Spotlight Quiz. Financial Risk

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Spotlight Quiz. Financial Risk"

Transcription

1 Spotlight Quiz Financial Risk 1 Risk and Reward One of the first things that we learn in finance is that there is a relationship between risk and reward; if you want to earn high rewards you need to accept some risk or that to justify taking some risk you need to be able to expect a high return. This translates into one of the basic principles of the rational investor : a preference for more return given a constant risk or a lower risk given a constant return. This sometimes leads us to suppose that if we expose ourselves to risk, then we must also be exposing ourselves to commensurate returns. Clearly that is not true. Our principle is based n the concept of the rational investor, who would knowingly accept risk only if the return was adequate to compensate for the risk taken. There are many examples of risk not matching potential return, which is why the rational response to such risks is to avoid exposure unless adequately compensated. Equity investors accept risk when investing in shares. They do so in the expectation of making a return that matches the risk taken. This is important for companies because they must provide a return for the investor that matches the expected risk, otherwise the investor will not invest, the share price falls if there are no buyers and the company finds it harder to raise capital. Question 1 What is the name given to the risk that determines the return that the equity investor should expect? (a) Specific risk (b) Diversifiable risk (c) Systematic risk (d) Interest rate risk The right answer is (c) systematic risk Specific risk and diversifiable risk are different names for the same thing, the risk that can be diversified away by investing in a diverse portfolio of investments. Every investment has its own potential for doing better or worse than expected, so each share can go up or down on the news specific to that company. But when the investor makes investments across the board, the good news will largely offset the bad news, the overall portfolio will react only to the news that affects the overall economy i.e. when the whole market gains or loses value. The return that the investor can expect is based on this overall market movement, which is the systematic risk, often also called

2 market risk. A risk greater than the market will produce greater returns than the market while a risk lower than the market will produce returns lower than the market on average. The theory argues that diversifiable risk is not rewarded with extra return because the investor does not have to accept exposure to it. 2 Risk management Risks can be regarded as those that are rewarded and risks that are unrewarded. This means that the first challenge for risk management is to identify which risks are rewarded and which are unrewarded. If we can identify the risks that are rewarded, then we can assess risk and the return and decide whether the return is worth the risk. If the risk is unrewarded there is clearly no judgement to be made we should avoid those risks. The first step in the risk management process is to identify as many risks that the company is exposed to as we can. Question 2 When compiling the initial register of identified risks, which are the most important relationships for the risk manager? (a) Treasury audit staff (b) Internal management accountants (c) Commercial and operational management (d) Central services management The right answer is (c) commercial and operational management The key risks for the company almost certainly lie in its dealings with the outside world: making things, providing services or selling / buying things. The only way to understand how these processes work is to form relationships with the management in those areas It is tempting to believe that the treasury or other financial staff know everything that there is to know but maybe, in this instance only, they are not best placed to help. Risk arises because commercial managers make commercial decisions, for example deciding to allow a customer to pay in USD instead of EUR, without realising the financial risk implications. If the implications aren t realised, then they cannot be transmitted to the risk manager concerned the risk manager has to be close enough to the operations to be aware when instances like this arise. In this case as far as the commercial manager is concerned, he has reduced the risk that the customer will not buy by allowing him to pay in USD. 3 Business risks versus financial risks The concept of rewarded and unrewarded risk can be very useful in deciding whether risk exposure is acceptable. One non-financial example would be the core risk of being in a particular business. The risk of being a participant in the soft drinks business is clearly acceptable to Coca Cola and Pepsi Cola: they understand the business, its competitors and how to generate profits and shareholder

3 value from being in that business. Investors invest in them because they believe in their ability to continue to generate that shareholder value in that business. So, Pepsi and Coke don t try to hedge their risk of being in that business (for example by diversifying), they focus on that business. Investors want exposure to their business risk because they believe in their ability to manage that risk. Conversely, investors almost never look at a company and see long term value on their ability to generate value from financial risk. Each company might get occasional lucky gains from currency or interest rate exposures, but rarely if ever is there any consistency in such gains. Question 3 A company Board has decided that they are going to accept only business risk and no financial risk whatsoever. As treasurer you are currently arranging a new term loan and have to decide which of the following you should choose to remain within this Board edict. From the following, which will be closest to the zero risk strategy? (a) A floating rate loan, because you expect rates to fall (b) A fixed rate loan, because you expect rates to rise (c) 50% of the loan fixed and 50% floating (d) Whichever is the best match for the variability of your company s performance The right answer is (d) Whichever is the best match for the variability of your company s performance There is no way to avoid taking any financial risk. As soon as you do business you are exposed to some form of financial risk. In this case, if you raise a floating rate loan, rates might rise. On the other hand if you raise fixed rate money, then rates might fall meaning that you pay more than you needed to and perhaps more than your competitors and the market value of your loan increases. Choosing 50% fixed and 50% floating is one way to try to avoid the problem, reducing the amount by which you are likely to be wrong, but the real answer is not to try to outguess the market in which way rates are going to go. It is to match the way in which your company s performance varies to the interest rate cycle to the interest basis of the loan. The classic case before the global financial crisis of recent years was of the housing market: interest rates fall and the market rises; interest rates rise and the market slows. The effect of this is that businesses that were related to the state of the housing market (fitted kitchens, carpets etc) did well when interest rates were low and suffered when rates rose. As a result floating rates were high risk for companies like this rates rise so interest cost increase just as performance falls. Unfortunately recent times have clouded the picture regarding low interest rates but that brings in other factors that affect housing such as certainty of future income etc. 4 Economic exposure Risks to do with currencies come in different guises. Sometimes they can appear without any obvious link to currency.

4 Question 4 The Heartbreak Hotel is a large hotel in London. Some years ago they decided to reduce their marketing cost by marketing exclusively to US holidaymakers. This added focus to their marketing and to the way that they organised their hotel; menus and decor was designed to US tastes. They source all of their supplies locally and all of their revenue is in GBP. Which of the following describes the hotel s currency risk? (a) They have a transaction risk exposure to the USD (b) They have a translation exposure to the USD (c) They have an economic exposure to the USD and other currencies (d) They have no currency exposure because all of their cashflows are in their home currency The right answer is (c) they have an economic exposure to the USD and other currencies Even though the hotel has no foreign currency transactions it does have a risk exposure. US travellers choose London as a destination for many reasons. Some of those reasons will be very powerful, but few will overcome any price difference between GBP and other potential destinations. For instance, a variation in the GBP/EUR rate may make Rome or Dublin more or less attractive as destinations because the cost of the holiday may be lower than London. If the USD is particularly weak, then the number of US holidaymakers may decline as more people decide to stay at home rather than meet the extra cost of travelling abroad. The point here is that companies are exposed to currency risk if there are competitors or buyers or suppliers whose home currency is different to yours. There are very few businesses that do not fit that description; clearly Heartbreak Hotel is exposed. In fact it is hard to think of businesses without international competition. The term economic exposure describes a risk that is longer term and associated with the value of revenues in home currency or the ability to project current performance into profits/cashflows over the long term. Transaction risk is the short term equivalent; concerned with home currency values of known cashflows, typically those that have already been invoiced. Economic risk is concerned with uninvoiced flows that can be expected in future years. In the case of a hotel, if fewer tourists travel or if they travel elsewhere, then the hotel s performance will suffer. If travel decisions are swayed by currency rates, then this is a currency exposure for a hotel catering for foreign travellers. 5 Identifying critical risks Currency risks can be categorised into transactional, translational and economic currency risks. In a company or group where all of these exist it may be necessary to identify which one or ones are most critical and take steps to manage them even if some residual risks remain. Question 5

5 You are advising a UK-based hotel group whose activities are financed by equity and debt in the UK. It has a subsidiary in the UK which operates but does not own a large hotel in the UK. The group also owns a subsidiary in New York which operates and owns a large US hotel. As a result, the assets are heavily weighted towards the US by the US hotel. The earnings split is heavily weighted towards the UK because the US is operating on fine margins to build a market position. Any US earnings are likely to be re-invested into the hotel facilities for the next several years. As a relatively small group, you had to accept several covenants as part of a recent GBP loan agreement, including a gearing covenant. Which of the following best describes the currency risk to which the group is exposed? (a) Each of the subsidiaries is self contained so there is minimal currency risk (b) The main currency risk is translation risk, due to the gearing covenant (c) Translation risk is unimportant because it does not involve cash (d) Balance sheet risks don t matter because they only refer to year-end rates; they will swing back The right answer is (b) the main risk is translation risk, due to the gearing covenant The two subsidiaries are largely self-contained and, depending on the origin of hotel guests, the cashflows appear to be almost all internal to each territory. The exception might be the servicing of the GBP loan based on GBP and USD revenues. There is potential for a risk here, but it was not one of the alternatives. There is significant risk in the potential for gearing to change as the GBP/USD rate changes. If the balance sheet asset split is heavily weighted towards USD, then as the USD declines in value relative to GBP, the consolidated balance sheet will reflect the declining value of USD assets. The consolidated balance sheet total assets will decline at roughly the rate of the USD decline again, if the total assets are heavily weighted towards USD. In turn, if the total assets decline, then something must decline on the other side of the balance sheet and that will be shareholders funds. The net effect is that debt will remain constant (because it is in GBP) while equity shrinks, resulting in gearing increasing, and potentially breaching the covenant. Of course, the way around the problem is to put the debt into USD. Then the following year when USD regains all the ground lost the equity will be protected as total assets grow and all of the growth on the liability side of the consolidated balance sheet will concentrate onto... USD debt. The result again is that gearing increases! A careful splitting of the overall debt into a GBP proportion and a USD proportion can avoid the problem by ensuring that gearing can be protected but only if the problem is identified and understood beforehand. A translation risk could exist on the US earnings when they are consolidated back into sterling accounts, but we are told they are relatively low. Any cash flow remitting dividends back to the UK is another area of risk but for the moment cash is being reinvested in the US.

6 6 The Risk Framework The ACT has endorsed the concept of a risk framework as shown in the diagram below. This framework guides the process through from the initial identification of risk and the broad assessment of whether each risk can be categorised as on a scale such as life-threatening through to trivial, to the detailed evaluation of the more important risks and the decisions about how to manage and report risk. Perhaps the most important aspect of this framework, though, is the feedback loop that links from the end of the process back to the beginning. This link is vital for two reasons: first because the situation never remains the same, changes in the competitive environment or the economic environment affect the risks to which we are exposed. But secondly and more importantly, as soon as we respond in any way to a perceived risk, we change the net risk position. As a result we need to go back to the start to make sure that we understand the new situation. Question 6 We are expecting to need funds for a specific period of time next year. We are confident of our ability to borrow, but we do not know what the cost of that borrowing will be. As we operate on fine margins, we are concerned about the potential for interest rates to rise before we need to borrow. We are also very concerned about our key competitor who will also need to borrow next year, and we want to make sure that we do not pay more than them. Which of the following is FALSE? (a) Leaving the exposure open means we are exposed to rising rates (b) Leaving the exposure open while the competitor fixes means we are exposed to rising rates (c) Fixing the forward rate while the competitor leaves his exposure open, means that we lose out on falling rates (d) Fixing the forward rate means that we remove all risk The right answer is (d) fixing the forward rate means that we remove all risk

7 We correctly identified that our exposure to interest rates next year was a risk. However, responding to that risk changes the nature of our exposure. The only thing that is certain, in this case, is that nothing can remove all of the risk. What we should be trying to do, as risk managers, is to ensure that we understand the risks to which we are exposed and that we are comfortable with the potential outcomes.

foreign risk and its relevant to acca qualification paper F9

foreign risk and its relevant to acca qualification paper F9 01 technical foreign risk and its relevant to acca qualification paper F9 Increasingly, many businesses have dealings in foreign currencies and, unless exchange rates are fixed with respect to one another,

More information

Chapter 16: Financial Risk Management

Chapter 16: Financial Risk Management Chapter 16: Financial Risk Management Introduction Overview of Financial Risk Management in Treasury Interest Rate Risk Foreign Exchange (FX) Risk Commodity Price Risk Managing Financial Risk The Benefits

More information

ARE YOU TAKING THE WRONG FX RISK? Focusing on transaction risks may be a mistake. Structural and portfolio risks require more than hedging

ARE YOU TAKING THE WRONG FX RISK? Focusing on transaction risks may be a mistake. Structural and portfolio risks require more than hedging ARE YOU TAKING THE WRONG FX RISK? Focusing on transaction risks may be a mistake Structural and portfolio risks require more than hedging Companies need to understand not just correlate the relationship

More information

CPD Spotlight Quiz September 2012. Working Capital

CPD Spotlight Quiz September 2012. Working Capital CPD Spotlight Quiz September 2012 Working Capital 1 What is working capital? This is a topic that has been the subject of debate for many years and will, no doubt, continue to be so. One response to the

More information

Paper F9. Financial Management. Fundamentals Pilot Paper Skills module. The Association of Chartered Certified Accountants

Paper F9. Financial Management. Fundamentals Pilot Paper Skills module. The Association of Chartered Certified Accountants Fundamentals Pilot Paper Skills module Financial Management Time allowed Reading and planning: Writing: 15 minutes 3 hours ALL FOUR questions are compulsory and MUST be attempted. Do NOT open this paper

More information

FINANCIAL INFORMATION CONSOLIDATED FINANCIAL STATEMENTS. Risk management

FINANCIAL INFORMATION CONSOLIDATED FINANCIAL STATEMENTS. Risk management 167 Risk management Group risk management Group Risk Management supports the Board of Directors, the Executive Committee and the management teams of the Group companies in their strategic decisions. Group

More information

JUPITER DIVIDEND & GROWTH TRUST PLC MONTHLY FACT SHEET : 30-NOV-2015 TOTAL ASSETS 53,465,619

JUPITER DIVIDEND & GROWTH TRUST PLC MONTHLY FACT SHEET : 30-NOV-2015 TOTAL ASSETS 53,465,619 MONTHLY FACT SHEET : 30-NOV-2015 TOTAL ASSETS 53465619 Assets attributable to: Common shares * 10548403 Ordinary shares 850838 Zero Dividend Preference shares 42066378 SHARES Net Asset Value Market Price

More information

How credit analysts view and use the financial statements

How credit analysts view and use the financial statements How credit analysts view and use the financial statements Introduction Traditionally it is viewed that equity investment is high risk and bond investment low risk. Bondholders look at companies for creditworthiness,

More information

STATEMENT OF STANDARD ACCOUNTING PRACTICE FOREIGN CURRENCY TRANSLATION. (Issued April 1983)

STATEMENT OF STANDARD ACCOUNTING PRACTICE FOREIGN CURRENCY TRANSLATION. (Issued April 1983) Contents (Issued April 1983) Part 1 - Explanatory Note 1-32 Background 1 Objectives of translation 2 Procedures 3 The individual company stage 4-12 The consolidated financial statements stage 13-14 The

More information

CFS. Syllabus. Certified Finance Specialist. International benchmark in Finance profession

CFS. Syllabus. Certified Finance Specialist. International benchmark in Finance profession CFS Certified Finance Specialist Syllabus International benchmark in Finance profession Certified Finance Specialist Summary: This award will provide candidates the opportunity to gain advanced level knowledge

More information

Margin and Exposure 14878.0351 348939.487 34598.6325 66875.0449

Margin and Exposure 14878.0351 348939.487 34598.6325 66875.0449 14878.0351 348939.487 34598.6325 66875.0449 34838.0371 34898.5321 94898.6327 54798.0321 44898.0324 54695.3522 96898.0321 24848.6323 44898.0321 34898.0328 14878.0351 348939.487 34598.6325 66875.0449 34838.0371

More information

Coca-Cola Case Analyses. <Student Name> <Name and Section # of course> <Instructor Name> <Date>

Coca-Cola Case Analyses. <Student Name> <Name and Section # of course> <Instructor Name> <Date> Running Head: COCA-COLA CASE Coca-Cola Case Analyses Coca-Cola Case 2 Coca-Cola Case Analyses This paper is about the company Coca-Cola

More information

BUSM 411: Derivatives and Fixed Income

BUSM 411: Derivatives and Fixed Income BUSM 411: Derivatives and Fixed Income 2. Forwards, Options, and Hedging This lecture covers the basic derivatives contracts: forwards (and futures), and call and put options. These basic contracts are

More information

Business Studies - Financial Planning and Management Study Notes. Financial Planning and Management Study Notes:

Business Studies - Financial Planning and Management Study Notes. Financial Planning and Management Study Notes: Business Studies - Financial Planning and Management Study Notes Financial Planning and Management Study Notes: The Role of Financial Planning: The strategic role of financial management: Organisational

More information

Managing Interest Rate Exposure

Managing Interest Rate Exposure Managing Interest Rate Exposure Global Markets Contents Products to manage Interest Rate Exposure...1 Interest Rate Swap Product Overview...2 Interest Rate Cap Product Overview...8 Interest Rate Collar

More information

Corporate Risk Management Advisory Services FX and interest rate solutions for clients

Corporate Risk Management Advisory Services FX and interest rate solutions for clients Corporate Risk Management Advisory Services FX and interest rate solutions for clients Risk Management: The UBS Warburg approach UBS Warburg has built an outstanding reputation in the management of foreign

More information

Selecting sources of finance for business

Selecting sources of finance for business Selecting sources of finance for business by Steve Jay 08 Sep 2003 This article considers the practical issues facing a business when selecting appropriate sources of finance. It does not consider the

More information

Institute of Chartered Accountant Ghana (ICAG) Paper 2.4 Financial Management

Institute of Chartered Accountant Ghana (ICAG) Paper 2.4 Financial Management Institute of Chartered Accountant Ghana (ICAG) Paper 2.4 Financial Management Final Mock Exam 1 Marking scheme and suggested solutions DO NOT TURN THIS PAGE UNTIL YOU HAVE COMPLETED THE MOCK EXAM ii Financial

More information

CHAPTER 17. Financial Management

CHAPTER 17. Financial Management CHAPTER 17 Financial Management Chapter Summary: Key Concepts The Role of the Financial Manager Financial managers Risk-return trade-off Executives who develop and implement their firm s financial plan

More information

Diploma in Financial Management Examination Module B Paper DB1 incorporating subject areas: Financial Strategy; Risk Management

Diploma in Financial Management Examination Module B Paper DB1 incorporating subject areas: Financial Strategy; Risk Management Answers Diploma in Financial Management Examination Module B Paper DB1 incorporating subject areas: Financial Strategy; Risk Management June 2005 Answers 1 D Items 2, 3 and 4 are correct. Item 1 relates

More information

the use of comparisons in

the use of comparisons in 01 technical the use of comparisons in RELEVANT to ACCA QUAlification paper F8 In the Paper F8 exam you may be asked to compute and interpret the key ratios used in analytical procedures at both the audit

More information

Asian Journal of Empirical Research

Asian Journal of Empirical Research . Asian Journal of Empirical Research journal homepage: http://aessweb.com/journal-detail.php?id=5004 AN OVERVIEW OF FOREIGN CURRENCY EXPOSURE Peter HARRIS 1 Simran KAUR 2 ABSTRACT Foreign exchange exposure

More information

BITE-SIZED GUIDE. Buying Great Stocks Extra Cheap with Value Investing

BITE-SIZED GUIDE. Buying Great Stocks Extra Cheap with Value Investing BITE-SIZED GUIDE Buying Great Stocks Extra Cheap with Value Investing General Advice Warning: The ideas and information contained in this publication are for general information only. They do not take

More information

Interpretation of Accounts.

Interpretation of Accounts. Interpretation of Accounts. The Interpretation of Accounts (or Ratios ) question has appeared as question 5 on the Leaving Cert exam every year to date. It is a vital question to master and one that can

More information

Consolidated Interim Earnings Report

Consolidated Interim Earnings Report Consolidated Interim Earnings Report For the Six Months Ended 30th September, 2003 23th Octorber, 2003 Hitachi Capital Corporation These financial statements were prepared for the interim earnings release

More information

Triangular Arbitrage in Forex Market

Triangular Arbitrage in Forex Market Triangular Arbitrage in Forex Market What is Arbitrage? In the world of finance, arbitrage is the practice of taking advantage of a state of imbalance between two or more markets. A person who engages

More information

Advanced forms of currency swaps

Advanced forms of currency swaps Advanced forms of currency swaps Basis swaps Basis swaps involve swapping one floating index rate for another. Banks may need to use basis swaps to arrange a currency swap for the customers. Example A

More information

Performance Review for Electricity Now

Performance Review for Electricity Now Performance Review for Electricity Now For the period ending 03/31/2008 Provided By Mark Dashkewytch 780-963-5783 Report prepared for: Electricity Now Industry: 23821 - Electrical Contractors Revenue:

More information

Mutual Fund Investing Exam Study Guide

Mutual Fund Investing Exam Study Guide Mutual Fund Investing Exam Study Guide This document contains the questions that will be included in the final exam, in the order that they will be asked. When you have studied the course materials, reviewed

More information

FRC Risk Reporting Requirements Working Party Case Study (Hospitality Industry)

FRC Risk Reporting Requirements Working Party Case Study (Hospitality Industry) FRC Risk Reporting Requirements Working Party Case Study (Hospitality Industry) Table of Contents Executive Summary... 2 Background and Scope... 3 Company Background and Highlights... 3 Sample Risk Register

More information

1 (a) Calculation of net present value (NPV) Year 1 2 3 4 5 6 $000 $000 $000 $000 $000 $000 Sales revenue 1,600 1,600 1,600 1,600 1,600

1 (a) Calculation of net present value (NPV) Year 1 2 3 4 5 6 $000 $000 $000 $000 $000 $000 Sales revenue 1,600 1,600 1,600 1,600 1,600 Answers Fundamentals Level Skills Module, Paper F9 Financial Management December 2011 Answers 1 (a) Calculation of net present value (NPV) Year 1 2 3 4 5 6 $000 $000 $000 $000 $000 $000 Sales revenue 1,600

More information

Fundamentals Level Skills Module, Paper F9. Section A. Monetary value of return = $3 10 x 1 197 = $3 71 Current share price = $3 71 $0 21 = $3 50

Fundamentals Level Skills Module, Paper F9. Section A. Monetary value of return = $3 10 x 1 197 = $3 71 Current share price = $3 71 $0 21 = $3 50 Answers Fundamentals Level Skills Module, Paper F9 Financial Management December 2014 Answers Section A 1 A Monetary value of return = $3 10 x 1 197 = $3 71 Current share price = $3 71 $0 21 = $3 50 2

More information

for Analysing Listed Private Equity Companies

for Analysing Listed Private Equity Companies 8 Steps for Analysing Listed Private Equity Companies Important Notice This document is for information only and does not constitute a recommendation or solicitation to subscribe or purchase any products.

More information

Investing in unlisted property schemes?

Investing in unlisted property schemes? Investing in unlisted property schemes? Independent guide for investors about unlisted property schemes This guide is for you, whether you re an experienced investor or just starting out. Key tips from

More information

ACCOUNTING STANDARDS BOARD FINANCIAL CAPITAL MANAGEMENT DISCLOSURES

ACCOUNTING STANDARDS BOARD FINANCIAL CAPITAL MANAGEMENT DISCLOSURES ACCOUNTING STANDARDS BOARD FINANCIAL CAPITAL MANAGEMENT DISCLOSURES DECEMBER 2010 Contents Highlights One - Introduction 1 Two - Market feedback 2 Three - Business review disclosures 3 Four - IFRS disclosures

More information

Schroders Investment Trust ISA

Schroders Investment Trust ISA April 2016 Key Features of the Schroders Investment Trust ISA The Financial Conduct Authority is the independent financial services regulator. It requires us, Schroders, to give you this important information

More information

Fundamentals Level Skills Module, Paper F9

Fundamentals Level Skills Module, Paper F9 Answers Fundamentals Level Skills Module, Paper F9 Financial Management June 2008 Answers 1 (a) Calculation of weighted average cost of capital (WACC) Cost of equity Cost of equity using capital asset

More information

Cross Check. A Study of Qantas Financial Health. Almotairi Adhikari Saputro Vannadeth

Cross Check. A Study of Qantas Financial Health. Almotairi Adhikari Saputro Vannadeth Cross Check A Study of Qantas Financial Health Almotairi Adhikari Saputro Vannadeth 1 Financial Analysis of Qantas Airlines With Virgin Australia as benchmark (for the year 2011) Hamoud Almotairi Indra

More information

2. Financial management:

2. Financial management: 2. Financial management: Meaning, scope and role, a brief study of functional areas of financial management. Introduction to various FM tools: ratio analysis, fund flow statement, cash flow statement.

More information

Derivative Users Traders of derivatives can be categorized as hedgers, speculators, or arbitrageurs.

Derivative Users Traders of derivatives can be categorized as hedgers, speculators, or arbitrageurs. OPTIONS THEORY Introduction The Financial Manager must be knowledgeable about derivatives in order to manage the price risk inherent in financial transactions. Price risk refers to the possibility of loss

More information

Workbook 2 Overheads

Workbook 2 Overheads Contents Highlights... 2 Quick Practice Session on Overheads... 2 Financial Quiz 2 - Overheads... 3 Learning Zone Overheads... 3 Fixed and Variable costs and Break-even analysis explained... 3 Fixed Costs...

More information

AIFMD investor information document Temple Bar Investment Trust PLC

AIFMD investor information document Temple Bar Investment Trust PLC AIFMD investor information document Temple Bar Investment Trust PLC Temple Bar Investment Trust PLC (the Company ) was incorporated in 1926 with the registered number 214601. The Company carries on business

More information

Business-critical Insurance

Business-critical Insurance Business-critical Insurance Identifying those insurances that support the business and its strategy Guide 2015 Contents Introduction... 4 Categories of insurance... 5 Determining which insurance covers

More information

Hedges of a Net Investment in a Foreign Operation

Hedges of a Net Investment in a Foreign Operation ASI 15 Hedges of a Net Investment in a Foreign Operation 1 CONTENTS ASI 15 HEDGES OF A NET INVESTMENT IN A FOREIGN OPERATION REFERENCES paragraphs BACKGROUND 1 6 SCOPE 7 8 ISSUES 9 CONSENSUS 10 17 Nature

More information

An Introduction to the Impact of Mark to Market Accounting on MBIA and Financial Guarantors

An Introduction to the Impact of Mark to Market Accounting on MBIA and Financial Guarantors An Introduction to the Impact of Mark to Market Accounting on MBIA and Financial Guarantors MBIA provides credit protection on municipal, essential asset and securitized financings, and the terms and conditions

More information

GUIDANCE NOTE FOR DEPOSIT TAKERS. Foreign Exchange Risk Management. May 2009 (updated March 2011 and January 2012)

GUIDANCE NOTE FOR DEPOSIT TAKERS. Foreign Exchange Risk Management. May 2009 (updated March 2011 and January 2012) GUIDANCE NOTE FOR DEPOSIT TAKERS Foreign Exchange Risk Management May 2009 (updated March 2011 and January 2012) Version 1.2 Contents Page No. Part 1 Deposit takers incorporated in the Isle of Man 1 Rationale

More information

A guide to CFDs. Contracts for difference. For more information please contact us on 0117 988 9915 or visit our website www.hlmarkets.co.

A guide to CFDs. Contracts for difference. For more information please contact us on 0117 988 9915 or visit our website www.hlmarkets.co. A guide to CFDs Contracts for difference For more information please contact us on 0117 988 9915 or visit our website www.hlmarkets.co.uk One College Square South, Anchor Road, Bristol, BS1 5HL www.hl.co.uk

More information

IFRIC Interpretation 16 Hedges of a Net Investment in a Foreign Operation

IFRIC Interpretation 16 Hedges of a Net Investment in a Foreign Operation IFRIC Interpretation 16 Hedges of a Net Investment in a Foreign Operation References IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 21 The Effects of Changes in Foreign Exchange

More information

Guide to Investment Risk

Guide to Investment Risk Guide to Investment Risk What is risk? Risk is another word for uncertainty. While all investments carry an element of risk, the amount of risk you take directly affects any potential returns and losses.

More information

Financial Statement Analysis Paper

Financial Statement Analysis Paper Financial Statement Analysis Paper Example 1: Dell Computer Dell Inc. Current Year Prior Year Income Statement 3 Years Ago $ Percent $ Percent $ Percent Revenue 61,494 100.0% 52,902 100.0% 61,101 100.0%

More information

Chapter 6 The cash flow statement

Chapter 6 The cash flow statement Chapter 6 The cash flow statement The last four chapters have been spent looking at the balance sheet and income statement and how to use them. In this chapter, we will move on to arguably the most revealing

More information

RELEVANT TO ACCA QUALIFICATION PAPER F9

RELEVANT TO ACCA QUALIFICATION PAPER F9 RELEVANT TO ACCA QUALIFICATION PAPER F9 Analysing the suitability of financing alternatives The requirement to analyse suitable financing alternatives for a company has been common in Paper F9 over the

More information

A new landmark in trading

A new landmark in trading A new landmark in trading DERIVATIVES MARKET Equity Derivatives Dividend Futures www.jse.co.za Johannesburg Stock Exchange The JSE in collaboration with Deutsche Bank and Investec Capital Markets is launching

More information

Examiner s report F9 Financial Management June 2013

Examiner s report F9 Financial Management June 2013 Examiner s report F9 Financial Management June 2013 General Comments The examination consisted of four compulsory questions, each worth 25 marks. Most candidates attempted all four questions and there

More information

BAE SYSTEMS PENSIONS BECAUSE PLANNING IS PART OF THE JOURNEY RETIREMENT ACCOUNT GUIDE LEVEL 100+ MARCH 2015

BAE SYSTEMS PENSIONS BECAUSE PLANNING IS PART OF THE JOURNEY RETIREMENT ACCOUNT GUIDE LEVEL 100+ MARCH 2015 BAE SYSTEMS PENSIONS BECAUSE PLANNING IS PART OF THE JOURNEY RETIREMENT ACCOUNT GUIDE LEVEL 100+ MARCH 2015 CONTENTS Where your Scheme benefits come from 4 Your choices affect your retirement account 5

More information

ASSET LIABILITY MANAGEMENT Significance and Basic Methods. Dr Philip Symes. Philip Symes, 2006

ASSET LIABILITY MANAGEMENT Significance and Basic Methods. Dr Philip Symes. Philip Symes, 2006 1 ASSET LIABILITY MANAGEMENT Significance and Basic Methods Dr Philip Symes Introduction 2 Asset liability management (ALM) is the management of financial assets by a company to make returns. ALM is necessary

More information

THE POWER OF FOREX OPTIONS

THE POWER OF FOREX OPTIONS THE POWER OF FOREX OPTIONS TOPICS COVERED Option basics Call options Put Options Why trade options? Covered call Covered put Hedging your position using options How to repair a trading position THE POWER

More information

Powerful tools for investing, speculating or hedging

Powerful tools for investing, speculating or hedging Powerful tools for investing, speculating or hedging DERIVATIVE MARKET Equity Derivatives Single Stock Futures www.jse.co.za Johannesburg Stock Exchange Single Stock Futures are powerful tools for investing,

More information

ACER INCORPORATED AND SUBSIDIARIES. Consolidated Balance Sheets

ACER INCORPORATED AND SUBSIDIARIES. Consolidated Balance Sheets Consolidated Balance Sheets June 30, 2015, December 31, 2014, and (June 30, 2015 and 2014 are reviewed, not audited) Assets 2015.6.30 2014.12.31 2014.6.30 Current assets: Cash and cash equivalents $ 36,400,657

More information

Chapter 3 How to analyse a balance sheet

Chapter 3 How to analyse a balance sheet Chapter 3 How to analyse a balance sheet In the previous chapter we looked at how a balance sheet was put together and the numbers that go into it. In this chapter, we are going to take all those numbers

More information

INVESTING RISK EQUITIES BONDS PROPERTY INCOME SPIN-FREE GUIDE TO

INVESTING RISK EQUITIES BONDS PROPERTY INCOME SPIN-FREE GUIDE TO INVESTING RISK EQUITIES BONDS PROPERTY INCOME SPIN-FREE GUIDE TO INVESTING Contents Helping you reach your financial goals 3 Introducing the different types of investments 4 Where could you invest? 4 Where

More information

CGWM Bond Fund. Supplement dated 11 November 2014 to the Prospectus dated 11 November 2014. Investment Objective. Investment Policy.

CGWM Bond Fund. Supplement dated 11 November 2014 to the Prospectus dated 11 November 2014. Investment Objective. Investment Policy. CGWM Bond Fund To us there are no foreign markets. TM Supplement dated 11 November 2014 to the Prospectus dated 11 November 2014 This Supplement contains specific information in relation to the CGWM Bond

More information

Trading Costs and Taxes!

Trading Costs and Taxes! Trading Costs and Taxes! Aswath Damodaran Aswath Damodaran! 1! The Components of Trading Costs! Brokerage Cost: This is the most explicit of the costs that any investor pays but it is usually the smallest

More information

Notes to the consolidated financial statements continued

Notes to the consolidated financial statements continued 144 www.ocadogroup.com Stock Code: OCDO to the consolidated financial statements continued 4.5 instruments Accounting policies assets and financial liabilities are recognised on the balance sheet when

More information

Investment Bond. Funds key features. This is an important document. Please keep it safe for future reference.

Investment Bond. Funds key features. This is an important document. Please keep it safe for future reference. Investment Bond Funds key features. This is an important document. Please keep it safe for future reference. 2 WHAT ARE THE FUNDS KEY FEATURES? This document is part of the information we provide you to

More information

MLC MasterKey Unit Trust Product Disclosure Statement (PDS)

MLC MasterKey Unit Trust Product Disclosure Statement (PDS) MLC MasterKey Unit Trust Product Disclosure Statement (PDS) Preparation date 1 July 2014 Issued by MLC Investments Limited (MLC) ABN 30 002 641 661 AFSL 230705 This information is general and doesn t take

More information

Reading: Chapter 19. 7. Swaps

Reading: Chapter 19. 7. Swaps Reading: Chapter 19 Chap. 19. Commodities and Financial Futures 1. The mechanics of investing in futures 2. Leverage 3. Hedging 4. The selection of commodity futures contracts 5. The pricing of futures

More information

Accounting Standard for Business Enterprises No. 33 - Consolidated financial statements Caikuai [2006] No.3

Accounting Standard for Business Enterprises No. 33 - Consolidated financial statements Caikuai [2006] No.3 Accounting Standard for Business Enterprises No. 33 - Consolidated financial statements Caikuai [2006] No.3 Chapter I General Provisions Article 1: These Standards are formulated in accordance with the

More information

Understanding Leverage in Closed-End Funds

Understanding Leverage in Closed-End Funds Closed-End Funds Understanding Leverage in Closed-End Funds The concept of leverage seems simple: borrowing money at a low cost and using it to seek higher returns on an investment. Leverage as it applies

More information

The Association of Corporate Treasurers (ACT) IAS 39 implementation experiences reported by members

The Association of Corporate Treasurers (ACT) IAS 39 implementation experiences reported by members The Association of Corporate Treasurers (ACT) IAS 39 implementation experiences reported by members A background paper for IASB Financial Instruments Working Group July 2005 In order to assist the IASB

More information

Question 1. Marking scheme. F9 ACCA June 2013 Exam: BPP Answers

Question 1. Marking scheme. F9 ACCA June 2013 Exam: BPP Answers Question 1 Text references. NPV is covered in Chapter 8 and real or nominal terms in Chapter 9. Financial objectives are covered in Chapter 1. Top tips. Part (b) requires you to explain the different approaches.

More information

Why Do Farmers / Clubs / Firms / Anyone Prepare Accounts? To calculate profit. To assess the effectiveness of different parts of the organisation.

Why Do Farmers / Clubs / Firms / Anyone Prepare Accounts? To calculate profit. To assess the effectiveness of different parts of the organisation. Accounting Theory. In recent years the amount of theory being asked on the Leaving Certificate paper has steadily increased. This is a trend that is likely to continue. Below is an outline of the likely

More information

APPENDIX 4E ANNUAL REPORT THORN GROUP LIMITED ACN 072 507 147 YEAR ENDED 31 MARCH 2015. Page 1 of 7

APPENDIX 4E ANNUAL REPORT THORN GROUP LIMITED ACN 072 507 147 YEAR ENDED 31 MARCH 2015. Page 1 of 7 APPENDIX 4E ANNUAL REPORT THORN GROUP LIMITED ACN 072 507 147 YEAR ENDED 31 MARCH 2015 1 Details of the reporting period and the previous corresponding period Current period: 1 April 2014 to 31 March 2015

More information

CHAPTER 22 Options and Corporate Finance

CHAPTER 22 Options and Corporate Finance CHAPTER 22 Options and Corporate Finance Multiple Choice Questions: I. DEFINITIONS OPTIONS a 1. A financial contract that gives its owner the right, but not the obligation, to buy or sell a specified asset

More information

Solutions for End-of-Chapter Questions and Problems

Solutions for End-of-Chapter Questions and Problems Chapter Seven Risks of Financial Institutions Solutions for End-of-Chapter Questions and Problems 1. What is the process of asset transformation performed by a financial institution? Why does this process

More information

International Finance and Hedging Currency Risk. John Board

International Finance and Hedging Currency Risk. John Board International Finance and Hedging Currency Risk John Board Country Risk Country Risk The risk that the business environment in the host country changes unexpectedly Increases the risk to multinational

More information

Market Risk for Single Trading Positions

Market Risk for Single Trading Positions Chapter 6 Market Risk for Single Trading Positions Market risk is the risk that the market value of trading positions will be adversely influenced by changes in prices and/or interest rates. For banks,

More information

Three Investment Risks

Three Investment Risks Three Investment Risks Just ask yourself, which of the following risks is the most important risk to you. Then, which order would you place them in terms of importance. A. A significant and prolonged fall

More information

A primer on hedge ineffectiveness. Australia and New Zealand Banking Group Limited

A primer on hedge ineffectiveness. Australia and New Zealand Banking Group Limited A primer on hedge ineffectiveness Australia and New Zealand Banking Group Limited 1 AASB 139- the basic accounting mismatch An accounting mismatch arises where derivatives are used: to hedge financial

More information

Money Market Funds Helping Businesses Manage Cash Flow

Money Market Funds Helping Businesses Manage Cash Flow Money Market Funds Helping Businesses Manage Cash Flow Since its inception, the U.S. Chamber s Center for Capital Markets Competitiveness (CCMC) has led a bipartisan effort to modernize and strengthen

More information

CIMA Managerial Level Paper F2 FINANCIAL MANAGEMENT (REVISION SUMMARIES)

CIMA Managerial Level Paper F2 FINANCIAL MANAGEMENT (REVISION SUMMARIES) CIMA Managerial Level Paper F2 FINANCIAL MANAGEMENT (REVISION SUMMARIES) Chapter Title Page number 1 The regulatory framework 3 2 What is a group 9 3 Group accounts the statement of financial position

More information

A guide to managing foreign exchange risk

A guide to managing foreign exchange risk A guide to managing foreign exchange risk CPA Australia Ltd ( CPA Australia ) is one of the world s largest accounting bodies with more than 122,000 members of the financial, accounting and business profession

More information

Supporting your foreign exchange needs. Search

Supporting your foreign exchange needs. Search Supporting your foreign exchange needs Understanding Foreign Exchange (FX) risk Trading internationally offers UK businesses the opportunity to buy and sell goods and services in a much larger marketplace.

More information

Planning your cash flow

Planning your cash flow 5 Planning your cash flow PROFITS ARE NOT CASH 80 OPERATING CYCLE 81 CASH FLOW BUDGETING 82 TRADE DEBTORS 87 TRADING STOCK 89 OVERCOMING CASH FLOW PROBLEMS 91 MINIMUM CASH RESERVE 92 If the cash flowing

More information

Measuring Lending Profitability at the Loan Level: An Introduction

Measuring Lending Profitability at the Loan Level: An Introduction FINANCIAL P E RF O R MA N C E Measuring Lending Profitability at the Loan Level: An Introduction sales@profitstars.com 877.827.7101 How much am I making on this deal? has been a fundamental question posed

More information

Aalberts Industries increases earnings per share +10%

Aalberts Industries increases earnings per share +10% Aalberts Industries increases earnings per share +10% Langbroek, 26 February 2015 Highlights o Revenue EUR 2,201 million, increase +8% (organic +3.1%) o Operating profit (EBITA) +10% to EUR 247 million;

More information

VASSETI (UK) PLC CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2013

VASSETI (UK) PLC CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2013 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2013 INTERIM MANAGEMENT REPORT (UNAUDITED) FOR THE 6 MONTHS ENDED 30 JUNE 2013 1. Key Risks and uncertainties Risks and uncertainties

More information

Hedges of a Net Investment in a Foreign Operation

Hedges of a Net Investment in a Foreign Operation IFRIC Interpretation 16 Hedges of a Net Investment in a Foreign Operation IFRIC 16 Hedges of a Net Investment in a Foreign Operation was developed by the International Financial Reporting Interpretations

More information

Asset allocation A key component of a successful investment strategy

Asset allocation A key component of a successful investment strategy Asset allocation A key component of a successful investment strategy This guide has been produced for educational purposes only and should not be regarded as a substitute for investment advice. Vanguard

More information

Investing in mortgage schemes?

Investing in mortgage schemes? Investing in mortgage schemes? Independent guide for investors about unlisted mortgage schemes This guide is for you, whether you re an experienced investor or just starting out. Key tips from ASIC about

More information

An overview of FX Exposure Risk: Assessment and Management

An overview of FX Exposure Risk: Assessment and Management An overview of FX Exposure Risk: Assessment and Management June 2015 1. Introduction This report presents an overview of various types of foreign currency exposure, their impact on the financial statements,

More information

Brain J. Dunn, CEO Richfield, Minnesota U.S Latest fiscal year: 2010 Best Buy is an American retailer that sells a wide variety of electronic

Brain J. Dunn, CEO Richfield, Minnesota U.S Latest fiscal year: 2010 Best Buy is an American retailer that sells a wide variety of electronic Current Shareholders in Best Buy should hold their stock until price increases, and new investors should not invest if looking for fast money, Best Buy s stock may not more until more economic growth occurs.

More information

Risk management and sensitivities

Risk management and sensitivities 8% Russia DISTRIBUTION OF OPERATING REVENUES 58% North Sea 34% Gulf of Mexico Risk management and sensitivities Prosafe operates on several continents and in various 11% unsecured debt segments of the

More information

Good for business: get your forex transactions on track

Good for business: get your forex transactions on track Companies Foreign currencies Good for business: get your forex transactions on track Do you want to hedge foreign currency risks or invest in forex? A bank that takes your needs into account and provides

More information

Investing in community shares

Investing in community shares Investing in community shares Investing in community shares Introduction Give, lend or invest? Have you been invited to buy shares in a community enterprise? Then you are not alone. You are one of thousands

More information

ICAP GROUP S.A. FINANCIAL RATIOS EXPLANATION

ICAP GROUP S.A. FINANCIAL RATIOS EXPLANATION ICAP GROUP S.A. FINANCIAL RATIOS EXPLANATION OCTOBER 2006 Table of Contents 1. INTRODUCTION... 3 2. FINANCIAL RATIOS FOR COMPANIES (INDUSTRY - COMMERCE - SERVICES) 4 2.1 Profitability Ratios...4 2.2 Viability

More information

Acal plc. Accounting policies March 2006

Acal plc. Accounting policies March 2006 Acal plc Accounting policies March 2006 Basis of preparation The consolidated financial statements of Acal plc and all its subsidiaries have been prepared in accordance with International Financial Reporting

More information

Note 24 Financial Risk Management

Note 24 Financial Risk Management Note Financial Risk Management Risk management principles and process Stora Enso is exposed to several financial market risks that the Group is responsible for managing under policies approved by the Board

More information

Macquarie Prime Loan Facility

Macquarie Prime Loan Facility Macquarie Prime Loan Facility Product Disclosure Statement Contents Section 1 - About Macquarie Bank Limited and the Macquarie Prime Loan Facility 1 Section 2 - Benefits of a Macquarie Prime Loan Facility

More information