Final Project II: Presentation

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Based on your final project portfolio proposal, submit your final presentation. Your presentation to stakeholders should highlight the following critical elements of your portfolio proposal: Recommendations and Rationale, Risks and Benefits, Financial Considerations, Ethical and Professional Standards, and Conclusion.

Also, share anything from your Excel spreadsheet that supports your findings. These stakeholders may not be experts in finance, so it will be important to communicate effectively by using language that is appropriate for the intended audience. Be sure to use speaker notes to elaborate on your ideas.

To complete this assignment, review the Final Project Two Guidelines and Rubric document. Post any questions to the General Questions forum.


I have finished and posted my original paper as attachment and please write a final proposal as the speech notes. Specially, please hit every elements in rubric!!!!!

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FIN 670 Final Project II Guidelines and Rubric Overview The second final project for this course, due in Module Ten, is a presentation in which you will outline the decisions you made and rationale for those decisions as you created your portfolio. You will discuss how investors will make money based on your recommendations. The presentation provides an opportunity for you to show how you would present complex financial information to an intended audience of stakeholders. The ability to create a portfolio of derivative instruments and present that information to an intended audience of stakeholders is an invaluable skill in the professional financial field. You will choose one of three case studies to create a portfolio proposal and present this information to stakeholders. When these options and derivative instruments are presented, it is important to consider how the instruments you choose could potentially result in financial gains or mitigate losses for the company or investor and to be able to articulate the rationale behind those choices. It is, of course, equally important to speak to risks, potential losses, and ethical considerations, and to be able to address both internal and external factors that could impact investment return. A skilled financial practitioner will be able to forecast the behavior of these instruments on the market and support this with relevant examples. This assessment addresses the following course outcomes:      Analyze the functions of derivative instruments within a financial context for supporting portfolio management and corporate finance decisions Determine risks and benefits of derivative types for identifying their impacts on investment return Assess the impacts of extrinsic and intrinsic factors on the value and price of a derivative instrument for articulating their influence on portfolio management and corporate finance decisions Develop portfolio management and corporate finance decisions in compliance with ethical and professional standards Evaluate the potential gains and losses of derivative instruments based on economic and market expectations Prompt Presentation: Based on your final project portfolio proposal, submit your final presentation. Your presentation to stakeholders should highlight the following critical elements of your portfolio proposal: Recommendations and Rationale, Risks and Benefits, Financial Considerations, Ethical and Professional Standards, and Conclusion. Also, share anything from your Excel spreadsheet that supports your findings. These stakeholders may not be experts in finance, so it will be important to communicate effectively by using language that is appropriate for the intended audience. Be sure to use speaker notes to elaborate on your ideas. Specifically, you must address the critical elements listed below. Most of the critical elements align with a particular course outcome (shown in brackets). I. Presentation: Scenario Introduction A. Present the problem/scenario that is being addressed and the recommended derivative instruments to address the scenario, using language that is appropriate for the intended audience. II. Presentation: Financial Considerations A. Describe potential risks and benefits associated with the recommended instruments, using language that is appropriate for the audience. B. Explain how investment and market expectations are communicated through the price and behavior of recommended derivative instruments, using specific examples. C. Assess potential gains and losses that could potentially impact the specific derivative instruments recommended, providing specific examples to demonstrate market expectations. D. Describe how the recommended investments are consistent with strategies to mitigate identified potential risks. E. Describe how specific extrinsic and intrinsic factors could potentially influence portfolio management decisions, providing specific examples. F. Demonstrate use of investment selection and management strategies to ensure that the portfolio remains within industry-standard CFA parameters. Final Project II Rubric Guidelines for Submission: For this project, you will submit a PowerPoint presentation. The presentation should be 8–10 slides (not including title page and references) and should utilize speaker notes and the latest guidelines for APA formatting as needed. Critical Element Presentation: Scenario Introduction: Recommended Derivative Instruments [FIN-670-01] Exemplary (100%) Meets “Proficient” criteria and recommendation of derivative instruments demonstrates a complex grasp of the scenario and shows awareness of the intended audience Presentation: Financial Considerations: Potential Risks and Benefits [FIN-670-02] Meets “Proficient” criteria and description demonstrates sophisticated awareness of risks and benefits associated with derivative instruments Proficient (90%) Presents the problem/scenario that the company is situated with and the recommended derivative instruments to address the scenario using language that is appropriate for the intended audience Describes potential risks and benefits associated with the recommended instruments, using language that is appropriate for the audience Needs Improvement (70%) Presents the problem/scenario that the company is situated with, and recommends instruments to address the scenario, but recommendations are not described in a way that is appropriate for the intended audience Describes potential risks and benefits associated with the recommended instruments, but description is cursory Not Evident (0%) Does not present the problem/scenario that the company is situated with and the recommended derivative instruments to address the scenario Value 14.50 Does not describe potential risks and benefits associated with the recommended instruments, using language that is appropriate for the audience 14.50 Presentation: Financial Considerations: Investment and Market Expectations [FIN-670-05] Presentation: Financial Considerations: Gains and Losses [FIN-670-05] Presentation: Financial Considerations: Mitigate Potential Risks [FIN-670-02] Presentation: Financial Considerations: Influence Portfolio Management Decisions [FIN-670-03] Presentation: Financial Considerations: Selection and Management Strategies [FIN-670-04] Meets “Proficient” criteria and examples used show a complex grasp of how investment and market expectations are communicated through the behavior of derivative instruments Meets “Proficient” criteria and examples provided demonstrate a sophisticated awareness how of market expectations inform potential gains and losses Explains how investment and market expectations are communicated through the price and behavior of recommended derivative instruments, using specific examples Explains how investment and market expectations are communicated through the price and behavior of recommended derivative instruments, but explanation is lacking in detail or inaccurate Does not explain how investment and market expectations are communicated through the price and behavior of recommended derivative instruments 10.88 Assesses potential gains and losses that could potentially impact the specific derivative instruments recommended, but examples provided are cursory or illogical Does not assess potential gains and losses that could potentially impact the specific derivative instruments recommended 10.88 Meets “Proficient” criteria and strategies recommended demonstrate a sophisticated understanding of risk mitigation Assesses potential gains and losses that could potentially impact the specific derivative instruments recommended, providing specific examples to demonstrate market expectations Describes how the recommended investments are consistent with strategies to mitigate identified potential risks Does not describe how the recommended investments are consistent with strategies to mitigate identified potential risks 14.50 Meets “Proficient” criteria and examples chosen illustrate a sophisticated understanding of how these factors influence portfolio management decisions Describes how specific extrinsic and intrinsic factors could potentially influence portfolio management decisions, providing specific examples Describes how the recommended investments are consistent with strategies to mitigate identified potential risks, but explanation is cursory or illogical Describes how specific extrinsic and intrinsic factors could potentially impact portfolio management decisions, but explanation or examples are illogical or cursory Does not describe how specific extrinsic and intrinsic factors could potentially impact portfolio management decisions 14.50 Meets “Proficient” criteria and discussion of investment selection and management strategies demonstrates a complex grasp of industry standard CFA parameters Demonstrates use of investment selection and management strategies to ensure that the portfolio remains within industry standard CFA parameters Demonstrates use of investment selection and management strategies to ensure that the portfolio remains within industry standard CFA parameters, but discussion of strategies lacks detail or contains inaccuracies Does not demonstrate use of investment selection and management strategies to ensure that the portfolio remains within industry standard CFA parameters 14.50 Articulation of Response Submission is free of errors related to citations, grammar, spelling, syntax, and organization and is presented in a professional and easy-toread format Submission has no major errors related to citations, grammar, spelling, syntax, or organization Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas Total 5.74 100% Running head: FINANCIAL DERIVATIVES Milestone One (revised) Recommended Financial Derivatives for Ford Company Cheng Qu 1 FINANCIAL DERIVATIVES Recommended Financial Derivatives for Ford Company Firms are constantly facing serious challenges due to the rapidly changing business environment. In the landscape of competition, they are always seeking to capitalize on their strengths in a bid to reduce risks while boosting their returns. To achieve this, they embrace a wide array of diversified strategies which enable them to sail through the murky waters of financial markets. One such strategy is the use of financial derivatives. The value of derivatives stems from such underlying assets as currencies, stocks, metals, and bonds. Ford Company can take fully advantage of the myriads of opportunities and benefits brought about by the use of financial derivatives to remain competitive in the automobile industry and to further its investment agenda. Based on the current needs of the company, it is highly recommended that they adopt such derivatives as forward contracts, futures contracts, option contracts, and swaps since they coalesce well with its strategic objectives. Forward Contracts The simplicity of forward contracts makes them a befitting choice for almost every serious trader in the international markets. They are agreements between two parties to sell or buy an asset in the future at a predetermined price. The forward can be customized significantly based on the preferences of the parties involved in the contract. Ford Company can use forwad contracts to hedge out risks in exchange rates, interest rates, and equities, especially since it operates on the international domain, which is highly susceptible to such risks. However, since forward contracts take place between two counterparties, there are high chances of counterparty credit risk. Another limitation of forward contracts is that if the contract is reversed before its expiration date, the terms might not be favorable because each counterparty as only an option of dealing with the other party. One big advantage of forwarding contracts is that the parties 2 FINANCIAL DERIVATIVES 3 involved are the only one with details of the contract as there is no compulsion to share the information to the public (Bryan & Rafferty, 2014). Futures Contracts Futures contracts bear many semblances to forwards, only that their prices are determined at the moment. They are placed on exchange listings, which acts as an intermediary and thus the derivatives can only be traded through that medium. There is no allowance for the modification of any feature of the futures, i.e. size, expiry, and format. The advantages of futures contracts are that the losses and gains on the contract are settled immediately thus eliminating credit risk (Bryan & Rafferty, 2014). Therefore, since Ford Company relies on oil prices to a great extent due to the nature of its business, futures contracts are great for them, especially commodity futures. Option Contract and Swaps In option contracts, one party is bounded by the contract while the other party is left to decide at a later date or the expiration of the option. In simple terms, one party is obligated to sell or buy at a later date whereas the other party chooses by paying a premium for the privilege accorded. Swaps, on the other hand, involve the exchange of cash flow streams by the participants of the contract. For instance, one party may switch from an uncertain cash flow stream to a certain cash flow streams. Ford Company should consider swapping a fixed interest rate for a floating one to enable it to avoid foreign exchange risks (Bryan & Rafferty, 2014). Applying the Derivatives to Ford’s Challenges The indispensability of derivatives in reducing the risks that firms face in the financial markets makes them a good deal for a company like Ford. First, any business that conducts transactions across different regions often faces the risk of foreign-currency fluctuations. Since FINANCIAL DERIVATIVES 4 Ford buys its material inputs from such regions as Europe and Asia and exports its products to every part of the world, it is obvious that some of these risks will follow them. Such risks can detrimentally affect the results of business. For example, assuming that Ford is exporting its cars to the European Union and the value of dollar has depreciated, the value of its sales will be higher since one euro translates to more dollars. However, the challenge sets in when the value of the dollar appreciates. To mitigate this risk, Ford Company can buy foreign-exchange futures contracts matched with the USD/EUR exchange rates. Each contract will correspond to a fixed value that is equivalent to the gain of the exchange rate between the dollar and the euro, implying that an increase in the value of the dollar will not necessarily have any damaging effect on the sales revenue. On the flip side, Ford will not enjoy any benefits that may be available in the event of a fall in the value of the dollar. Ford also faces interest-rate risks. Since it often receives cash windfalls that it would wish invest elsewhere without facing any risk, it may consider buying Treasury futures contract to lock in the rates. Alternatively, it could rely on interest rate swaps in paying the investors of its bonds. Under that arrangement, it would be receiving floating-rate payments upon paying fixed rates. Ford will then use these floating-rates to pay any pre-existing debts on the floating-rate domain. Ford will hence be left with only the challenge of settling the floating-rate debts, thus its conversion of obligations into fixed rates has been made possible by the swaps. Instrument Performance in Different Markets Financial instruments behave according to market conditions in the environments in which they are traded. Shifts in the values of the underlying assets in which they are traded affect the derivatives substantially. One of the assets that is quite fluid in the markets is stocks. When the value of stocks changes, the value of the option will change, forcing the buyer to evaluate FINANCIAL DERIVATIVES 5 whether to exercise the option or not. For example, fluctuations in commodity futures may force Ford to reconsider its investment decisions. When commodity prices go down, the value of the commodity futures will increase since the investors want to take advantage of the expected returns. Such commodities may be raw materials like steel and other inputs used by companies such as Ford. There will always be profitable opportunities for firms, whether the markets appreciate or not. Value shifts is swaps are a bit trickier. For example, interest rate swaps are highly liquid and may change in value significantly. When rates of interest increase, there are higher returns expected. However, in the event of decrease in interest rates, the swaps’ value increases. Fluctuations in forward contracts are easier to monitor because the initial value is always zero. Therefore, increase or decrease in value is calculated based on the current spot and the forward price. Lastly, options contracts are affected greatly by intrinsic value and the underlying price of the stocks. If the price of Ford’s stocks increases, the value of the options contracts increases, and vice versa. Conclusion Overall, though these types of derivatives have their risks there are a lot of benefits that come with them. Therefore, it is highly recommended that Ford Company to take advantage of the available derivatives. It should shield itself from the myriads of risks that come alongside any investment in the international markets, particular those that are depended on exchange rates, interest rates, and equities, among others. FINANCIAL DERIVATIVES 6 References Bryan, D., & Rafferty M. (2014). Capitalism with derivatives: A political economy of financial derivatives, capital, and class. Running Head: MILESTONE ASSIGNMENT Milestone Two (revised) Cheng Qu 01/20/2018 1 MILESTONE ASSIGNMENT 2 Existing companies in the modern day business are working upon various risks associated with doing business. The factors such as global currency changes as well as the internal workings of the suppliers and the production together with the customers affect the overall working in the organization. The businesses tend to change from time to time to react to real-time issues and adjust to the necessary environment. Issues of currency values, as well as fall and the rise in the same, are just some of the challenges that beckon the risks handled by the organization. Arguably, the most visible risks of exposure to the transaction as well as the ones related to financial instruments are the one taking the time of the companies (Lam, 2014). The company, in this case, is more concerned of the currency futures as well as swaps and the options, the mismatches relating to costs and investments are also major issues and is complemented with the revenues. As the organization makes investment decisions, it will have to be much concerned with the external and internal factors affecting the organization. Such issues include the risks identified across the organization. It is through the risk management that the company are able to handle the impact as the one emanating from the rate of currency and its changes across the organization (Aven, 2010). The main issues on the risk management are understanding the kind of the risk to handle and the instrument that must be checked to ensure that the risk is handled appropriately and efficiently. In the first instrument, the organization will need not just to understand the rates in terms of currency but also on the fluctuations related to the currency. The use of mathematical risk management tools will be important in analyzing and measuring the risks associated with the organization. They will be important in assessing how the organization reacts to structural as well MILESTONE ASSIGNMENT 3 as portfolio risks as the related transaction risks across different segments. This analysis will be important in understanding the influence value and the prices as per the projected risks. The management of the above-mentioned risks will be important in managing and reducing the effects of volatility associated with the currency. It will be necessary for helping grows the appropriate diversification of the investment portfolio of the company. The fluctuation will help offset the price changes across the market thus making it simple to bring down the currency risks and all the associated effects in the real terms. It will be less important for any investor in the organization to require or need to facilitate any risk premium as the lowering of the risks will reciprocate to the lowering of the cost of capital for the firm (Manuj and Mentzer, 2008). With the financial instruments, it is possible to create the hedge between the sizes and the duration of the related risks as per the organization. The hedging of the risks such as the structural risks makes it much possible to react to the operations as well as strategic measures related to the organization while are the same time realizing the opportunities related to the handling of the risks. The risks benefits identified in the organization are related to the financial instruments and will always affect the return in the organization. The extrinsic and intrinsic factor related to the risks affects the overall value and prices both internally and externally making it important to have the necessary skills in managing the risks. Failure to manage the risks might later work against the wellness of the organization. 4 MILESTONE ASSIGNMENT Popular Currency Futures Contract Specifications. Contract AUD/USD Futures Description Australian Dollar/ US Dollar CME Globex Ticker Symbol Size Minimum Price Increment Tick Value 6A 100,000 Australian Dollars 0.0001 $10 0.0001 0.0001 $10 12.5 CAD/USD Futures EUR/USD Futures Canadian Dollar/ US Dollar Euro/ US Dollar 6C 6E 100,000 Canadian Dollars 125,000 Euro GBP/USD Futures British Pounds/ US Dollar 6B 62,500 British Pounds 0.0001 6.25 0.0001 12.5 CHF/USD Futures Swiss Dollar/ US Dollar 6S 125,000 Swiss Francs EUR/GBP Futures Euro/ British Pounds RP 125,000 Euro 0.00005 £6.25 EUR/CHF Futures Euro/ Swiss Franc RF 125,000 Euro 0.0001 Fr. 12.50 EUR/JPY Futures Euro/ Japanese Yen RY 125,000 Euro 0.01 ¥ 1,250 JPY/USD Futures Japanese Yen/ US Dollar 6J 12,500 Yen 0.000001 $12.50 Calculations for any currency contract is calculated from the table as follows. For Euro/U.S Dollar, minimum price increment is 0.0001, tick value of $12.50, Then New Price = 12.50. This means that for every price movement of 0.0001, new contract changes by 12.50 in direction of price change. MILESTONE ASSIGNMENT 5 For example, if a contract is entered at 1.3642 and moves to 1.3643 then price movement of 0.0001 = 12.50 for one contract. If the same contract moves from 1.3642 to 1.3652, then New Price = {12.50 * 10 ticks} = 125.00 Note: For any other contract transaction, the calculation method is the same. 6 MILESTONE ASSIGNMENT References Aven, T. (2010). Risk management. In Risk Management and Governance (pp. 121-158). Springer Berlin Heidelberg. Demirgüç-Kunt, A., & Huizinga, H. (2010). Bank activity and funding strategies: The impact on risk and returns. Journal of Financial Economics, 98(3), 626-650. Manuj, I., & Mentzer, J. T. (2008). Global supply chain risk management. Journal of business logistics, 29(1), 133-155. Lam, J. (2014). Enterprise risk management: from incentives to controls. John Wiley & Sons. Popular Currency Futures Contract Specifications. Contract Description AUD/USD Futures Australian Dollar/ US Dollar CAD/USD Futures Canadian Dollar/ US Dollar EUR/USD Futures Euro/ US Dollar GBP/USD Futures British Pounds/ US Dollar CHF/USD Futures Swiss Dollar/ US Dollar EUR/GBP Futures Euro/ British Pounds EUR/CHF Futures Euro/ Swiss Franc EUR/JPY Futures Euro/ Japanese Yen JPY/USD Futures Japanese Yen/ US Dollar NZD/USD Futures New Zealand Dollar/ US Dollar CME Globex Ticker Symbol 6A 6C 6E 6B 6S RP RF RY 6J 6N Calculations for any currency contract is calculated as follows. For Euro/U.S Dollar, minimum price increment is 0.0001, tick value of $12.50, then New Price = 12.50. This means that for every price movement of 0.0001, new contract changes by 12.50 in direction of price change. For example, if a contract is entered at 1.3642 and moves to 1.3643 then price movement of 0.0001 = 12.50 for one contract If the same contract moves from 1.3642 to 1.3652, then New Price = {12.50 * 10 ticks} = 125.00 Note: For any other transaction, the calculation method is the same. Size 100,000 Australian Dollars 100,000 Canadian Dollars 125,000 Euro 62,500 British Pounds 125,000 Swiss Francs 125,000 Euro 125,000 Euro 125,000 Euro 12,500 Yen 100,000 New Zealand Dollars then New Price = 12.50. y 12.50 in direction of price change. e movement of 0.0001 = 12.50 for one contract. 10 ticks} = 125.00 Minimum Price Increment 0.0001 0.0001 0.0001 0.0001 0.0001 0.00005 0.0001 0.01 0.000001 0.0001 Tick Value $10 $10 12.5 6.25 12.5 £6.25 Fr. 12.50 ¥ 1,250 $12.50 $10.00
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Cheng Qu

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CME Globex Ticker Symbol
Size
Minimum Price
Increment Tick Value
AUD/USD Futures Australian Dollar/ US Dolla...


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