AF4S997 Quantitative Methods for Finance and Risk Management

Reference no: EM132510655 , Length: word count:3000

AF4S997 Quantitative Methods for Finance and Risk Management - University of South Wales

Assessment Task:

A British companyjust signed a contract with an American company. The contract states that the American company will purchase 10,000 units of the British company's product at the price of $2000 per unit, with payment due in one month. The current weighted average cost of capital of the British company is 8%.

• Please compute value at risk of the account receivable using both Variance-Covariance and Historical Simulation method. Please interpret your results.Please refer to literature sourcesand critique each method.

• Please form three hedging strategies using the following financial instruments/ markets and demonstrate the relationship between the payoff and profit of each hedging strategy and the future spot exchange rate in one month's time on a chart.

o Currency forwards
o Money market
o Currency options

• Please discuss the costs and the benefits associated witheach hedging strategy, including speculation (i.e., no hedge).

• Which hedging strategy (including speculation) would you recommend? Please refer to literature sourcesand provide reasons for your recommendation.

Financial Market Information:

Spot rate
GBP/USD: 1.24
Forward rate
GBP/USD: 1.2496
Call Option 1
Strike: GBP/USD 1.225
Premium: $0.0187 per £
Call Option 2
Strike: GBP/USD 1.240
Premium: $0.0127 per £
Put Option 1
Strike: GBP/USD 1.225
Premium: $0.0054 per £
Put Option 2
Strike: GBP/USD 1.240
Premium: $ 0.0094 per £
Money Market
USD one-month borrowing rate: 5% per annum
USD one-month investment rate: 1.5% per annum
GBP one-month borrowing rate: 4% per annum
GBP one-month investment rate: 1% per annum

Word limit:3,000
Please indicate the exact word count at the end of your assignment

Attachment:- Quantitative Methods for Finance and Risk Management.zip

Reference no: EM132510655

Questions Cloud

Information security in relation to mobile devices : Recently, a terminated employee used his mobile device to log in to the company network and steal sensitive data.

Calculate the amount of goodwill on acquisition : Calculate the amount of goodwill on acquisition of Act Ltd's interest in Deuce Ltd and related journal entry under cost method

What might be the consequences of the failure : What might be the consequences of this failure? Explain in detail. Did the lack of interoperability significantly impact the outcome, in your estimation?

Reversing the translation of rna : The Central Dogma of molecular biology states that the biological flow of information is from DNA to RNA to protein. Many examples of viral replication

AF4S997 Quantitative Methods for Finance and Risk Management : AF4S997 Quantitative Methods for Finance and Risk Management Assignment Help and Solution, University of South Wales - Assessment Writing Service

Surveillance vs. public health surveillance : What distinguishes public health surveillance from other types of surveillance, such as criminal surveillance, military surveillance, and so forth?

Which costs would not be included in finished cost inventory : Under variable costing, which of the following costs would not be included in finished goods inventory? steel costs for a machine tool manufacturer

Calculate the book value of the ute toyota : Vittorio started a landscaping business on 1 July 2016 and purchased a Ute Toyota for $46,000. Calculate the book value of the Ute Toyota

What amount should kingbird report as december : What amount should Kingbird report as its December 31 inventory? Kingbird, Inc. took a physical inventory on December 31 and determined

User Account

All Pages