Derivative Securities

FINC3012: Derivative Securities
Group Assignment

Purpose:
The purpose of this assignment is to give you the opportunity to more fully understand the uses of
derivative securities. By objectively undertaking this assignment, you will be aware of the practical uses of
derivative securities to assist in hedging the day-to-day activities of corporations.
Content:
You have heard that derivatives can hedge many of the variables which affect the bottom line figure of your
corporation but which you generally have no control over and which are not in the line of the business of
your corporation. You therefore must devise strategies involving exchange traded derivative securities to
control for potential adverse movements in these variables.
Part I (2-3 pages)
Choose a corporation (you may make up a company although this makes it a lot less interesting). Describe
the activities of this corporation and some of the main risks that face this corporation. Tailor this
description of risks to what you expect to discuss in Part II.
Part II (4-5 pages)
Describe strategies which would involve the use of derivatives contracts to control for some of the risks
described above. In describing these strategies, refer to specific derivative contracts and the specific
exchanges they are traded on. Also, discuss the advantages and any limitations of your strategies.
Form:
1. The assignment is expected to be submitted in report form, including a title page, executive summary
(abstract) and the two sections described above. A complete list of references is required.
1. The report must be no longer than 7 pages (excluding title page, executive summary, and any charts,
tables or appendices).
1. The assignment should be typed in a 12 point Times Roman font, double spaced and with normal
margins. The report should be spell-checked and proof-read. Untidy reports will be penalised.
1. Wherever possible, statements should be substantiated with references. Avoid generalisations and
always credit a source.
2. Please refer to course outline for on line submission procedure.
3. Groups may be of 5-6 students and may be across streams
Graincorp
A. Foreign currency risk: “commodity future demoninated in foreign currency”
“export contracts for the sale of grain, edible oils
and meal denominated in foreign currency.”
“sale or purchase of malt, edible oils and raw
materials in foreign currency.”
“translation of net investments in foreign
subsidiaries denomineated in foreign currencies.”
Requirements:
1. Need to write the definition of the foreign exchange risk about the Graincorp
2. Based on the annual report of the Graincorp, need to emphasized on the how to hedge the risk, using
the derivatives to hedge, such as the forward, futures and currency swap
3. Need to provide the reference (the reference must be the APA format)
4. Around 500 words, 1 pages

5. Describe strategies which would involve the use of derivatives contracts to control for the risks
described, In describing these strategies, refer to specific derivative contracts and the specific
exchanges they are traded on. Also, discuss the advantages and any limitations of your
strategies.