years 23 years 10. Assume that you can invest to earn a stated annual rate of return of 12 percent, but where interest is compounded semiannually. If you make 20 consecutive semiannual deposits of $500 each, with the first deposit being made today, what will your balance be at the end of Year 20? (Points : 1) $52,821.19 $57,900.83 $58,988.19 $62,527.47 $64,131.50
 
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