Final Project II: Presentation

InstructionsBased 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 re …
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