X hits on this document

30 views

0 shares

0 downloads

0 comments

8 / 10

160

  • 2.

    The use of financial derivatives to hedge against forex risk

    • a)

      Demonstrate an understanding of the operations of the derivatives market, including:[3]

    • i)

      The relative advantages and disadvantages of exchange traded versus OTC agreements.

    • ii)

      Key features, such as standard contracts, tick sizes, margin requirements and margin trading.

    • iii)

      The source of basis risk and how it can be minimised.

  • b)

    Evaluate, for a given hedging requirement, which of the following is the most appropriate strategy, given the nature of the underlying position and the risk exposure:[3]

    • i)

      The use of the forward exchange market and the creation of a money market hedge

    • ii)

      Synthetic foreign exchange agreements (SAFE’s)

    • iii)

      Exchange-traded currency futures contracts

    • iv)

      Currency swaps

    • v)

      FOREX swaps

    • vi)

      Currency options

  • c)

    Advise on the use of bilateral and multilateral netting and matching as tools for minimising FOREX transactions costs and the management of market barriers to the free movement of capital and other remittances.[3]

    • 3.

      The use of financial derivatives to hedge against interest rate risk

  • a)

    Evaluate, for a given hedging requirement, which of the following is the most appropriate given the nature of the underlying position and the risk exposure:[3]

    • i)

      Forward Rate Agreements

    • ii)

      Interest Rate Futures

    • iii)

      Interest rate swaps

    • iv)

      Options on FRA’s (caps and collars), Interest rate futures and interest rate swaps.

  • 4.

    Other forms of risk

    • a)

      Assess the firm’s exposure to political, economic, regulatory and fiscal risk and the strategies available for the mitigation of such risk.[3]

b)

Assess the firm’s exposure to credit risk, including: i) Explain the role of, and the risk assessment [2]

models used by, the principal rating agencies. ii) Estimate the likely credit spread over risk

free. iii) Estimate the firm’s current cost of debt

capital using the appropriate term structure of interest rates and the credit spread.

  • c)

    Explain the role of option pricing models in the assessment of default risk, the value of debt and its potential recoverability [1]

    • 5.

      Dividend policy in multinationals and transfer pricing

  • a)

    Determine a firm’s dividend capacity and its policy given:[3]

    • i)

      The firm’s short- and long-term reinvestment strategy

    • ii)

      The impact of any other capital reconstruction programmes on free cash flow to equity such as share repurchase agreements and new capital issues

    • iii)

      The availability and timing of central remittances

    • iv)

      The corporate tax regime within the host jurisdiction

  • b)

    Develop company policy on the transfer pricing of goods and services across international borders and be able to determine the most appropriate transfer pricing strategy in a given situation reflecting local regulations and tax regimes.[3]

F

ECONOMIC ENVIRONMENT FOR MULTINATIONALS

1.

Management of international trade and finance

a)

Advise on the theory and practice of free trade and the management of barriers to trade.[3]

Document info
Document views30
Page views30
Page last viewedTue Dec 06 13:47:24 UTC 2016
Pages10
Paragraphs496
Words3745

Comments