Ms.

Latifa Al Fadhel
5/8/2015
BSB 7302 International Finance -Group Project

BLUE SEAR CARS

Ahmad Al Sharif 201200112

Yazen Nael Alhussain
201100058
Alaa Jasim Rajab - 201000791

Contents
Executive summary................................................................................3
2.0 Introduction........................................................................................4
3.0 Hedging strategy..............................................................................5
3.1 Euro Payment Hedging Strategy.......................................................................5
3.2 JPY Payment Hedging Strategy..........................................................................5
3.3 GBP Payment Hedging Strategy........................................................................6
3.4 JPY Payment Hedging Strategy..........................................................................6
3.5 KWD Payment Hedging Strategy.......................................................................6
4.0 Outlook and Research.......................................................................7
4.1 Factors affecting the Value of the currency.......................................................7
4.2 Currency pairing................................................................................................ 8
4.2.1 USD............................................................................................................. 8
3.2.2 EUR/USD (Euro against 1 USD)....................................................................8
4.2.3 GBP/USD (British Pound against 1 USD)......................................................9
4.2.4 USD/JPY (Yen against 1 USD).....................................................................10
4.2.5 USD/KWD (KWD against 1 USD)................................................................11
4.3 Technical Analysis............................................................................................ 12
5.0 Evaluation......................................................................................13
5.1 Calculations..................................................................................................... 13
5.2 Hedging Strategy............................................................................................ 13
5.2.1 Euro Payment Hedging Strategy Calculations...........................................13
5.2.2 JPY First Payment Hedging Strategy Calculations......................................14
5.2.3 GBP Payment Hedging Strategy Calculations............................................15
5.2.4 JPY second Payment Strategy Calculations................................................16
5.2.5 KWD Payment Receivable Strategy Calculations.......................................16
5.3 Investment Opportunity..................................................................................17
5.3.1 The Investment Strategy for the Euro Payment........................................17
5.3.2 The investment Strategy for the JPY Payment...........................................18
5.3.3 The investment Strategy For the GBP Payment........................................18
5.3.4 The investment Strategy For the JPY second Payment..............................18
6.0 Suggestions...................................................................................19
7.0 Summary and Conclusion................................................................19
References...........................................................................................20
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Appendices..........................................................................................21

Executive summary

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The following report consists of four main parts that has to do with the
applying of currency derivatives transactions for the purpose to obtain a hedging
position. The four parts of the report are structured as the following: Hedging
strategy, Outlook and Research, Evaluation and Suggestions.
With regards to the Hedging strategy, we have performed the following
transactions: USD/EUR call option contract, USD/JPY forward contract, USD/GBP Call
option Contract, USD/JPY Forward Contract, and USD/KWD Forward Contract.
Regarding the outlook and research, a clear analysis and evaluation have been
conducted regarding the gathered research of USD currency movements against the
other mentioned currency movements. Graphs showing the movements of the
currencies have been gathered for long (5Years) horizons. Based on their movement
against the USD, a series of transaction have been brought up for the opportunity to
hedge the outflow and inflow payments.
The outlook and research, that included figures chats and trend analysis, has
been conducted on the currencies made aided is in deciding which hedging
strategies should be applied. Analyzing the currency rates during the last five years
from the obtained graphical statistics, it is clear that the figures have stated that all
of the currencies that has to do with the companys transactions were appreciating
against the USD currency. Various methods have been analyzed for the purpose of
resistance
measurement
for
the
strategy
that
has
been
applied.
Post the implementation of all of the hedging strategies, we were able to evaluate
the success of four transactions as we have successfully hedged their position thus
earning the company a profit. However a loss of one transaction was resulted in the
second payment of the JPY, that is due to the misinterpretation of the trend and
numbers.
In order to boost the profit of the enterprise we invested the amount into
term deposits in UBank, for the fact that he bank offered the best rates in terms of
saving. The amount was saved for a 1 month duration in the rate of 2.35%. The
investment strategies applied has been effective as were able to make a total profit
of 65.3076.
We were able by the end of the period to have a remaining amount that is
equivalent to $6,367,181.96. This total was calculated by subtracting the total
inflows from the outflows including the investment that we have performed.
Finally based on the experience we had throughout his journey, we have
made a suggestions that will enhance and improve both the hedging and
investment strategies in the future. Moreover help is in hedging our position in a
much better manner.

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2.0 Introduction
The following report carries out a research and asses the entry into currency
derivatives for the purpose to hedge the position of Blue Sea Cars Privet Ltd. and
benefit from the FX market. The hedging position is to be made for the series of
payments that Blue Sea Cars Privet Ltd. will make and receive over the first half of
2015. The report will be discussing the hedging strategies by shedding light on how
they will be managed in the FX market, then going over the research conducted
that helped in deriving those strategies, moving on to the evaluation of the methods
using detailed figures and tables, then last to the suggestions for the investment
strategies.
The report is to be submitted to the board meeting, having it been written by
the CFO of Blue Sea Cars Privet Ltd.

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3.0 Hedging strategy

We studied the market from all aspects, in order to be able to choose
the best hedging strategy, which will enable to protect us from any risk that
might appear in the future. Especially that most currencies had a lot of
fluctuations and are very volatile, hence we also made sure that we study
the currency pairing correctly. (etoro)
The Currency pairs were chosen based on the outflows and inflows,
and based on the payments the enterprise has to make, all of the currencies
has to be paired to the US Dollar, hence resulting in the major currencies
being paired. Some of those major paring are like the GBP/USD, USD/JPY and
USD/EUR.
Those major currencies have a lot of characteristics since they are the
most traded currencies in volume, and they belong to well established
countries that have well defined economic infrastructure and rules, hence we
can identify them as comparatively stable.
3.1 Euro Payment Hedging Strategy
For the first payment we have entered into a EUR/USD call option to in
order to hedge our position. Based on the analysis and research which we
have conducted regarding the movement of the EUR against the USD, it
appeared that the EUR have been significantly appreciating against the USD
that is until recent dates due the political conditions in Europe which made it
start to depreciate. Given such information and given the large amount of
the payment transaction to be made, we have decided to enter into a call
option contract for this transaction. That is due to the possibility to buy the
EUR at an appreciated rate against the USD, which can give us the
opportunity to make profit out of the transaction if exercised at economic
conditions which we are seeking. (etoro)
The reason why we chose this strategy is that, we are not obliged to
exercise at the end, hence if the EUR where to appreciate we can exercise
and collect our profit. Where as if it continued to depreciate against the USD
we wont exercise, and just loose our premium.
3.2 JPY Payment Hedging Strategy
For the second transaction we have entered into a forward contract in
order to hedge our positon. After a series of analysis and research which
have been conducted on the movement of the JPY against the USD for the
last five year, it appeared that there have been fluctuations between both
rates. In order for us to prevent such uncertainty we have decided to enter
into a forward transaction to guarantee a certain rate. A forward contact
would set the rate which we are seeking and a have certain date set to have
the execution of the transaction. (etoro)
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The reason why we chose the forward contract for this payment, is for
the fact that we can customize the contract to meet our need, in addition to
not paying a premium. Moreover another reason that we can invest the
amount assigned for this payment, until the assigned date, hence generating
extra profit that could be of a benefit for the enterprise.
3.3 GBP Payment Hedging Strategy
For the third payment we have entered into a GBP/USD call option in
order to hedge our position the best possible way. Based on the analysis and
research which we have conducted on the movement of the GBP against the
USD, it has been noticed that there has been a series of fluctuation during
the past five years. A forward contract would be suitable having such
information, but since the payment is a large in amount, we had to be
cautious. That is why we have chosen the call option contract for this
transaction, where after all we have the choice to execute the call option or
leave it. Recent dates have showed the appreciation of the GBP against the
USD, hence such movement kept up until the date of the transaction then we
execute the call option in order to obtain profit out of the transaction. (Yahoo!
Finance, "GBP/USD Quotes & Info", 2015)

Like mentioned in the first payment those are the reason why we chose
the call option, especially which its a large amount. The reason is that we
are not obliged to exercise at the end, hence if the EUR where to appreciate
we can exercise and collect our profit. Where as if it continued to depreciate
against the USD we wont exercise, and just loose our premium
3.4 JPY Payment Hedging Strategy
For the second JPY transaction we have entered into the same type of
transaction regarding the first JPY transaction which is the forward contract.
That is due to same research and analysis that we have conducted between
the movements of the JPY against the USD. However in this payment we had
to insure that we pick a date where the currency pair is at the peak, in order
to go into a forward contract.
Hence going into a forward contract will provide us with the flexibility
since its customizable.
3.5 KWD Payment Hedging Strategy
For the last payment we have entered into a forward contract in order
to obtain profit out of the inflow payment to be made to our account. The
KWD rate is currently at its highest ever since the past five years. That is why
we decided to enter into a forward contract at the current rate so that we
can guarantee our chance to make profit. Hence due to the slight
fluctuations that both currencies are encountering, hence the enterprise
secures the amount they will receive. Hence being the perfect hedging
strategy.
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4.0 Outlook and Research

4.1 Factors affecting the Value of the currency
There are so many factors that has a direct impact on the movement off the
currency, those movements are called exchange rates. The exchange rates of the
currency are always considered by analysts as one of the main detriments of how
healthy is the economic status of the country.
They play a major role in determining the level of trade, as they alter the
movement of currencies against one another. By assessing a the exchange rate you
can be able to assume which currency is higher hence having higher exports,
moreover which currency has the lower rate hence having cheaper rate in the
foreign market. (Investopedia, "The Effects Of Currency Fluctuations On The Economy", 2015)
However there are forces that impact exchange rates, those forces cause
exchange rates to fluctuate and move against other currencies. Some of these
forces are;
1. Political Stability and Economic Performance
Both the Political and economic environment has a direct impact on the
currency and in particular the exchange rate. A great example would be the
Greek Debt Crisis, and the impact it has on the entire European currency.
Due to the continuous bail out that they are paying and the increase in the
sovereign debt it has cause the currency to depreciate. Another good
example would be the policy of quantitative easing introduced by the
European central bank, in order to lower interest rates and to create more
money.
2. Public Debt
There are a lot of nation level projects that the country would like to conduct,
and need funding hence one of the main sources for funding would be
through debt. The purpose implementing such projects is to increase foreign
investments. In the case the country was not able to pay back the debt, it
will start to print more money which will cause inflation which will cause the
currency to depreciate. A good example again would be the Greek debt
crisis, where the country defaulted for their inability to pay back their debts.
3. Trade Balance
Trade balance is measured by calculating the difference between the level of
imports and exports. In the case the imports outweighs the export it will rest
in a trade deficit. When a country faces trade deficits it means that there is
an outflow of domestic currency to the foreign markets. A good example of
trade deficit is what is happening in the USA for the past few decades and
that is due to the US dollar being held by foreign countries. However when
the exports are more than the imports its called trade surplus.
4. Differentials in Inflation/ Interest Rates
Interest rates all over the world are set by central banks, they control interest
rates to control inflation rate. For instance if the inflation was high, the
interest rate gets increased by the CBB in order to decrease the level of
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inflation, hence increasing the value of the currency. Hence we can relate
interest rates to currency by stating, that the higher the interest rate, the
higher the value of the currency.

4.2 Currency pairing

4.2.1 USD
The United States Dollar is the most demanded currency in the FX market
amongst all other currencies, for the fact that as a currency it can be paired with
almost all other major currencies, in addition to it being used as a benchmark in the
forex market. USD as a currency is held by most central banks around the world, for
it is regarded as the national reserve currency. In addition to the USD being pegged
with a couple of currencies such as the Bahraini Dinar, Qatari Riyal and Jordanian
Dinar. (Trading Economies, "United States Dollar", 2015)

3.2.2 EUR/USD (Euro against 1 USD)

The Euro and the Dollar represents the worlds largest economies. Both
currencies through the years have witnessed substantial volatility. With all what has
happened in the past from the tech boom, to the American mortgage crisis to the
European debt crisis, those two currencies where able to withstand high levels of
volatilities.
The Euro is facing a lot of pressures especially that its sinking to a 12 year low
in value against the USD. There are so many factors that are currently causing those
negative impacts however some of those important facts are:1. ECB quantitative easing program
2. Deepening of the Greek Crisis
3. The increase in the sovereign Debts.

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The above chart showes the currency movement through out the past five
years, we can see that the the the euro lost more than 1$ against the USD. Since
the beginning of May 2010 and Novemebr 2013 the price fluctated between
USD/EUR 0.8379 and USD/EUR 0.7436.
During those fluctuations the Euro was able to reach to its highest point at
0.8379, when the Euro appreciated against the USD. However by the end of this
year the EUR went back to depreciating again against the Dollar, reaching its lowest
point 0.6761 by the end of April 2011. The trend of fluctuating continued
throughout the years where it went between USD/EUR 0.7803 and USD/EUR 0.7458.
In 2014 the Euro continued to appreciate against the dollar reaching 0.8077.
However with all what is happening in the economy and the news researched the
currency is appeared to depreciate against the Dollar reaching to a USD/EUR1.21,
thanks to the Ukraine and the Greece crisis.

4.2.3 GBP/USD (British Pound against 1 USD)

The Great British pound is reflected amongst the worlds oldest currencies in
term of circulation up to this date. To traders and every one GBP is considered also
in the list of the major currencies along with the USD, Euro and Japanese Yen. Due
to Londons location and the high volumes of business it attracts, GBP is counted as
the third most traded currency in the world. (Yahoo! Finance, "GBP/USD Quotes & Info",
2015)

Another reason that favors the GBP lays in the kind of the rating system that
they uses, which is the floating rates. This system facilitates for traders to buy and
sell the GBP in offshore banks.
The third reason for the high demand for the GBP, is due to the currency
faces a lot of extreme and sharp fluctuations. Those extreme fluctuations are
attractive for traders due to hedging opportunities. Those fluctuations are due to
the very tight shaky monetary policy that is being implemented by the CBB. What

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resembles this shakiness is the fluctuations that has always been the case in the
GBP.
The GBP/USD currency pairing is always referred to as cable; this cable currency
is the highly traded currency in the market. The following reason is one of the most
vital reasons why the above cable currency pairing is the highest demanded:

Both paring are very impulsive and unpredictable hence being very volatility.
Hence the brokers assign higher spread quotation.

The above graph states the movement relation of the GBP/USD (Cable) during
the previous 5 years. The graph indicates fluctuations during all years. By the start
of May 2010, the USD was depreciating agaisnt the GBPuntil the end of May. Where
afterwards, it kept on appreciating against the GBP, with fluctuations of the cross
rate where it never went bloew 1.5000 during the following 4 years. Having reached
its highest rate of 1.7153 at the beginning of July 2014. Post the middle of July 2014,
the rate kept on depreciating where it reached its lowest in the beginning of April
2015 at 1.4715 with a slight increased followed by the second week of april. Based
on the following figueres that wre obtained from the graph, we can have an
understaindg on the prdeicted movement of the GBP/USD rate and establish
rational assumptions. It predicated that the rate will be facing s series of fluctiations
during this year, with a high derpreciation compared to the previous year.

4.2.4 USD/JPY (Yen against 1 USD)

The Japanese yen is traded in large volumes in Asia, or in other words the
third most traded currency in the world. Since the Yen has relatively low interest
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rates, hence both the USD and AUD uses it in carry trades. This strategy is selling
currencies with low interest rates in order to purchase currency with a higher
interest rates.
Japan for years have been in economic slump, which they were fighting to get
out of. They tried to introduce reforms that backfired and had a negative impact on.
The first thing they did was introduce Quantitative easing that devalued the
currency, and the value of the dollar increased from 76.88 yen to 120.18 yen.
Japan was the largest holder of American treasury bills, until they were
replaced by china. They always keep their currencies lower than the USD for trade
purposes, however this was not the case since Japanese companies started to
outsource for cheaper in the countries itself.

Based on the above 5 year graph movement of the USD/JPY, we can deduce
that the rate remained above USD/JPY 90, even though it was fluctuating from the
year 2009 to 2010 between the following rates of USD/JPY 86.62 and USD/JPY 94.54.
The Japanese yen started to depreciate against the US Dollar in the end of June
reaching to its lowest point which USD/JPY 75.93 on October 2011.
Starting from the end of February 2012, the Yen start to appreciate sharply
against the USD reaching USD/JPY 93.63. This sharp increase continued until the
mid of May reaching USD/JPY 102.14. Ever since the JPY has continued appreciating
against the Yen reach USD/JPY 116.65.
Interest rate is the main component that drives the currency to move against
one another. Interest related dictates the movement of those pairs, especially that
both countries are known to trade heavily with one another.
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4.2.5 USD/KWD (KWD against 1 USD)

The Kuwaiti Dinar considered to be to be the highest valued currency across
the entire globe which is worth close to $3.55. It is the only dinar currency which is
divided into 1000 equal Kuwaiti fils. The currency is mostly affected by the high oil
revenues that the country of Kuwait produces. Where Kuwait has 10% of the worlds
crude oil which earns the countries more than 75% of its earnings. The high valued
rate of the Kuwaiti dinar also gives Kuwait a high purchasing power for importing
agricultural products that Kuwait lacks to have.

The above graph states the movment relation of the USD/KWD currency cross
rate of the previous 5 years. The graph indicates fluctuations during all years. On
the start of 2010, the KWD slightly depricated aginst the dollar with a rate of
0.2873 until the end of august 2011 with a rate reaching its lowest at 0.2720
agrainst the dollar. However, from that point it kept on appreciating slightly agisnt
the USD until the end of June 2014 with the rate eaching of 0.2815. afterwards, the
KWD strated to drmaticly appreciate till this day agaisnt the USD reching at its
highest rates witnessed during the last 5 years at a spot rate of 0.3022 in todays.
based on the following figueres that wre obtained from the graph, we can have an
understaindg on the prdeicted movement of the USD/KWD rate and establish
rational assumptions. It is predicted that the rate will remain stable with a slight
appreciation compared to the previous year.

4.3 Technical Analysis

It is
movements
yield them
movements
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very important for an analyst to be able to predict future price

and market trends, as this will enable him to make decisions that will
profit. Hence Technical analysis is a method of predicting price
and future market trends by studying charts of past market action.

This analysis takes into consideration what actually happened in the market,
rather taking what should have happened. Moreover they also consider the price of
the instrument and the volume of trading. Based on the gathered information charts
are created to be used as primary tools.
Technical analysis are established based on the following three points:

Market action discounts everything

Prices move in trend
History repeats itself

Traders depend on price charts, volume charts and many various mathematical
representations of market data. Those data will help traders make decision on when
are the entry and exist point of trade, in addition to be able to predict trends and
the strength and suitability.
It helps the investors in choosing if they want a short or long position. In other
words for example if the investor predicted that the prices, of the currency is
appreciating against another currency, they will choose a long a position.
There are many technical indicators types that are being utilized such as:

Trend
Strength
Volatility
Cycle
Momentum

5.0 Evaluation
Based on the market research and the strategies chosen, to hedge our
position against currency exchange fluctuations. Based on the Payment schedule
that that the enterprise has to make in the below table
Date

31/3/15
11/4/15
12/5/15
25/5/15
1/6/15

Curren
cy
USD
EUR
JPY
GBP
JPY
KWD

Amount
7,750,000
465,000
1,500,000
900,000
11,0000,000
175,000

Cash available in bank

Outflow
Outflow
Outflow
Outflow
Inflow

We created 4 strategies that are aligned with the accounts payable and receivables,
to offset the positon of the enterprise found in the below payment.

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The Table above provides the amount that has to be paid in USD Dollars and the
strategies used to derive the amount. It also highlights the total amount outflows
and inflows that has to be made.

5.1 Calculations
In this section we are going to highlight the detailed calculations that where
performed for each strategy in order for us to derive the payment.

5.2 Hedging Strategy

5.2.1 Euro Payment Hedging Strategy Calculations
The payment has to be made on the 31st of March, hence to hedge the enterprise
position against the fluctuations, we have decided to buy an American Style Call

Option At the Money.

First Step: Buying the Call option
1. Cost of Option= Payment Amount x Premium x Spot Market Rate
Cost of the option = EUR 465,000 x 0.0241 x 1.1202
Cost of the options = USD 12,553.5213
Second Step: Exercising the option to pay obligation
2. Exercising the option = Payment Amount x Strike Price
Exercising the Option = EUR 465,000 x 1.055
Exercising the Option = 490,575
Third Step: Amount Required
3. Total Option Cost = Option Cost + Exercise the Option
Total Option Cost = 12,553.5213 + 490,575
Total Option Cost = USD 503,128.5213
Fourth Step: Profit Made from Exercising the Option
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4. Profit = Amount Required Ending Amount Required

Profit = USD 505,594.500 - USD 503,128.521
Profit = USD 2,465.979

5.2.2 JPY First Payment Hedging Strategy Calculations

For the Second payment has to made on the 11 th of April, moreover based on
the research and fluctuations that has been identified, we believe that the best

hedging tool would be a Forward contract.

First Step: convert the amount of the payment into USD

1. Amount required in USD = Payment Amount x Spot Bid Rate
Amount Required in USD = JPY 1,500,000 x (1/120.86)
Amount Required in USD = USD 12,411.054
Second Step: Calculate the Forward Rate
2. Forward rate = Spot rate - (Bid Point/100)
Forward Rate = 121.44 (33.900/100)
Forward Rate = 121.101
The FWD Points are subtracted because the bid > ask point.

Third Step: Calculate the required Amount

3. Required Amount = Payment Amount / One Month Forward Rate
Required Amount = JPY 1,500,000 / 121.101
Required Amount = USD 12,386.355
Fourth Step: Fourth Step: Profit Made from Exercising the Forward Contract
4. Profit = Amount Required Ending Amount Required
Profit = USD 12,411.054 - USD 12,386.355
Profit = USD 24.699

5.2.3 GBP Payment Hedging Strategy Calculations

The payment has to be made on the 12th of May, hence to hedge the enterprise
position against the fluctuations, we have decided to buy an American Style Call
Option At the Money.
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First Step: Buying the Call option

1. Cost of Option= Payment Amount x Premium x Spot Market Rate
Cost of the option = GBP 900,000 x 0.0221 x 1.4818
Cost of the options = USD 29,473.002
Second Step: Exercising the option to pay obligation
2. Exercising the option = Payment Amount x Strike Price
Exercising the Option = GBP 900,000 x 1.4705
Exercising the Option = USD 1,323,450.00
Third Step: Amount Required
3. Total Option Cost = Option Cost + Exercise the Option
Total Option Cost = USD 29,473.002+ USD 1,323,450.00
Total Option Cost = USD 1,352,923.002
Fourth Step: Profit Made from Exercising the Option
4. Profit = Amount Required Ending Amount Required
Profit = USD 1,384,515.00 - USD 1,352,923.002
Profit = 31,592.00

5.2.4 JPY second Payment Strategy Calculations

For the Second payment for the Japanese yen, we also have decided to go with the
forward contract. Since we are referring to the same research that we have
conducted for the first payment. This payment has to be made on the 25 th of May.

First Step: convert the amount of the payment into USD

1. Amount required in USD = Payment Amount x Spot Bid Rate
Amount Required in USD = JPY 11,000,000 x (1/120.14)
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Amount Required in USD = USD 91,559.847

Second Step: Calculate the Forward Rate
2. Forward rate = Spot rate - (Bid Point/100)
Forward Rate = 119.34 + (5.833/100)
Forward Rate = 119.39833
The FWD Points are added because the bid < ask point.

Third Step: Calculate the required Amount

3. Required Amount = Payment Amount / One Month Forward Rate
Required Amount = JPY 11,000,000 / 119.39833
Required Amount = USD 92,128.592
Fourth Step: Fourth Step: Profit Made from Exercising the Forward Contract
4. Profit = Amount Required Ending Amount Required
Profit = USD 91,599.847 - USD 92,128.592
Profit = USD (568.745)

5.2.5 KWD Payment Receivable Strategy Calculations

This is an amount that the enterprise is going to receive on the 1 of June, hence
here all we have to do since the KWD is a strong currency, is to hedge our position
just to secure our position hence the best strategy here is to enter into a forward
market.

First Step: Calculate the Forward Rate

Forward rate = Spot rate - (Bid Point/10,000)

Forward Rate = 0.3019 + (10/10,000)
Forward Rate = 0.3029
The FWD Points are subtracted because the bid < ask point.

Third Step: Calculate the required Amount

Required Amount = Received Payment Amount / One Month Forward Rate

Required Amount = KWD 175,000 / 0.3029
Required Amount = USD 577,748.432

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5.3 Investment Opportunity

We decided to enter into money market and invest in Term Deposit in Ubank. Ubank
is an online bank that is backed by the National Australian Bank Group. Moreover
since they are online bank, they do not have any branches hence lower costs than

traditional banks. Moreover since there costs are lower they offer better rates for
the customers. Another reason why we chose Ubank is for the reason that they have
the highest 1 month interest rate, which is equivalent to 2.35%. (AU, "Term deposits",
2015)

5.3.1 The Investment Strategy for the Euro Payment

In order to calulcate how much profit we are ging to enerate from emtering into
Money Market, we have to use the following formula:

Profit = (Prinicpal x Number of Days x Term Deposit) / (360*100)

Profit = ( 490,575 x 30 x 0.0235) / (360 x 100)
Profit = 9.6071

5.3.2 The investment Strategy for the JPY Payment

In order to calulcate how much profit we are ging to enerate from emtering into
Money Market, we have to use the following formula:

Profit = (Prinicpal x Number of Days x Term Deposit) / (360*100)

Profit = ( 12,386 x 30 x 0.0235) / (360 x 100)
Profit = 0.2426

5.3.3 The investment Strategy For the GBP Payment

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In order to calulcate how much profit we are ging to enerate from emtering into
Money Market, we have to use the following formula:

Profit = (Prinicpal x Number of Days x Term Deposit) / (360x100)

Profit = ( 1,323,450 x 60 x 0.0235) / (360 x 100)
Profit = 51.8351

5.3.4 The investment Strategy For the JPY second Payment

In order to calulcate how much profit we are ging to enerate from emtering into
Money Market, we have to use the following formula:

Profit = (Prinicpal x Number of Days x Term Deposit) / (360x100)

Profit = ( 92,497.869 x 60 x 0.0235) / (360 x 100)
Profit = 3.6228

6.0 Suggestions
There are many suggestions that would help improving the investment
strategy. The first is to have an extensive thorough study regarding the currency
movements and their correlation, as this would give us a better overview on which
currencies should we pair for arbitrage opportunities. Another suggestion would be
to invest a substantial amount from the companies account in a short term deposit
such as a 3 months deposit for the return of interest. Such deposits would help the
company to make effort less profit instead of having the amount standing still.
These short term deposits including the few days ones should be conducted with
banks who offer high interest rates in order to make good profit out of such short
period deposit. It is also suggested for the company to borrow a substantial amount
at a low rate and invest it in order to cover up the interest rate and make some
profit.
Based on the figures we have encountered a loss in the yen second payment,
this was due to us choosing a wrong date or price, a suggestion if we had the
opportunity to do it again in the futures, is have a better look on the historical
charts and test more than one number in order to get to the best figure.

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There are so many investment types and strategies that could have been
utilized, however due to the short period of time, we decided to go with the
investment that has the highest liquidity and has limited risk that will sill yield for
use the expected profit that we were hoping for.

7.0 Summary and Conclusion

There are so many reasons and factors that can cause a company to lose its
money. Especially when it comes to wanting to generate more money to boost their
position, especially when they want to protect themselves from future risks. In this
report we highlighted the different methods a company can undertake to protect
themselves from future price fluctuations, and more importantly reduce their risk.
Blue Sea Cars Privet Ltd have had four outflow transactions and one inflow to
be made from their account which stood with amount of $7,750,000. These
transactions had to be made with different currencies, where a series of hedging
strategies have been conducted on these transactions in order to try to make profit
and minimize the amount of the outflow payments. The forward transaction have
been executed on the three different payments (JPY, JPY, KWD) and the call option
transaction have been executed on the other two (EUR, GBP). After the execution of
all transactions and the completion of all outflow and inflow payments, we have had
a remaining amount in the companys account which totaled up $6,367,181.96.

References

Historical Exchange Rates | OANDA. (n.d.). Retrieved May 8, 2015, from

http://www.oanda.com/currency/historical-rates/
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http://www.oanda.com/currency/historical-rates/
Euro FX Option (American) Quotes Globex. (n.d.). Retrieved May 9, 2015,
from http://www.cmegroup.com/trading/fx/g10/eurofx_quotes_globex_options.html?optionExpiration=60-K5
The Effects Of Currency Fluctuations On The Economy. (2013, August 6).
Retrieved May 7, 2015, from
http://www.investopedia.com/articles/forex/080613/effects-currencyfluctuations-economy.asp

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Understanding the Impact of Currency. (n.d.). Retrieved May 10, 2015, from
http://funds.rbcgam.com/learning-centre/investing-strategies/impact-ofcurrency.html
GBPUSD=X: Summary for GBP/USD- Yahoo! Finance. (n.d.). Retrieved May 7,
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dex_en.htm
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Retrieved May 10, 2015, from http://www.tradingeconomics.com/unitedstates/currency
Forex Tutorial: Technical Analysis & TechnicaI Indicators | Investopedia. (2006,
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Appendices

EUR/USD spot price 28th of March

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EUR/USD spot price call option march 1st

GBP/USD spot price 30th of April

GBP/USD spot price call option march 21st

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KWD/USD spot rate 1st of May 9, 2015

USD/JPY spot rate 25th April 2015

USD/JPY sport rate 5th of May 2015

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KWD/USD 1 month forward rate

USD/JPY 1 month forward rate

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USD/EUR

GBP/USD

USD/JPY

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USD/KWD

American option at the money

UBank Term Deposit

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