代做Managing Foreign Exchange Risk through Options: A Case Study in International Business

日期：2024-04-12 04:15

Case?Study?2?and?Case?Study?3?combined:?Managing?Foreign?Exchange?Risk?through?Options:?A?Case?Study?in?International?Business

Release?date:?Wednesday,?March?27,?2024.??Due?date:?11:00pm,?Wednesday,?April?17,?2024

This?is a?group?case study. You can form.?a?team?with?no?more?than?four?members.

Introduction:

XYZ Corporation, a?multinational company with?operations?in the?United?States,?Europe,?and?Asia,?faces significant foreign exchange risk due to its extensive?international operations. The?headquarter is in?Phoenix, AZ,?U.S. The company transacts in?multiple?currencies,?including the?US?Dollar?(USD),?Euro?(EUR),?and?Chinese Yuan?(CNY).?Fluctuations?in?these?currency?exchange?rates?impact?the ?company's revenues, expenses, and overall profitability.To mitigate this risk, the?company?adopts?a?comprehensive?risk?management?strategy,?incorporating?options?on?foreign?currency as a?key?component.

1.???Study?of?historical?exchange?rates

Before implementing the options strategy, XYZ Corporation conducts a thorough assessment of its?foreign?exchange?risk. This?involves?identifying?key?currencies?impacting?the?business?(USD,?EUR,?CNY), and?understanding the?historical volatility?of these currencies.

Your first task?is to?study the?exchange?rates?by following the?steps:

o ?Download the?package tidyquant, and?use?the?following?sample?codes?to?extract?historical exchange?rates:

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library(tidyquant)

av_api_key('ILEQRVXY1K13TPUG') # You have to generate your?own?unique API?key. ??jpy_usd = tq_get("JPY/USD", get?=?"alphavantage", av_fun =?"FX_DAILY",?utputsize?=?"full")

jpy_usd = as.data.frame(jpy_usd)

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o ?Do a?literature?review?about?how?to?compute the?volatility?of?exchange?rates.?Implement?the?computations?in?R to evaluate the volatility for the?currencies?in?this?case?study.

2.???Foreign?Exchange?Risk?Assessment

Next,?based?on?the?understanding?of?historical?exchange?rates,?you?have?to?assess?the?potential?impact on financial?performance?in various scenarios due to the fluctuation of the exchange?rates.

Your?second task?is to?evaluate?how the?expenses and?revenue?of XYZ?company?(See?Appendix?A)?would change corresponding to the ?fluctuation of exchange rates. You can use appropriate?statistics (like?percentiles) and?plots (like?histogram) to show the?uncertainty of?profit and?revenue?in dollars from the foreign?business.

3.???Hedging?Strategy

The finance team?decides to?use?call and/or?put?options to create?a?balanced?hedging?strategy. ???Recall call options are?used to?protect against?the?depreciation?of?domestic?currencies,?while?put?options are?employed to?hedge?against?domestic?currency appreciation.

Your third task?is to?carefully?select the?option types,?the?expiration?dates?and?strike?prices?based?on?XYZ?company's?forecasted?cash?flows?(See?Appendix?A)?and?risk?tolerance.?Regarding?the?risk?tolerance, you can define it according to your risk appetite. For instance, with a specified?probability level, the?potential negative impact (for example,?negative?profit)?is?controlled to?some?amount you can?accept.

4.???Evaluation?of?the?hedging?cost

Your fourth task?is to evaluate the?cost?(in dollars)?of the?options?you?selected?in?the?third?task.?The?estimation?is?based on?binomial option?pricing?methodology. You can?use the?R?package “derivmkts” and the?R function?binomopt() will?help you?price the?options?you?have?chosen.

Make sure that the?number of?binomial steps?in?this function?is?set?up?sufficiently.

5.???Results?and?Impact

Through the?implementation of the options’?strategy, XYZ?Corporation?is?expected to?successfully?mitigate?a?significant?portion?of?its foreign?exchange?risk?in?USD,?EUR, and?CNY.

Your fifth task is to quantify and evaluate how the above expectation could be potentially?satisfied.?For ?example, ?a ?critical ?question??would??be:??Will??the??company??experience??enhanced??financial?stability,?allowing?for?more?accurate?budgeting?and?planning??Stability?can?be?quantified?using?different?metrics, such as?reduced?uncertainty (i.e., standard deviation)?of?revenue?and?profit. Any?other comments on this?risk?management strategy?

Appropriate?assumptions?could?be?made?if?not given?in this?case?study,?but you?should justify the?assumptions that are employed.

Deliverables:

Submit a?report to?cover the?required five tasks,?as well?as supporting?calculations?like?R?codes?and?Excel work.

Note:?In assessing the?reports, quality takes?precedence?over the?length?of the?document.?The ???expectation?is to?deliver concise yet comprehensive?report that?effectively addresses?each task???with clarity,?depth, and accuracy.?Regarding the?supporting?calculations,?make sure?your?work?is?readable?and clear with appropriate comments/documentation.

Appendix?A:?XYZ?company's?forecasted?cash?flows?in?year?2025

For the?business?in China:?(in Chinese yuan,?CHN,?millions)

Month	Expenses	Revenue
January	4500	6200
February	4000	5500
March	5200	6800
April	4300	5200
May	4500	5610
June	5100	6740
July	6500	9320
August	8000	11050
September	7500	10180
October	6800	9730
November	5700	7150
December	4800	6450

For the?business?in?Europe:?(in?Euro,?millions)

Month	Expenses	Revenue
January	1200	1500
February	1360	1450
March	1130	1400
April	1280	1630
May	1175	1568
June	1349	1635
July	1492	1758
August	1338	1685
September	1249	1549
October	1471	1769
November	1392	1680
December	1480	1829