Assessment Brief/ Task
The detailed requirements for this task are as follows:
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.
Note: Going extensively over the word limit could result in a penalty of up to 10% of the overall assessment mark.
The module learning outcomes tested by this assessment task are indicated on page 1. The precise criteria against which your work will be marked is as follows:
- Content and theory
- Secondary research
- Critical analysis
- Academic writing
- Presentation and referencing
Brown, G. W. (2001) Managing Foreign Exchange Risk with Derivatives, Journal of Financial Economics, Vol. 60, No. 2 – 3, pp. 401 – 448
Chong, L., Chang, X. and Tan, S. (2014) Determinants of Corporate Foreign Exchange Risk Hedging, Journal of Managerial Finance, Nol. 40, No. 2, pp. 176 – 188
Fama, E.F.(1970) “Efficient Capital Markets: A Review of Theory and Empirical Work.”, Journal of Finance, vol. 25, pp. 383-417.
Harvey, C. R. and Huang, R. D. (1991) Volatility in the Foreign Currency Futures Market, The Review of Financial Studies, Vol. 4, No. 3, pp. 543 – 569
Hau, H. and Rey, H. (2006) Exchange Rates, Equity Prices and Capital Flows, The Review of Financial Studies, Vol. 19, No. 1, pp. 273 – 317
Madura, J and Fox, R. (2011) International Financial Management, 2nd Ed, Cengage Learning, U.K.
Pilbeam, K. (2013) International Finance, 4th Ed, Palgrave Macmillian, U.K.
Wickens, M.R. and Smith, P. N. (2002) Macroeconomic Sources of FOREX Risk, Paper presented to the Metu-Erc conference, Ankara, Turkey
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