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Avoid the Hustle

INTERNATIONAL FINANCIAL MANAGEMENT

Category: Management

INTERNATIONAL FINANCIAL MANAGEMENT

Paper details

Assessment International Financial Management
Mr Smalltalk the Director of Wundermunder plc has just returned from a presentation by his
bank on how they might improve their financial management
You are required to critically evaluate each of the following concerns separately:
a. Mr Smalltalk calls you in and shows you this:
He remarks: “Our bank showed me this and said that it would be a costless way of
protecting against variation in the dollar. As you know we do a lot of buying and
selling in dollars and we can get caught out by quite small changes in value – our
margins are small. Anyway this just looks like the London Underground map to me,
so would you please explain it to me and comment on whether you think this would
be a good form of protection”
(34 marks)
b. Mr Smalltalk continued: “The bank also talked about swaps and gave this as
an illustration:
Borrowing rates UK US
Example plc 13% 11%
Wundermunder plc 7% 9%
He then explained that by engaging in a swap arrangement with Example plc (which
wants to borrow in GBPs) we could lower our interest rate expense in dollars and
Example plc would also benefit. Firstly, I did not understand how and I would like
you to explain. Secondly, we worked hard to get the lowest rates we could, how is it
that we can get an even lower rate without proving that we are an even lower risk
than the market thinks?
(33 marks)
c. The third way the bank thought we could improve our financial management was to
use Futures. This I simply did not understand, we commit ourselves to buying
currencies and commodities in the future but never actually receive anything AND we
have to make daily payments or receipts. Can you explain all this please AND evaluate
any long term benefits?
(33 marks)
Notes:
a. You are required to use the lecture slides as the basis or your response, any
further reading etc must only be additional to the slides.
b. You may use material from the whole of the module to answer the question.
c. The wordcount is 3,000. A 10% margin (300 words) is allowed to cover for
references, titles etc and anything that might not be considered content. If you
are over this absolute limit of 3,300 then reading of the main text will stop short
by the overage. This typically means that the conclusion of the final element will not
be read and marks deducted for not having a conclusion within the wordcount.
The paper should include a cover page table of contents, numbered pages and a list of
references. The body text should be fully referenced (Harvard Referencing System), with clear
introduction, discussion and conclusion sections.
Try to structure your paragraphs so that the first sentence introduces the theme or concept
discussed in the paragraph, and the paragraphs themselves should be grouped in such a way that
your “story” flows in a structured, balanced and comprehensible way.