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Global Finance for Supply Chain Management

Global Finance for Supply Chain Management

You have recently been appointed as a senior risk specialist at a large exporter of computer components with significant contracts in the EU, the UK and US markets.

The company’s CFO  has asked you to write a detailed report summarizing the current behaviour of FX markets where the company is exposed. The report should consider the effects of:

  • The recent impact of, and outlook for, inflationary pressures,
  • The ongoing war in Ukraine and the Middle East,
  • ongoing political uncertainties in the UK, US and Europe,
  • the continuing tariff and trade situation (particularly US/China),
  • the impact of continued USD EUR and GBP volatility
  • The instability in the banking sector

or any other issues, in your opinion, currently affecting the volatility of the FX markets\She is specifically interested in developing a strategy to mitigate the company’s risk from its increasing FX exposure and wants you to propose how the greater utilization of derivatives could reduce the firm’s risk profile both in the short and medium term.

You have been specifically asked to outline the following strategies:

  1. Hedging strategies that could be deployed;
  2. Potential on-balance sheet hedging strategies;
  3. Strategies for avoiding event risks.

On completion of the assessment, on the basis that the company has significant hedging concerns for the next 2-3 years, you have been asked for a set of recommendations as to how the company may improve its overall hedging strategy.

Grading Guidelines

Behaviour of FX markets – 30 marks:

5 marks for each of the 6 criteria as detailed in the assignment brief. Each element to include an analysis of the factor and how it would affect FX rates (i.e. positively or negatively).

Strategies – 30 marks

Detail and analysis of the strategies to be considered – Hedging, On-balance sheet, Event Risk – 10 marks for each.

RECOMMENDATIONS for an overall hedging strategy to be implemented by the company (at least 5), stating  purpose and expected benefit for each recommendation– 6 marks per recommendation – 30 MARKS in total for this element.