FIN30014 Financial Risk Management
Group Assignment – Semester 2, 2022
Assessment Mark: 25%
(Assignment will be marked out of 100% and converted to a mark out of 25%)
Background
Amazon.com (NASDAQ: AMZN) is an American multinational technology company which focuses on
e-commerce, cloud computing, digital streaming, and artificial intelligence.
Source: Amazon.com.
Assume Amazon has the following revenue, investment and financing schedule.
Required:
Assume that you are a recently appointed hedge strategist for Amazon.com and that you have been
requested to prepare a report on your recommendations of hedging strategies considering the current
circumstances, for presentation to the board of directors at its next board meeting. You have been
specifically requested to address the following issues:
Underlying Exposure Beta Representative
Index/underlying
Foreign Revenue
Germany € 37.3 million
United Kingdom £ 37.9 million
Investment
Sustainable Equities portfolio US$22, 550,000 0.75 S & P 500 ESG
Financing
2 – year variable rate loan (3-
month LIBOR + 0.5% – next
payment is due in 6 months’
time
US$ 32,400,000 Eurodollars
FIN30014 Financial Risk Management Sem 2, 2022
2
Section I (30%)
(a) To identify the specific financial risk exposures faced by Amazon, given the above schedule
(please limit the financial risks to what is taught in this unit). In this section, you MUST discuss
the outlook (forecast) over the hedging horizon, for each underlying variable and identify whether
it will present a risk to the firm. You need to provide adequate evidence to support the justification
for your responses. (15%).
(b) Make firm recommendations on whether to hedge all, part or none of the financial risks that you
identified in part (a) above. You MUST provide explanations for each of your recommendations.
(i.e. the reasons for suggesting this strategy. (You are not required to specify the type of derivative
to be used to hedge in response to this question). (15%)
Section II (30%)
(c) To make recommendations on which derivative instruments (for example, options, futures, etc.)
to use to implement any hedges that you have recommended in part (b) above. Once again, you
MUST explain your recommendations (i.e. justify the choice of the derivative instrument). This
means that you will need to provide very well-researched and fully explained reasons for your
responses to parts (a & b). (15%)
(d) Irrespective of your recommendations above, propose ONE option combination strategy that involves
more than one option contract, to hedge the interest rate risk in the US$ 32,400,000 of variable
rate debt, where the next payment is due in 6 months’ time. Amazon’s management has expressed
a desire to retain some of the upside benefits that hedging with options can permit but without
paying a lot of money in option premiums. That is, your recommended strategies should provide
a “reasonably effective” hedge but keep the option premium payment limited to a “reasonable
amount” (it does not have to be zero!). As the strategist, it is up to you what you consider
“reasonable” for this purpose. You must also describe the benefits and possible shortcomings of
your proposed option strategies. You must use actual option data to illustrate your option
strategies.
Calculate the number of contracts required for the strategy and provide the strike prices and
total premium costs. Please provide screenshots of premiums and strike prices on the day that
you have obtained the data from CME. (15%)
Section III (20%)
(e) Complete all the activities related to the CME trading simulation. Please refer to guidelines in the
“Trading simulation activity on CME platform” document and relevant activities in the canvas
modules folder for more details.
Breakdown of assignment marks – Refer assignment rubric on pages 4 – 5
Content (Relates to sections I- III including recommendations) =
(30 + 30 + 20 = 80%)
Sources and evidence = 10%
Structure, presentation and attention to detail = 5%
Grammar and expression = 5%
Total = 100%
FIN30014 Financial Risk Management Sem 2, 2022
3
Word Limit – 3500 words +/- 10%, excluding executive summary, table of contents, references,
and appendices. Exceeding this word limit will carry penalties.
FIN30014 Financial Risk Management Sem 2, 2022
4
Marking Rubric – FIN30014 Group Assignment (100%)
Performance
Indicators
CRITERIA
EXCEEDS STANDARD MEETS STANDARD YET TO ACHIEVE
MINIMUM STANDARD
High Distinction (HD)/80-
100
Excellent/exemplary/exceed
ing high standard
Distinction (D)/ 70-79
Very good/ exceeds
expectations
Credit (C)/60-69
Good/Well done
Pass (P)/ 50-59
Acceptable/Satisfactory/
Proficient
Fail (N) /0-49
Poor/unacceptable/Not
attempted/requires further
development/needs
improvement
Outstanding, insightful work.
Goes beyond requirements
of the task to develop a
response, which is
thoughtful, reflective,
considers alternative views,
and makes connections
among ideas and information
from different sources or
different aspects of the
course.
Very good work.
Purposefully and logically
developed. Thoroughly
addresses all aspects of the
task. Synthesis of details and
concepts from various
sources or topics shows
evidence of sound
understanding and
thoughtful examination.
Good work. Generally clear,
accurate, and relevant.
Adequately addresses all
requirements of the task.
Demonstrates understanding
of course concepts, with
evidence of some thoughtful
examination and reflection.
Development is generally
logical, facts generally
correct. Tends to focus on
one interpretation.
Satisfactory work. Shows
basic understanding of
concepts with minimal
evidence of reflection or
thoughtful analysis.
Complies with the basic
requirements, relies on
limited sources of
information, little integration
of concepts.
Unsatisfactory work. Fails to
address the topic in a
meaningful way. May be
extremely brief, inaccurate,
illogical, or undeveloped.
Content – Section I –(a)
(15%)
Demonstrates skillful and
effective research using highquality and relevant sources
to support ideas and has
presented an excellent
systematic review and critical
analysis of risk exposure.
Demonstrates effective and
consistent use of credible,
and relevant sources in the
research and presents a good
systematic review and critical
analysis of risk exposure.
Demonstrates effective
research using appropriate
and relevant sources to
support ideas and has
presented a somewhat
systematic review and critical
analysis of risk exposure.
Demonstrates some attempt
of research and systematic
review but no critical analysis
of ideas in assessing risk.
Demonstrates little or no
attempt of research to
systematically review and
critically analyse ideas in
analysing risk.
Content – Section I –(b)
(15%)
Uses well-considered,
relevant, and compelling
supporting evidence to
illustrate mastery of the
assessment topic, conveying
the writer’s understanding, in
recommending well thought
through hedging decisions.
Uses appropriate, relevant,
and compelling supporting
evidence to explore ideas and
make well-considered
hedging recommendations.
Uses appropriate and
relevant supporting evidence
to develop somewhat wellconsidered hedging
recommendations.
Uses appropriate and
relevant supporting evidence
to develop simple hedging
recommendations, however,
recommendations are not
well considered.
Uses inappropriate and/or
irrelevant content to develop
ideas to arrive at hedging
recommendations.
Content – Section II – (c)
(15%)
Uses well-considered,
relevant, and compelling
supporting evidence to
illustrate mastery of the
assessment topic, conveying
the writer’s understanding, in
recommending well thought
through hedging strategies.
Uses appropriate, relevant,
and compelling supporting
evidence to explore ideas and
make well-considered
hedging decisions.
Uses appropriate and
relevant supporting evidence
to develop somewhat wellconsidered hedging
strategies.
Uses appropriate and
relevant supporting evidence
to develop simple hedging
recommendations, however,
hedging strategies are not
well considered.
Uses inappropriate and/or
irrelevant content to develop
ideas to construct hedging
strategies.
FIN30014 Financial Risk Management Sem 2, 2022
5
Content – Section II – (d)
(15%)
Uses appropriate, relevant,
and compelling content to
illustrate mastery of the
content, conveying the
understanding with correct
calculations, and shaping the
answer with correct
information.
Uses appropriate, relevant,
and compelling disciplinerelated content to explore
ideas and shape the content
of the table with correct
information.
Uses appropriate and
relevant content to develop
the table with some correct
information.
Uses appropriate and
relevant content to develop
simple explanations
throughout the table
Uses inappropriate and/or
irrelevant content to develop
table with incorrect
information.
Content – Section III – (e)
(20%)
Demonstrates a solid
understanding of the
derivatives trading simulation
and has a solid grasp of how
it works with excellent
interpretation of the outputs.
Demonstrates very effective
use of the derivatives trading
simulation and has a good
understanding of how it
works and can interpret most
of the outputs.
Demonstrates effective use
of the derivatives trading
simulation and can interpret
outputs but with some
errors.
Demonstrates some
understanding of how the
derivatives simulation works
and can interpret some
outputs.
Demonstrates little or no
understanding of how the
derivatives trading simulation
works.
Sources and evidence (10%) Demonstrates skillful use of
high-quality, credible,
relevant sources to develop
ideas that are appropriate for
the discipline and genre of
the writing
Demonstrates consistent use
of credible, relevant sources
to support ideas that are
situated within the discipline
and genre of the writing.
Demonstrates effective use
of appropriate and relevant
sources to support ideas that
are situated within the
discipline and genre of the
writing.
Demonstrates an attempt to
use credible and/or relevant
sources to support ideas that
are appropriate for the
discipline and genre of the
writing.
Demonstrates little attempt
to use sources to support
ideas in the writing
Structure, presentation, and
attention to detail (5%) –
Includes; Executive
summary, table of contents,
introduction, body (answers
to all parts of the
assignment), conclusion,
references, and appendices
(optional)
Demonstrates detailed
attention to and successful
execution of a wide range of
conventions particular to the
assigned task including
organization, content,
presentation, formatting, and
stylistic choices
Demonstrates consistent use
of important conventions
particular to the assigned
task, including organization,
content, presentation, and
stylistic choices
Follows expectations
appropriate to the assigned
task as such as organization,
content, and presentation
Attempts to use a consistent
system for basic organization
and presentation
Minimal, inappropriate, or
no attempt to use a
consistent system to organise
and present assignment
Grammar and expression
(5%)
Uses sophisticated,
expressive, and appropriate
business language that
skillfully communicates
meaning to readers
eloquently and is
grammatically error-free
Uses expressive and
appropriate business
language that competently
communicates meaning to
readers with clarity and
fluency and is grammatically
correct
Uses language that generally
conveys meaning to readers
with clarity. Attention to
detail is evident.
Uses straightforward
language that generally
conveys meaning to readers.
The language is
understandable but there
may be room for
grammatical improvement.
Uses language that
sometimes impedes meaning
because of errors in usage.
FIN30014 Financial Risk Management Sem 2, 2021
6
Notes
1. For actual data on futures and options please refer to http://www.cmegroup.com.
2. The price data you use in your assignment will depend on the prices on the date that
you access the data. That is, assignments submitted by different students will most
likely have different prices.
3. See marking rubric on pages 4-5.
4. Answers to each part should be strictly separated. Answers to different parts
should NOT be combined under any circumstance.
5. There are no definitive answers to this assignment. Your submission will be evaluated
based on the clarity of your report and the quality of your arguments as responses to
the requirements.
6. The assignment is to be done in a group of 3. You cannot submit an individual
assignment, nor in pairs, without the consent of your tutor. If you do so, you
will be penalised.
7. To avoid the penalties associated with a late submission you should commence
thinking about the issues and researching for this assignment as soon as possible. Refer
to late submission penalties in the Unit Outline.
Submission Requirements
1. Please ensure that you are allocated to the correct group on Canvas before submitting
the assignment.
2. You MUST submit the assignment via the Canvas assessment submission system.
Check the draft in the “draft submission” link before doing the final submission.
3. No hard copy or coversheet is required.
4. Your submission is to take the form of a business report. It should be concise, spellchecked for obvious errors, professional, and be clearly expressed. The assignment
should include the following sections:
5. Executive Summary, Introduction (brief), body (where you will answer parts to
the assignment), conclusion (brief), References, Appendices (optional)
6. The assignment should be a total of 3500 words, excluding the executive summary,
table of contents, references, and appendices.
7. E-mailed assignments will not be accepted, the assignment must be submitted via
Canvas.
8. Make sure that you allow yourself adequate time to complete this report
because these guidelines will be strictly enforced and without exception.
9. Conduct research as widely as possible. You MUST use sources that are considered
academically reputable.
If you have any issues with your group members, please inform your tutor, 3 weeks
before the assignment is due.
Plagiarism – Please read the notes on plagiarism in the Unit Outline.