Description

This EMA should be submitted by the cut-off date shown in Week 19 of the study planner.

The EMA contributes 50% towards the total marks available for the assessment for BB841.

The EMA asks questions relating to the subject matter covered in Weeks 12 to 16 of the study planner. This includes Book 3 (Sections 8–12) and Book 4.

The guideline maximum word count for this EMA, as a whole, is 3000 words.

Please note that if the EMA guideline word limit is exceeded by more than 10%, any content over 3300 words is awarded no marks and any feedback is provided at the discretion of the tutor. Failure to indicate, or to indicate correctly, the overall word count (and the point at which 3300 words is reached if the guideline word limit is exceeded) will be penalised by the deduction of up to 5% (5 marks) from the total score awarded. Refer to Word count in the MBA Qualification Guide.

Question A

35 marks

1.     Consumer goods retailer Rapid Trading Ltd sells a nine-month (270 days) forward rate agreement (FRA) to its bank, BetaBank plc, with a notional principal of €50 million at a contract rate of 3.2% p.a.

Calculate who pays what amount to whom if:

·         the nine-month Euribor on the settlement day is 2.75% p.a.

·         the nine-month Euribor on the settlement day is 3.75% p.a.

(10 marks)

2.    Rapid Trading and Floyd Bank plc enter into a four-year interest rate swap with a notional principal of £20 million and the following terms: every year for the next two years, Rapid Trading agrees to pay Floyd Bank 4.3% p.a. and receive from Floyd Bank 12-month LIBOR.

·         Using the information below about 12-month LIBOR at the end of each year, determine the cash flows in the swap (i.e. the amount of each cash flow and the direction of the payments).

(15 marks)

3.    For what purposes might Rapid Trading have entered into the swap in part 2? You may assume that Rapid Trading does not enter into swap transactions for speculative purposes.

(10 marks)

Question B

30 marks

MJ & Brothers Plc is a manufacturing company based in the UK and is negotiating a long-term supply contract with two customers:

1.    Sue Ellen Foods Inc. is an American company that mainly trades in the domestic market and has bonds traded on the NYSE.

2.    Kefipe Ltd is a large multinational British private limited company that trades with many countries.

Explain the different methods MJ & Brothers could asses the credit quality and manage credit exposures to both companies.

Question C

35 marks

Using the 2018 annual report of Imperial Brands, review the sections that focus on risk management and that describe its overall risk management process.

Critically evaluate whether Imperial Brands applies ‘Enterprise Risk Management’ (ERM). Critically assess the strengths and weaknesses of Imperial Brands’ risk management processes?