International Finance ( Euro/CNY)

You will be assigned a currency pairing. For your assigned currency paring you will be tasked with examining its performance over the period of 1st October to 1st November 2015. Based upon your examination of its performance, you are now tasked with designing a hedging strategy using a derivative contract of your choice (you are only allowed a single class of derivative contract, for example you are allowed to use both a put and a call option but not a combination of options and futures). The design process should include a consideration of your selected hedging strategy against alternatives (i.e. the contracts that you have not used) and an indication for the selection of your contract of choice.

You are required to critically evaluate the hedging strategy that you have used in relation to your assigned currency pair. Your critical evaluation should show extensive consideration for the current state of the FOREX markets and arguments should include both academic and practical support. All work should be complied into a 3000 word (maximum) report

5 marks allocated towards the downloading and formatting of data. Full 5 marks can be awarded if students have downloaded data for the required periods (1st Oct-1st Nov 2015). Data should also be arranged in descending order from oldest to newest.

 

5 marks also allocated to presentation and references.

 

The remaining 90 marks will be assessed against the meant of the report produced. Students are meant to demonstrate an understanding of the chosen hedging strategy. Description of how it works with some numerical illustration this description should warrant no more that 10% of the overall marks. The core facet of this report comprises of two parts.

 

Part 1- justification of the selection of hedging strategy (40 marks)

This is where students should demonstrate their consideration for the current state of the market based upon the data that they have downloaded students are meant indicate using both hedging theory and market data their selection of hedging method. We would like to see substantial tie into market data and their data that has been downloaded. What indicators do they use to suggest their hedging strategy? Why these indicators? How do they use these indicators?

 

Part 2- comparison (bench marking) of their hedging strategy against alternatives (40 marks)

We are looking for a critical evaluation of the performance of their hedging strategy against alternatives. Student will learn about using forwards, futures and doing nothing. The report should contain a comparison (at least) to these alternatives outside of what they have been taught in class that is also acceptable and welcomed! This critical comparison should include an examination of the benefits and potential drawbacks of the each hedging strategy and this will have tie into their established discussions above.

 

This way in which we try to get students to think about the report is to regard the brief as one from a client. They are managing the client’s requirements for a hedge and they are meant to produce a report documenting and justifying the selection for an appropriate hedging strategy(i.e. They are making the decision and justifying it to the client)

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