report is to check the hedging strategy that was used and lead to the huge loss of CITIC Pacific Limited and point out the importance of managing foreign exchange exposure through select appropriate hedging strategies. The huge loss of CITIC Pacific Limited and its cause is discussed in the first part. The importance of hedging and the tools of hedging are respectively reviewed in part two and part three. Finally‚ suggestions are given out on how to design proper hedging strategies for different enterprises
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EXPLAIN THE CONCEPT OF THE TERM STRUCTURE OF INTEREST? WHAT INFLUENCE DOES THE BANK OF ENGLAND HAVE OVER THE TERM STRUCTURE AND WHY IS IT IMPORTANT FOR MONETARY POLICY To understand the term structure of interest rate we need to elaborate how interest rates function and how they are determined. Interest rates are a vital tool to all the macro-economic policy objectives of a government such as control of inflation‚ investment as well as employment. Interest rates refer to the price paid by deficit agents
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Chapter 5 : Interet rates Page161 Interest rate quotes and adjustments 5-1. Your bank is offering you an account that will pay 20% interest in total for a two-year deposit. Determine the equivalent discount rate for a period length of a. Six months. b. One year. c. One month. a. Since 6 months is [pic] of 2 years‚ using our rule [pic] So the equivalent 6 month rate is 4.66%. b. Since one year is half of 2 years [pic] So the equivalent 1 year rate is 9.54%. c. Since
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CHAPTER 6 INTEREST RATES AND BOND VALUATION L E A R N I N G LG1 Describe interest rate fundamentals‚ the term structure of interest rates‚ and risk premiums. LG2 Review the legal aspects of bond financing and bond cost. LG3 LG4 Discuss the general features‚ quotations‚ ratings‚ popular types‚ and international issues of corporate bonds. LG5 LG6 G O A L S Apply the basic valuation model to bonds and describe the impact of required return and time to maturity
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Interest rate is the rate paid by the debtor for using the money of creditor (http://www.investorwords.com/2539/interest_rate.html 1.12.2011.). Normally‚ the interest rate charged by percentage of the money borrowed for a period of one year. For example‚ debtor borrowed £100 from the bank for one year; the interest rate of that year is 10%‚ then the debtor has to pay £110 to the bank after one year for using their money‚ the extra £10 is the interest. Moreover‚ the interest rate played an important
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What is the rule of 72? Well… here’s the equation: Years to double = 72 / Interest rate DO NOT reread this equation. The rule of 72 is a hard rule to explain. I will do my best to try to explain it. The answer to ‘rule of 72’ gives us a number of years. This number of years tells us how long it takes to double our money. Let’s say you have 100 dollar. The ‘rule of 72’ helps us figure out how long it will take to have 200 dollars. Scenario 1: You have invested your 100 dollars in a 3%
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Derivatives and Hedging Assignment: Hedging Strategy comprised of GM stock and 3.5% is comprised of Ford stock. Assume that GM and Ford are the only automobile industry holdings in the portfolio. Assume that you are bearish on the automobile industry over the next six months and neutral to bullish on all other industries. Utilizing derivatives create a hedging strategy to protect the portfolio over the next six months from your bearish automobile industry outlook. Risk management is defined
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FX Hedging:10 Common Pitfalls A Structured Approach to Financial Risk Management Executive Summary 1 Unclear Risk Management Objectives 3 Absence of Appropriate Performance Benchmarks The design and implementation of an effective FX risk management In order to design an effective FX hedging strategy‚ it is With almost any business activity‚ performance necessary to know exactly what the strategy is intended measurement is essential to determine the effectiveness to
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Term Structure of Interest Rate. Candidate number 25909 Section 2 In this section‚ I will introduce some essential components about term structure‚ explain the IS/LM model to reveal the relation between term structure and GDP growth and lastly bring in some empirical evidence to support this relation. 2.1 Some basic terminologies and equations Bond‚ being one of the most popular financial products‚ is one example of firm’s and nation’s lending and borrowing. There are two ways a bond delivers
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Understanding the Term Structure of Interest Rates Prepared for Fundamentals of Financial Management Distributed October 24‚ 2005 TABLE OF CONTENTS List of Figures....................... ....................................... .....................iii List of Abbreviations and Symbols............................. ..........................iv Summary.............................................
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