Exchange risk Case Study Example | Topics and Well Written Essays - 1000 words

Exchange risk - Case Study Example They can gain from a one month forward contract and essentially make a profit of (16.136-16.103) = 0.033million AUD. The 0.9450 put option is at a strike price that is not close to making a profit. It is obviously higher than the 1 month forward rate provided. The Australian firm is only worried that the Australian dollar can depreciate against the US dollar on the day of transaction. If 0.9250 is selected, then a higher premium will be payable to the clearing house. The clearing house protects the counterparties against the potential loss in value of the currencies used. Assuming the firm takes the strike at 0.9250, then the premium (insurance) for every option will be (0.0780*15million) = 1.17 million USD, so in 31st October the firm gets (15/0.9250)=16.22 million AUD. The Australian firm buys the put option at the 3 month forward. 15 million USD is equal to 15/0.9257 = 16.203million USD. The premium of the put option is 15million*0.114 = 1.71million USD. If the exchange goes above the strike price then the firm exercises the option and makes profit of (0.2486-0.114)*15=1.98 mill USD. (c) The effectiveness of hedging is that it maintains the value of the $15 million invoice despite any fluctuation in the exchange rate between the two countries. If the invoice payment not hedged, then the 15 million USD can be changed using 31st October spot rate. In case the Australian dollar depreciates against the US dollar, then the firm makes a loss i.e. (16.22-16.13) =0.09mil AUD. The 0.925 option gives us 16.22mil AUD and the one month forward mid-rate of 0.9206 gives us 16.13mil AUD. Which is lower than the former (HICKS 2000). (e) One major amendment made to OTC derivatives trading is; every standardized OTC derivative agreements should be traded on an electronic trading platform or over an exchange. Moreover, OTC derivatives should be cleared through a clearing house by the beginning of January 2013. Contracts that are cleared through a clearing

Reflective Journal Assignment Example | Topics and Well Written Essays - 1500 words - 2

Reflective Journal - Assignment Example In my opinion, the perception of Total Quality Management (TQM) is essential to consider by an organisation, as in recent times, customers have increased their expectations towards availing their respective desired products. To fulfil the sophistication in products that would raise customer satisfaction, project management must have to introduce TQM concept. Justifiably, if customers do not accept the exact service that they want, they seek for other alternatives and thus create a worsened situation for any particular project. There usually lay several chances for having customer’s dissatisfaction in terms of cost as well as quality along with service. From the basis of discussion, I would like to state that when a project results into cost-effective with minimum quality as well as fulfil all the desirable characteristics from customers’ perception, they become satisfied and after that, such project could be wrapped rapidly (Frame, 2002). For instance, in terms of an on line product like a dress material, a customer may select the material through online marketing site of a company and likewise order that particular item. The site would provide opportunity to the customers like cash on delivery and free shipping. Three days later after ordering, the product would reach to customers’ destination. If there does not exist any such problem in the product, the customer should be happy and remain satisfied with the product and likewise provide the purchasing costs without any hesitation. However, I think these circumstances would change if the product does not contain the same colour or the expected material does not get matched with the delivered product. By considering the above stated circumstances, the customer could refuse to accept the product and the management should recreate the whole process again for gaining the satisfaction level of such customer. After smooth completion of the process, the online company could be able to receive cash