Assignment

Question代写 This assignment comprises two questions, designed to test students awareness on topics involving speculative and hedging strategies.

Question代写
Question代写

This assignment comprises two questions, designed to test students awareness on topics involving speculative and hedging strategies. In Question 1, students are expected to conduct research on the impact of a possible Chinese yuan devaluation on Chinese and US companies’ hedging strategies. There should be a brief introduction, the main text and a conclusion section. Students are expected to write clearly and concisely, with appropriate in-text citation and references provided (Harvard system). In both questions, the emphasis is on analytical thinking to assess the effectiveness and implications of the hedging strategies.Question代写

Question 1  (20 marks)

China was evaluating the potential impact of a gradual yuan depreciation as the country’s leaders weigh their options in a trade spat with U.S. President Donald Trump.

Senior Chinese officials are studying what would happen if China devalues the yuan to offset the impact of any trade deal that curbs exports. Both the U.S. and China proposed tariffs on $50 billion of goods and Trump instructed his administration to consider levies on an additional $100 billion of Chinese products.Question代写

While Trump regularly bashed China on the campaign trail for keeping its currency artificially weak, the yuan has gained about 9 percent against the greenback since he took office. In March 2018, the Chinese currency touched the strongest level since August 2015, when China implemented a two percent devaluation on the yuan.

Required: Critically evaluate the impact of a possible trade war and Chinese yuan devaluation on Chinese and US companies, and on their hedging strategies. Your answer should include the advantages and disadvantages of the hedging strategies in light of the possible event outcomes.Question代写

Word count requirement: 1,000. Minimum number of references: 5.

Question 2  (20 marks)

The U.K. General Election on 8 June 2017 left Prime Minister Theresa May with a strong possibility of a hung parliament. Events continued to swing the pound as shown in Chart 1.

 1.

Chart 1: GBP / USD Chart  (7 June 2017 to 15 June 2017) – Spot Mid Rates

 

1

Reference: Daily FX 2017, Forex market new and analysis. Available from: https://www.dailyfx.com/gbp-usd . Accessed 15 June 2017.

Bank dealer X performed a number of foreign currency trades on the sterling against the US dollar during this period. She trades standard contracts (size USD100,000) with a leverage ratio of 1:200. The online broker takes a 5-pip spread on either side of the spot mid-rate. Question代写 These were the dealer’s trades:

Date Trades
Point A Sell 5 contracts
Point B Buy 8 contracts
Point C Sell 4 contracts
Point D Buy 6 contracts
Point  E (15 June) Sell 5 contracts

 

Required:

  1. Calculate the bank dealer’s net profit/loss after executing all her trades. Ignore margin considerations and other transaction costs (apart from the bid-offer spread). [8 marks]
  2. In February 2017, a British company contracted to import medical equipment from the United States and a payment of USD 800,000 was due on 15 June 2017. In February, the company obtained this information from its banker:

GBP/USD futures contract size : GBP 62,500

GBP/USD futures contract for June 2017 delivery : GBP1 = USD 1.2720

Spot rate       : GBP1 = USD 1.2660

On 15 June 2017, the GBP/USD futures contract for June 2017 delivery was quoted at GBP1 = USD1.2860. Assume the company used the futures hedge. Explain the futures hedge and compute the company’s final payment (in its local currency) for its import on 15 June 2017. Explain if this hedge was effective. [12 marks] Question代写

There is no word count requirement for this question.

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