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UNIVERSITY COLLEGE DUBLIN

BACHELOR OF SCIENCE (SINGAPORE)

TREASURY AND RISK MANAGMENT (FIN3002S)

STUDY GUIDE

Full Time BSc21 / Singapore

Copyright© August 2015

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Author: Chong Chin Siong (2015)

This manual was prepared for University College Dublin as a comprehensive support for

students completing the above mentioned Degree programme.

© This publication may not be reproduced, in whole or in part without permission from

University College Dublin.

Module coordinator

Chong Chin Siong

Email: chin.chong@ucd.ie

[Email subject heading should state: FT BSc21 TRM_[Student’s Name]

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TABLE OF CONTENTS

PAGE

WELCOME MESSAGE

1. INTRODUCTION 5 a. Background details b. Module aims c. Programme Goals

2. MODULE OUTLINE 9 a. Module learning outcomes b. Themes and topics

c. Learning materials

3. MODULE DELIVERY SCHEDULE 12 a. Session arrangements b. Student engagement

c. Office hours arrangements

4. ASSESSMENT DETAILS 15 a. Assignments b. Module assessment components

i. Assignment 1 ii. Assignment 2

iii. Examination

5. GRADING 20 a. University grading policy

b. Grade descriptors for assessment components

6. CONCLUDING COMMENTS 27

APPENDICES 28

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WELCOME MESSAGE

Treasury and Risk Management is a core process in any multinational organisation. The

roles of the financial manager are varied, including the mitigation of its operational, financial

and reputational risk. In larger firms, it may also include trading in bonds, currencies,

financial derivatives and the associated financial risk management. These are complex and

demanding tasks.

In this course, students will learn the financial concepts and analytical tools necessary to

develop sound financial management practices in risk management. The exciting part is

mastering these financial concepts and applying statistical and financial analysis to

quantitative data. The class discussions and practical exercises present amply opportunities

for students to put their new-found knowledge into practice.

The success of a student’s performance in this course will depend, to a large extent, on his

or her time and effort devoted to the course materials. It is highly recommended that

students maintain a consistent routine of studies and to complete the course assignments at

the earliest opportunity. Many financial decisions are based on quantitative analysis, which

at this level of study, is not too advanced. More importantly, students should endeavor to

understand the meaning behind the numbers, which in turn assist in the making of financial

decisions.

I wish you all the best in this course!

Chong Chin Siong

Module Coordinator, FIN3002S

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PART 1: INTRODUCTION

This Study Guide is designed to provide you with details of this module, the learning

outcomes, delivery and assessment arrangements. The Study Guide consists of 6 parts.

Part 1 gives background details to the subject area are provided and the broad aims of the

module are set out.

Part 2 consists of the module outline. In this part the (a) module learning outcomes, (b) the

themes and topics to be explored are explained along with the (c) learning supports to be

used.

Part 3 gives details of the module delivery arrangements. It sets out the session

arrangements and the expectations in relation to your prior preparation and student

engagement.

Part 4 provides details of the assessment techniques used in this module explaining the

assessment components, their rationale.

Part 5 explains the UCD grading policy and grade descriptors drawing on the university

document are given for each assessment component (i) Assignment 1, (ii) Assignment 2 and

(iii) Examination (closed book).

Part 6 presents the concluding comments.

Background Details

a. Background to the Topic

This course introduces the fundamentals of Treasury and Risk Management in an

international context. Topics covered include money markets, foreign exchange markets

and the determination of exchange rates, measuring and managing accounting,

economic and political exposure, managing working capital in a multinational and the

methods and products for managing risk.

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b. Module Aims

The aim of this module is to introduce the tools and techiniques that are adopted by

treasury departments as part of their role of managing risk. The key tools are derivatives

such as futures, options and swaps. This module describes in detail how the

international derivatives markets work, how they can be used by treaury and risk

management depatments, and what determines prices in them. Among the topics

covered in this module are: futures markets and stock index futures; interest rate

futures; options markets: calls and puts; dynamic hedging and portfolio insurance;

introduction to advanced equity derivatives and options strategies; interest rate and

foreign currency swaps; interest rate derivatives; and credit risk.

The module draws on student prior learning and work experience and combines insights

from strategy, corporate finance, international trade and investment theory. The

assessment tasks for this module have been designed with this in mind as detailed later

in the study guide.

The aim of this module is to provide students with the following:

- The nature of treasury management to the multinational company

- A description of futures contracts, how these can be used for trading strategies

and the use of these to hedge risk exposures like interest rates and foreign

exchange.

- An understanding of forward contracts and how these are priced, and differ from

futures contracts. Also, forward contracts will be shown to be useful for hedging

risk exposures too.

- Consider the theoretical relationships between spot and forward rates, interest

rates and inflation. Analyse parity & market efficiency.

- Demonstrated understanding of the function of options, valuation and hedging

strategies to hedge a company’s risk exposures in stock investments, currencies

and interest rates.

- Credit derivatives and the use of these as credit default swaps.

The module draws on student prior learning and work experience and combines insights

from strategy, international trade and investment theory, human resource management and

other areas.

The assessment tasks for this module have been designed with this in mind as detailed later

in the study guide.

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c. Programme Goals

A set of programme goals are in place on all UCD degree programmes. These set out the overall goals and learning outcomes at the programme level. The goals addressed by the module are indicated with ‘X’ in the matrix below.

Bachelor of Science (BSc)

PROGRAMME GOAL LEARNING OUTCOME MODULE TITLE:

Treasury and

Risk Management

Management Specific

Knowledge

Our graduates will be

current in management

theory and practice.

Explain current theoretical underpinnings of

business and organization management.

X- Assignment 1

essay

Apply business models and theory to identify

and resolve problems in functional and across

functional areas.

X – Assignment 2

Case study

Demonstrate knowledge of and the usefulness

of quantitative techniques and controls in the

business environment.

X – Exam essays

and numerical

questions

Business

Communication

Our graduates will be

able to design and

deliver a short

presentation (oral or

written) on a current

business topic.

Prepare short business presentations (written

and oral) on a current topic to key

stakeholders.

Research and analyze specific business case

studies / problems / topics and write a concise

report detailing the findings and recommended

actions.

Locate information sources to facilitate the

completion of research projects and the

technologies to analyze and interpret the data

collected.

Personal Development Engage in module-related team activities

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& Reflective Learning

Our graduates will be

able to reflect on their

learning with a view to

enhancing personal and

professional career

pathways.

within and outside class.

Explain the essence of organization behaviour

pertinent to business managers and how they

may apply in the workplace environment.

Global, Multicultural

and Diversity

Perspectives

Our graduates will

understand the impact of

culture and social

developments on business

management decisions.

Identify the main factors and variables that

influence multinational entities’ business

operations, planning and competitive

positioning.

Recognize ethical and social responsibility

issues in the business environment and know

how to apply a process of ethical inquiry.

Examine ethical and legal implications of

managerial decisions and their effect on

organizational stakeholders.

Strategic Thinking

Our graduates will be

able to critically appraise

business developments

and advise on strategic

business projects.

Identify business opportunities/problems and

develop alternative solutions, taking account of

possible consequences (intended or

unintended).

Evaluate qualitative and quantitative data from

multiple perspectives paying attention to

sourcing, biases and logic.

X – Assignment 2

Case study

Analyze developments in key business sectors

and comment critically on a firm operating in

the sector.

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PART 2: MODULE OUTLINE

Module Title: Treasury and Risk Management

Module Code: FIN3002S

No. of ECTS: 10

Learning Outcomes

At the end of this module, you should be able to:

Define and explain international finance and the foreign exchange market, the

conceptual overview of key financial products operating in the international and

domestic financial markets and compare models of exchange rate determination.

Consider the theoretical relationships between spot and forward rates, interest rates

and inflation, analyse parity & market efficiency and demonstrated understanding of

the function of currency options, futures and swaps, when and where they are

applied.

Examine foreign exchange risk management, analyse industry best practice for

managing currency and interest rate risk, with a view towards integrating risk

management. Understand and implement strategies in covered interest parity (CIP)

and uncovered interest rate parity.

Explore methods for options and futures valuation and discuss derivative strategies

for hedging as part of risk management

Module Text:

Fundamentals of Futures and Options Markets: International Edition, 8/E by John C. Hull.

Themes and Topics

The following is an outline of the topics which course members are expected to cover as part

of this module:

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Theme 1

This first series of seminars introduces such topics as the following: an introduction of

treasury management, the mechanics and pricing of futures contracts, trading strategies and

the use of these to hedge risk exposures like interest rates and foreign exchange. These

lectures will also cover forward contracts and how these are priced, and the use of forward

contracts to hedge a company’s risk exposures.

Key words: Financial Risk, Exchange Rates, Parity Theorems, Foreign Exchange Hedging,

Foreign Exchange Traded Derivatives, OTC Derivatives, Interest Rate Traded Derivatives,

OTC derivatives.

Theme 2

The second series of seminars introduces such topics as the following: the mechanics of

financial options, its valuation and trading strategies. Option hedging will be applied to stock

indices, foreign currency and interest rates. These lectures will also cover credit derivatives

and their role in debt securities. Lastly, the use of derivatives is evaluated.

Key words: Option Valuation, Options Hedging, Credit Derivatives.

Learning Materials

For this module, please read the assigned chapters in the prescribed text and the additional

readings assigned (see list below).

During the sessions, time will be allocated to completing textbook exercises, non-textbook

exercises and case study analysis as detailed in Table 1. Please read the exercises and

cases before class and draw up responses to the questions posed.

Readings from Prescribed Text: Chapters 1-7, 9-11, 13, 15, 21 and 23.

Other Assigned Readings:

‘International Corporate Finance’, by Jeff Madura, 9th edition, Thomson South-Western.

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Other useful sources

Students completing the Financial Management module are expected to participate in

session discussions and learning activities and be familiar with recent developments in the

business world. To facilitate this, the following source material is useful:

o Bloomberg.com

o The Economist

o The Wall Street Journal

o The Straits Times

o The Business Times

o Fortune

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PART 3: MODULE DELIVERY SCHEDULE

The module delivery relies on students’ ability to engage in prior preparation, to seek

confirmation and clarification as appropriate and to be actively engaged during the sessions.

Session Arrangements

Each student is expected to attend and be prepared for all sessions. Table 1 below outlines

the structure for the sessions from 3 August 2015 – 11 September 2015.

Table 1: Module Delivery Schedule – topics, readings, cases

Session

No.

Theme /Topic

title

Date / Time Text chapters articles/ Reading

s*

Exercises from

the Textbook

Theme 1: Introduction, Futures and Forwards Contracts

1 Introduction Mechanics of futures markets

3 August 2015 Gp A: 830 am to 1130 am Gp B: 12 pm to 3 pm

Chapters

1,2

Ch 2: Refer to

questions in the

tutorial handout

2 Hedging strategies using futures Interest rates

4 August 2015 Gp A: 830 am to 1130 am Gp B: 12 pm to 3 pm 5 August 2015 Gp A: 315 pm to 615 pm 6 August 2015 Gp B: 12 pm to 3 pm

Chapters

3, 4

Ch 2, Ch 3:

Refer to

questions in the

tutorial handout

3 Determination of forward and futures prices

6 August 2015 Gp A: 830 am to 1130 am 18 August 2015 Gp B: 315 pm to 615 pm

Chapter

5

Ch 5: Refer to

questions in the

tutorial handout

4 Interest rate futures

18 August 2015 GpA: 12 pm to 3 pm 19 August 2015 Gp B: 315 pm to 615 pm

Chapter

6

Ch 6 Refer to

questions in the

tutorial handout

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Theme 2: Options (Valuation,

strategies, stock indices,

currencies, interest

rates) and Credit

Derivatives

5 SWAPS 20 August 2015 Gp A: 830 am to 1130 am Gp B: 12 pm to 3 pm

Chapter

7

Ch 7: Refer to

questions in the

tutorial handout

6 SWAPS

24 August 2015 Gp A: 830 am to 1130 am Gp B: 12 pm to 3 pm

Chapter

7

Ch 7: Refer to

questions in the

tutorial handout

7 Mechanics of options markets Properties of stock options

25 August 2015 Gp A: 830 am to 1130 am Gp B: 12 pm to 3 pm 27 August 2015 Gp A: 830 am to 1130 am Gp B: 12 pm to 3 pm

Chapters

9, 10

Ch 9, Ch 10:

Refer to

questions in the

tutorial handout

8 Trading strategies involving options Valuing stock options: The Black--Scholes--Merton model

1 September 2015 Gp A: 830 am to 1130 am Gp B: 12 pm to 3 pm 2 September 2015 Gp B: 315 pm to 615 pm 3 September 2015 Gp A: 830 am to 1130 am

Chapters

11, 13

Ch 11, Ch 13: Refer to questions in the tutorial handout

9 Options on stock indices and currencies Interest rate options

3 September 2015 Gp B: 12 pm to 315 pm 7 September 2015 Gp A: 830 am to 1130 am

Chapters

15, 21

Ch 15, Ch 21:

Refer to

questions in the

tutorial handout

10 Credit derivatives

10 September 2015 Gp A: 830 am to 1130 am Gp B: 12 pm to 3 pm

Chapter

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Ch 23: Refer to

questions in the

tutorial handout

11 Exam review 11 September 2015 Gp A: 830 am to 1130 am Gp B: 12 pm to 3

Note: In practice the various topics may not fit perfectly into one session slot so overlaps may occur.

Preparation Required in Advance of Sessions / Seminars

In addition to Assignment 1, you are expected to have read the following topics in advance

of meeting the module coordinator / course lecturer at the seminars:

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Hume, N. and Sheppard, D. (2015), Crude slide bolsters Trafigura’s profits and trading

margin,http://www.ft.com/cms/s/0/a512214c-0daa-11e5-9a65-

00144feabdc0.html#axzz3cfnrOg5c, Viewed 10 June 2015.

Plumer, B. (2015), Why oil prices keep falling — and throwing the world into turmoil,

http://www.vox.com/2014/12/16/7401705/oil-prices-falling, Viewed 13 June 2015.

Boesler, M.,(2015), The $9-trillion question: Can the world weather a Fed rate rise?,

http://business.financialpost.com/news/economy/the-9-trillion-question-can-the-world-

weather-a-fed-rate-rise, Viewed 13 June 2015.

The readings detailed above have been assigned and students are expected to be fully

familiar with them. These readings are an important learning source and supplement the

session and text materials.

Student Engagement

During the sessions, students are expected to be able to discuss issues arising from the

assigned chapters and readings for the topics as scheduled above. These issues not only

affect treasury and risk management, but can also affect the livelihood of market participants

and individuals like you and I.

Session participation is a vital element in the design of this module. Therefore, all students

are expected to engage in class discussion and debate in order to facilitate the formation of

their critical judgements.

To support your learning, Power-Point slides will be available which (on certain occasions)

may need to be upgraded / modified during or following the sessions depending on the

issues raised.

Office Hours

The local lecturer will be available for up to 30 minutes after each class should you wish to

meet individually to discuss any aspect of this module.

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PART 4: ASSESSMENT DETAILS

Assessment is undertaken to establish the extent of student learning on completing a

module and according to Biggs and Tang1 (2009) it is the senior partner of teaching and

learning. This module has three assessment components with specific weightings and

marks awarded totalling 1002. The purpose of each assessment is as follows:

Assessment 1 (Assignment 1) aims to aims to test students on Topic 1 and Topic 2

(Futures hedging) and Topic 2 (Interest rates). It is also designed to focus your learning

in preparation for the face to face sessions.

Assessment 2 (Assignment 2) is designed to test students on Topic 7 (Mechanics of

option markets) and on Topic 8 (Trading strategies involving options).

Assessment 3 (The Examination) is the formal examination which aims to get insights

on your understanding of issues (theory and practice) addressed in the module.

Students are expected to complete all assignments ensuring that they are submitted by the

specified date. All submissions must be typed, be well laid out, written in an academic style

with appropriate headings (introduction, main part and concluding comments) and sections.

Please ensure that all submissions are entirely your own work – for UCD’s policy on

plagiarism click on the link below (please see Appendix 1 for further information on

Plagiarism and the policy on the Late Submission of Coursework):

http://www.ucd.ie/registry/academicsecretariat/plag_pol_proc.pdf

The weighting assigned for each component is shown in Table 2 below. (* I = Individual; G =

Group)

Table 2 – Assessment Components

Assessment components Weighting Individual / Group*

1. Assignment 1 20% I

2. Assignment 2 30% I

3. Examination 50% I

1 Biggs, J. and Tang, C. 2009, Teaching for Quality Learning at University, Maidenhead: Open

University/McGraw Hill. 2 As the Overseas Programme modules are worth 10 ECTS they should be graded out of 200 marks.

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Module Assessment Components

In the following pages, further details of each assessment component are presented along

with expectations in relation to prior preparation and completion.

For each question, there should be a brief introduction, the body of the answer and a

conclusion section. Students are expected to write clearly and concisely, with appropriate in-

text citation and references provided (Harvard system).

1. Assignment 1

This assignment is designed to test students on Topic 1 and Topic 2 (Futures hedging).

Question 1 (10 marks)

A company uses an alternative energy source called Liquid X. The recent movements on the

price of oil have caused volatility in the price of Liquid X and so the company wishes to

hedge its exposure to Liquid X. The price changes of liquid X have a 0.7 correlation with

gasoline futures price changes.

The company will lose $500,000 for each 1 cent increase in the price per gallon of Liquid X

over the next two months. Liquid X has a standard deviation that is 50% greater than price

changes in gasoline futures prices. Futures contracts on Liquid X are non-existent and the

company uses gasoline futures to hedge its exposure to Liquid X. Assume each gasoline

futures contract is on 40,000 gallons.

Two months later, the price of Liquid X rose by 2 percent from US$2.50 per gallon.

Required:

a. What should be the hedge ratio in the use of gasoline futures to hedge its exposure?

b. What is the company's exposure measured in gallons of Liquid X?

c. What position measured in gallons, what is the type of position should the company

take in gasoline futures to hedge its exposure?

d. How many gasoline futures contracts should be traded in this hedging strategy?

e. After two months, what is the gain/loss in the spot market and the trading gain/loss

on the futures contracts in part d?

(2 marks x 5 = 10 marks)

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Question 2 (10 marks)

Global investors are not waiting for the Federal Reserve (Fed) to raise interest rates this

year. They are already betting that interest rates are going to increase in the U.S. this year,

the first in nearly a decade. According to CME Fed Watch (on 19 March 2015), the Fed's

funds futures contracts suggest a 12 percent probability of a June rate hike, a 49 percent

probability of an increase in September, a 70 percent probability of a rate hike in October,

and an 79 percent of December rate hike. The history of the past three tightening cycles

showed that the US dollar gains in the six to nine months preceding the first interest rate

hike over the cycle.

Required:

Discuss the impact of the market’s expectations of US interest rates on capital movements,

Asian currencies and global economic growth.

Note: Word count requirement is between 800 to 1,200 words. There must be a minimum of

4 references.

Table 2B – Assignment Deadline Summary

Assignment Deadlines Date Assignment Due

Assignment 1 Friday, 04/09/2015

Assignment 2 Monday, 28/09/2015

Assignment 1 must be submitted in hard copy and via Blackboard. See Assignment 1

deadline in table 2B above. It is the student’s responsibility to retain a copy of any submitted

assessment/project work. Please read the Grade Descriptors in the Assignment 1 Grade

Descriptor table.

2. Assignment 2

This is designed to test students on designed to test students on Topic 7 (Mechanics of

option markets) and on Topic 8 (Trading strategies involving options). Students are

expected to research on the consequences of a certain group’s decision on energy

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production. The emphasis is on analytical thinking to assess the effectiveness and

implications of competitors’ hedging strategies.

Question 1 (10 marks)

You are presented with the following information on gold futures prices:

Delivery date (months) Futures price per ounce ($)

1 880

2 890

3 910

6 932

12 1008

The interest rate is 0.5 percent per month (compound basis). It costs $2 per ounce per

month (payable for the whole period in advance) to store and insure gold. Each futures

contract covers 100 ounces of gold. The current price of gold is $873 per ounce.

Required:

a. Identify any arbitrage opportunities by inspecting each individual contract against the

spot price of gold today. Calculate the profit, if any, based on one gold futures

contract. (8 marks)

b. Describe any arbitrage opportunities by combining any two futures contracts. No

calculations are required here. (2 marks)

Question 2 (20 marks) On 27 November 2014, Organization of Petroleum Exporting Countries (OPEC) members

met in Vienna to reject calls for drastic action to cut their oil output from 30 million barrels per

day and rolled over this production figure. OPEC has continually iterated that the

organization has no intention to meet again until June 2015. Market observers believe a cut

in production at this meeting is even less likely than at last November's talks. Crude oil

prices, as benchmarked by West Texas Intermediate (WTI) crude, have been falling since

mid- June 2014 from the high of $107 per barrel to a 6-year low of $42.02 per barrel on 18

March 2015.

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Required:

a. Discuss the main reason for OPEC’s decision (up to June 2015) not to cut oil

production. (5 marks)

b. Using the WTI benchmark, discuss the effectiveness and implications of derivatives

hedging strategies of shale oil producers.. Your answer should use the WTI spot

price chart (from June 2014) to justify the types of options and futures strategies

employed by these producers. (15 marks)

Note: Word count requirement is between 1,000 to 1,500 words. There must be a minimum

of 10 references.

Assignment 2 must be submitted to your Programme Manager in hard copy and in soft copy

via Blackboard. See the deadline in table 2B. It is the student’s responsibility to retain a

copy of any submitted assessment/project work. Please read the Grade Descriptors in the

Assignment 2 Grade Descriptor table.

3. Examination:

The examination (3 hours) will focus on module topics and the material covered in the

textbook, mini-cases, assigned readings, seminar questions and class discussions. For this,

students are expected to demonstrate their understanding of theory and practice addressed

throughout the module. The examination question format will be designed to allow you show

your understanding of the topics discussed and also reveal your learning (new and prior).

The examination is expected to have a total of 6 questions and students are required to

answer any 4 questions. The marker will only mark the first four questions attempted. There

is a combination of both numerical and essay questions. All questions comprise parts to be

attempted. More specific guidelines regarding the examination paper format and questions

will be provided during the final session. Students will have the opportunity to ask questions

about its design and style and be advised the type of answers expected.

A recent past examination paper is included in Appendix 2 of this Study Guide, please be

prepared for slightly different style of question.

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PART 5: GRADING

This section of the Study Guide provides students with details of the UCD grading system

and also explains criterion referenced grading (UCD Policy). Under criterion referenced

grading, students are graded on the quality of their work without reference to other students

(norm referenced). For instance, the submission that meets the required guidelines in terms

of writing style, analysis, description and / or summary will be awarded according to the

standards set out. All students’ work is graded to indicate the standard attained using the

criterion referenced approach.

Table 3: UCD Grading System

Grade Description Grade Point

A +

A

A-

Excellent

4.2

4.0

3.8

B+

B

B-

Very good

3.6

3.4

3.2

C+

C

C-

Good

3.0

2.8

2.6

D+

D

D-

Acceptable

2.4

2.2

2.0

E Marginal 1.6

F Fail (unacceptable, no compensation) 1.0

G Fail (Wholly unacceptable; no compensation) 0.4

NG Fail (Wholly unacceptable; no relevant attempt)

0.0

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More specific grade descriptors are set out for your assessment components in the following

pages. Table 4 below provides descriptors for the Assignment 1 – please read them prior to

submitting your work.

Table 4: Grade Descriptors – Assignment 1

Grade Criteria

A[1]

Answers to questions are exceptionally clear, well argued and developed, with a

definitive statement. The answers exceptionally researched, extremely detailed and

accurate with critical evidence from a wide variety of sources that is all properly

cited. Exceptionally critical, relevant and consistent connections are made between

arguments, evidence, subtopics, & the questions posed showing excellent analysis.

There is an exceptionally clear, logical, mature, and thorough development of

subtopics that support the answers with excellent transition b/w paragraph.

Excellent summary of topic (with no new information), & all subtopics are presented

in proper grammar, spelling and paragraphing, and are error-free. Proper detailed

format always used consistently & correctly to validate evidence in paper. Proper,

detailed Harvard is format always used in alphabetical order with all sources shown

and a wide variety of sources.

B

Proficient introduction that states background information, question, topic and all

subtopics in proper order. Thesis is clear and arguable statement of position. Paper

is well researched in detail with accurate & critical evidence from a variety of

sources that is properly cited. Consistent connections made between evidence,

subtopics, arguments & showing good analysis. Clear and logical subtopic order

that supports the answers with good transitions b/w paragraphs. Good summary of

topic, and all subtopics with clear concluding ideas. Paper is clear, with mostly

proper grammar, spelling and paragraphing, however, with some minor errors.

Consistent & correct format inserted to validate evidence. Mostly proper Harvard

format used in alphabetical order with al sources shown and a variety of sources.

Adequate introduction that states topic, and some of the subtopics. Answers are

[1] While the criteria detailed above refer to A – D grades (inclusive) only, please note that all bands will be used

(A+, A and A-; B+, B and B- etc) for grading assignments.

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C

somewhat clear and arguable. Some aspects of the paper is researched with some

accurate evidence from limited sources with some citations. Some connections

made between evidence, subtopics, arguments & topic showing analysis.

Somewhat clear and logical development of subtopics with adequate transitions b/w

paragraphs. Adequate summary of topic and some subtopics with some final

concluding ideas. Paper has some errors in grammar, spelling and paragraphing.

Sometimes inconsistent use of footnotes with limited details. Some errors in

Harvard format with most sources shown.

D

Weak introduction of topic & subtopics. Answers are weak and lack an arguable

position. Limited information on topic with lack of research, details or accurate

evidence. Limited connections made between evidence, subtopics,

counterarguments & topic – lack of analysis. Paper lacks clear and logical

development of ideas with weak transition b/w ideas and paragraphs. Lack of

summary of topic & subtopics with weak concluding ideas. Inconsistent grammar,

spelling and paragraphing throughout paper. Inconsistent use of footnotes with

limited details and improper format. Lack of proper format and limited details with

main sources missing or incomplete

E

A response to the assessment task which fails to meet the minimum

acceptable standards. The paper engages with the subject matter or

problem set, despite major deficiencies in structure, relevance or focus.

There is capacity to complete only part of, or the simpler elements of, the

task, demonstrating an incomplete or rushed answer. It is not an entirely

acceptable attempt to integrate factual knowledge into a broader literature or

theoretical, technical or professional framework.

F

A response to the assessment task which is unacceptable, with a failure to

address the question resulting in a largely irrelevant answer or material of

marginal relevance. The paper predominating displays some knowledge of

material relative to the question posed, but with very serious omissions /

errors and/or major inaccuracies included in answer solutions. There is

offered a very limited portion of the problem set, with an answer

unacceptably incomplete (e.g. for lack of time), a random and undisciplined

development, layout or presentation, unacceptable standards of

presentation, such as grammar, spelling or graphical presentation.

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G

The standard of the paper is wholly unacceptable. There is complete failure

to address the question resulting in an entirely irrelevant answer, with little or

no knowledge displayed, relative to the question posed. There is little or no

solution offered for the problem set, with evidence of extensive plagiarism.

NG

There is no assignment submission.

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Table 5: Grade Descriptors – Assignment 2

Grade Characteristics

A Answers to questions are exceptionally clear, well argued and developed, with a

definitive statement. The answers exceptionally researched, extremely detailed

and accurate with critical evidence from a wide variety of sources that is all

properly cited. Exceptionally critical, relevant and consistent connections are

made between arguments, evidence, subtopics, & the questions posed showing

excellent analysis. There is an exceptionally clear, logical, mature, and thorough

development of subtopics that support the answers with excellent transition b/w

paragraph. Excellent summary of topic (with no new information), & all

subtopics are presented in proper grammar, spelling and paragraphing, and is

error-free. Proper detailed format always used consistently & correctly to

validate evidence in paper. Proper, detailed Harvard format always used in

alphabetical order with all sources shown and a wide variety of sources.

B Proficient introduction that states background information, question, topic and all

subtopics in proper order. Thesis is clear and arguable statement of position.

Paper is well researched in detail with accurate & critical evidence from a

variety of sources that is properly cited. Consistent connections made between

evidence, subtopics, arguments & showing good analysis. Clear and logical

subtopic order that supports the answers with good transitions b/w paragraphs.

Good summary of topic, and all subtopics with clear concluding ideas. Paper is

clear, with mostly proper grammar, spelling and paragraphing, however, with

some minor errors. Consistent & correct format inserted to validate evidence.

Mostly proper Harvard format used in alphabetical order with al sources shown

and a variety of sources.

C

Adequate introduction that states topic, and some of the subtopics. Answers are

somewhat clear and arguable. Some aspects of the paper is researched with

some accurate evidence from limited sources with some citations. Some

connections made between evidence, subtopics, arguments & topic showing

analysis. Somewhat clear and logical development of subtopics with adequate

transitions b/w paragraphs. Adequate summary of topic and some subtopics

with some final concluding ideas. Paper has some errors in grammar, spelling

and paragraphing. Sometimes inconsistent use of footnotes with limited details.

Some errors in Harvard format with most sources shown.

25

D

Weak introduction of topic & subtopics. Answers are weak and lack an arguable

position. Limited information on topic with lack of research, details or accurate

evidence. Limited connections made between evidence, subtopics,

counterarguments & topic – lack of analysis. Paper lacks clear and logical

development of ideas with weak transition b/w ideas and paragraphs. Lack of

summary of topic & subtopics with weak concluding ideas. Inconsistent

grammar, spelling and paragraphing throughout paper. Inconsistent use of

footnotes with limited details and improper format. Lack of proper format and

limited details with main sources missing or incomplete.

E

A response to the assessment task which fails to meet the minimum

acceptable standards. The paper engages with the subject matter or

problem set, despite major deficiencies in structure, relevance or focus.

There is capacity to complete only part of, or the simpler elements of, the

task, demonstrating an incomplete or rushed answer. It is not an entirely

acceptable attempt to integrate factual knowledge into a broader

literature or theoretical, technical or professional framework.

F

A response to the assessment task which is unacceptable, with a failure

to address the question resulting in a largely irrelevant answer or

material of marginal relevance. The paper predominating displays some

knowledge of material relative to the question posed, but with very

serious omissions / errors and/or major inaccuracies included in answer

solutions. There is offered a very limited portion of the problem set, with

an answer unacceptably incomplete (e.g. for lack of time), a random and

undisciplined development, layout or presentation, unacceptable

standards of presentation, such as grammar, spelling or graphical

presentation.

G

The standard of the paper is wholly unacceptable. There is complete

failure to address the question resulting in an entirely irrelevant answer,

with little or no knowledge displayed, relative to the question posed.

There is little or no solution offered for the problem set, with evidence of

extensive plagiarism.

NG

There is no assignment submission.

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TABLE 6: Grade Descriptors – Formal Closed Book Examination

Grade

Characteristics

A

Answers to questions are exceptionally clear, well argued and developed, with a

definitive statement. Exceptionally critical, relevant and consistent connections

are made between arguments, evidence, subtopics, & the questions posed

showing excellent analysis. There is an exceptionally clear, logical, mature, and

thorough development of subtopics that support the answers with excellent

transition b/w paragraph. Excellent summary of topic (with no new information),

& all subtopics are presented in proper grammar, spelling and paragraphing,

and is error-free.

B

Proficient introduction that states background information, question, topic and all

subtopics in proper order. Thesis is clear and arguable statement of position.

Consistent connections made between evidence, subtopics, arguments &

showing good analysis. Clear and logical subtopic order that supports the

answers with good transitions b/w paragraphs. Good summary of topic, and all

subtopics with clear concluding ideas. Answers are clear, with mostly proper

grammar, spelling and paragraphing, however, with some minor errors.

C

Adequate introduction that states topic, and some of the subtopics. Answers are

somewhat clear and arguable. Some connections made between evidence,

subtopics, arguments & topic showing analysis. Somewhat clear and logical

development of subtopics with adequate transitions b/w paragraphs. Adequate

summary of topic and some subtopics with some final concluding ideas. Paper

has some errors in grammar, spelling and paragraphing.

D

Weak introduction of topic & subtopics. Answers are weak and lack an arguable

position. Limited information on topic with lack of details or accurate evidence.

Limited connections made between evidence, subtopics, counterarguments &

topic – lack of analysis. Paper lacks clear and logical development of ideas with

weak transition b/w ideas and paragraphs. Lack of summary of topic &

subtopics with weak concluding ideas. Inconsistent grammar, spelling and

paragraphing throughout paper.

E Marginal. The participant has exhibited a marginal understanding of the key

concepts. He/she has failed to meet the minimum acceptable standards in

some areas of the examination.

27

F Unacceptable. The participant has exhibited an unacceptable level of

understanding of the key concepts. He/she has failed to address the questions,

resulting in a largely irrelevant answer or material of marginal relevance.

G Wholly unacceptable. The participant has exhibited a wholly unacceptable

level of understanding of the key concepts. He/she has failed to address the

questions, resulting in an entirely irrelevant answer.

NG No Grade. The participant has not exhibited any relevant attempt at the module.

PART 6: CONCLUDING COMMENTS

This Study Guide is designed to assist and guide your learning for this module. It is

important that you read it regularly and do so in conjunction with the core text, the assigned

readings and session materials. Should you need clarification on issues covered, please let

me know during the seminar sessions.

I hope you enjoy the module and wish you good luck with the rest of your study and for the

future.

Chong Chin Siong

Module Coordinator

August 2015

28

APPENDIX 1:

You are advised to read the following important documents before you commence your

studies on this module:

1. Guidelines for the Late Submission of Coursework

This document provides a detailed outline of the rules and regulations surrounding the

presentation, submission and marking of assignments. The guidelines provided must be

adhered at all times to avoid an unnecessary loss of marks. Further details on

www.ucd.ie/registry/academicsecretariat/late_sub.pdf

2. A Briefing Document for Students on Academic Integrity and Plagiarism.

The University understands plagiarism to be the inclusion of another person’s writings or

ideas or works, in any formally presented work (including essays, theses, examinations,

projects, laboratory reports, oral, poster or slide presentations) which form part of the

assessment requirements for a module or programme of study, without due

acknowledgement either wholly or in part of the original source of the material through

appropriate citation. Further details please go to

www.ucd.ie/registry/academicsecretariat/plag_pol_proc.pdf

Plagiarism is a form of academic dishonesty. In any assignment, plagiarism means that

you have presented information or ideas belonging to someone else falsely as being your

own original thoughts on a subject.

All assessments/projects submitted must be the result of your own work.

The following statement must be included on the cover page of all assignments

submitted:

I declare that all materials included in this essay/report/project/dissertation is the end

result of my own work and that due acknowledgement have been given in the

bibliography and references to ALL sources be they printed, electronic or personal.

Signed: Student name/s, student number

Date:

29

APPENDIX 2: A Recent Examination Paper

Note to Students:

Providing a copy of this paper does not signify that future papers will follow the exact

same format. Further copies of past examination papers are available in the Kaplan

library. Past Finance papers may have included formulae, please note your exam paper will

not include any formulae.

30

Past Exam Paper

Semester ?

Day, Date

Time

Bachelor of Science

FIN3002S

Treasury Management

Dr. Conall O’Sullivan

Time Allowed: 3 Hours

Instructions for Candidates

Candidates must answer ANY FOUR questions. All questions carry equal marks.

Marks awarded for each question are indicated in the examination paper.

Note to Students:

Providing a copy of this paper does not signify that future papers will follow the exact

same format.

31

Question 1

Suppose that 90-day (annualised) interest rates in the United Kingdom and the United States are 4%

and 5%, respectively. If the spot exchange rate is £0.5: $1 and the 90-day forward exchange rate is

£0.49: $1.

a) Where would you invest and where would you borrow? [5] b) What arbitrage opportunity do these figures present? Illustrate your answer with diagram of

the transactions that take place. [10] c) Solve for break even forward exchange rate that eliminates the arbitrage opportunity i.e.

find x in the forward exchange rate £x: $1 such that no arbitrage opportunity exists. [10] [Total: 25 marks]

Question 2

a) Discuss interest rate exposure and explain why some companies may prefer a fixed rate loan and other companies may prefer a floating rate loan. [5]

b) Companies X and Y have been offered the following rates per annum on a $10 million 5-year

loan.

Fixed Rate Floating Rate

Company X

Company Y

4%

6%

Libor + 0.5%

Libor + 1%

Company X requires a floating rate loan whilst company Y requires a fixed rate loan.

However both companies can make savings relative to the rates offered in the market if

company X borrows at the fixed rate of 4% and company Y borrows at the floating rate of

Libor + 1% and then they swap their cash flows in a specific manner. Design a swap where

the companies do exactly this to achieve the type of loan they originally required whilst

saving money. Assume that the companies share the savings equally. [15]

c) Now assume that company X has a higher credit rating than company Y and that company X retains two thirds of the savings from the swap and company Y only retains one third of the savings from the swap. Depict the cash flows in this situation. [5]

[Total: 25 marks]

Question 3

a) Discuss the advantages and disadvantages to a nation or region of having a fixed exchange rate regime or a floating exchange rate regime. [8]

b) The Balance of Payments is an accounting system that tries to capture a country’s transactions with the rest of the world. Describe why the balance of payments is considered important for determining a countries exchange rate. [8]

c) Give a brief outline of a recent financial crisis in a country or region that caused the currency in the country or region to lose its value. [9]

[Total: 25 marks]

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Question 4

a) What is meant by the globalization of financial markets? How has technology affected the process of globalization. [8]

b) List some reasons why firms expand to become multinational firms? Include some examples of such firms in your answer. [8]

c) Standard advice given to firms exporting to soft currency countries is to invoice in their own (hard) currency. Critically analyse this recommendation. [9]

[Total: 25 marks]

Question 5

a) Define exposure in the context of treasury management, differentiating between operating and accounting exposure. What role does inflation play? [8]

b) Describe three circumstances under which economics exposure us likely to exist. [9] c) Discuss how a firm can manage and even benefit from foreign exchange exposure by

diversification. [8] [Total: 25 marks]

Question 6

a) Compare and contrast forward and futures contracts? [5] b) Discuss why firms may use options contracts instead of using futures contracts? [5] c) Suppose a U.S. multinational firm is due to receive a payment of 50 million euro in 6 months

time, and the firm will convert this euro payment to U.S. dollars to book profits. The current exchange rate is €1 = $1.40. The 6-month forward exchange rate is €1 = $1.38 and a 6-month put option with a strike price of €1 = $1.37 costs 0.75% of the amount to be hedged (using the current spot exchange rate). The firm’s treasury department is worried that the euro will depreciate relative to the dollar. Explain how the firm can hedge the position using a forward contract. Explain how the firm can hedge the position using an option. Why might the firm use an option instead of a forward contract to hedge the position? [15]

[Total: 25 marks]

oOo