1. BSB 7302 International Finance Fatima Mohammed 201000393 Marwa Malik 201000472 Mohammed Haji 201100040

2.  Introduction  Hedging Strategy  Outlook Research  Evaluation  Suggestions & Conclusion

3.  Understand the position and status of Blue Sea Cars Privet Ltd  How to use certain methods to recover the operating income and sales of the company  How to increase the income and sales of the company

4. Avoid risk of appreciation or depreciation of currencies exchange rates Options Call Option -Right, not obligation -European: exercised at maturity date -American: exercised at before or at maturity date -Unlimited profit / Limited risk (PREMIUM) -Eg. If a currency pair increases, the value of the call option increases, therefore the buy of the call option can buy the option at the lower price and sell it at the higher price.

5. Forward Contract -Buying at today’s exchange rate at an agreed future date -Reduces risk of future payment because of fluctuations -Tool used for hedging systematic outflows

6.  Payments:  1: October 30 th, 2014: “EUR/USD” - Purchase a call option on September 1 st, 2014 (lower than forward) - Invest the option cost in 2 month USD LIBOR - On 30 th of October, we’ll receive principle plus interest - Exercise the option because spot is higher than strike to get the required EUR to pay the obligation

7.  2: November 11 th, 2014: “USD/JPY” - Purchase “Forward Contract” on September 1 st, 2014 - Invest the equivalent amount of JPY payment in USD LIBOR for 71 days - On November 11 th, 2014, we will receive the principle invested plus the interest income - Convert the USD to JPY using the forward rate and pay the obligation

8.  3: December 12 th, 2014: “GBP/USD” - Purchasing a call option on September 1 st, 2014 - Invest the option cost in 102 days USD LIBOR - On 12 th of December, we’ll receive principle plus interest - Exercise the option because spot is higher than strike to get the required GBP to pay the obligation

9.  4: December 25 th, 2014: “USD/JPY” - Purchase “Forward Contract” on September 1 st, 2014 - Invest the equivalent amount of JPY payment in USD LIBOR for 114 days - On December 24 th, 2014, we will receive the principle invested plus the interest income - Convert the USD to JPY using the forward rate and pay the obligation

10.  RECEIVABLE AMOUNT: - Amount in KWD on December 31 st, 2014, amount will be hedged by forward contract  REMAINING AMOUNT: - Invest in 3 month time deposit and 1 month LIBOR

11. Outlook and Research 1)The GBP movement

12. 2) The Euro Movement:

13. 3) The KWD movement

14. 4) The JPY movement

15. 5) The USD movement

16. Factors that affect currencies’ value: 1) Trade balance: 2) Economic health 3) Interest Rates / Inflation: 4) Politics 5) Characteristics of major currencies:

17. A)Tracking historic movements to predict future movement B) Technical Analysis

18. DateCurrencyAmountAmount In USDPositionHedging Tool Cash available in bankUSD$7,750,000.00 30 October 2014EUREUR 465,000USD 564,975.00OutFlowCall Option 11 November 2014JPYJPY 1,500,000USD 14,389.18OutFlowForward Contract 12 December 2014GBPGBP 900,000USD 1,390,500.00OutFlowCall Option 25 December 2014JPYJPY 11,000,000USD 1,678.74OutFlowForward Contract 31 December 2014KWDKWD 175,000USD 614,682.12InflowForward Contract Evaluation The table represents the payment dates the amount of payments in foreign currency and the equivalent of them in USD.

19. Hedging 30 October 2014 EUR/USD Hedging Strategies Spot Market Payment AmountSpot Rate On 28-OCT Amount Required on OCT 30 by $ EUR 465,000.001.2734USD 592,131.00 Forward Market Payment AmountForward Rate Amount Required on OCT 30 by $ EUR 465,000.001.3137USD 610,870.50 Options Option TypePayment AmountPrior SettleStrike Spot Market Price On Sep 1 Call OptionEUR 465,000.000.02411.2151.3128 Option CostUSD 14,711.89 Exercise the OptionUSD 564,975.00 Total CostUSD 579,686.89 Investing Strategies Money Market Time PeriodPayment AmountUSD Interest Rate EUR Interest Rate 60 Days USD 564,789.80 0.19675%0.09714% Option PaymentUSD 564,975.00

20. Hedging 11 November 2014 USD/JPY Hedging Strategies Spot Market Payment AmountSpot Rate On 7-NovAmount Required on NOV 11 by $ JPY 1,500,000.00114.54USD 13,095.86 Forward Market Payment AmountForward RateAmount Required on NOV 11 by $ JPY 1,500,000.00104.245USD 14,389.18 Investing Strategies Money Market Time PeriodPayment AmountUSD Interest RateJPY Interest Rate 71 DaysJPY 1,500,000.000.197%0.32643% Lend to the MarketUSD 14,384.46 USD 14,389.18 Transfer amount to JPY on ForwardJPY 1,500,000.00

21. Hedging 12 December 2014 GBP/USD Hedging Strategies Spot Market Payment AmountSpot Rate Outlook in Dec Amount Required on DEC 12 by $ GBP 900,000.001.63USD 1,467,000.00 Forward Market Payment AmountForward Rate Amount Required on DEC 12 by $ GBP 900,000.001.6615USD 1,495,350.00 Options Option TypePayment AmountPrior SettleStrike Spot Market Price On Sep 1 Call OptionGBP 900,000.000.02591.5451.6607 Option CostUSD 38,710.92 Exercise the OptionUSD 1,390,500.00 Total CostUSD 1,429,210.92 Investing Strategies Money Market Time PeriodPayment AmountUSD Interest RateGBP Interest Rate 102 DaysGBP 900,000.000.23360%1.05400% Equivalent amount of payment on USD USD 1,389,699.53 Principle + InterestUSD 1,390,500.00

22. Hedging 25 December 2014 USD/JPY Hedging Strategies Spot Market Payment AmountSpot Rate Outlook in DecAmount Required on DEC 25 by $ JPY 175,000.00109USD 1,605.50 Forward Market Payment AmountForward RateAmount Required on OCT 30 by $ JPY 175,000.00104.245USD 1,678.74 Investing Strategies Money Market Time PeriodPayment AmountUSD Interest RateJPY Interest Rate 114 DaysJPY 175,000.000.23360%0.32643% Equivalent amount of payment on USD USD 1,677.76 Principle + InterestUSD 1,678.74 Transfer amount to JPY on ForwardJPY 175,000.00

23. Inflow Hedging31 December 2014USD/KWD Hedging Strategies Forward Market Received AmountForward RateAmount on Dec 31 in $ KWD 175,000.000.2847USD 614,682.12

24. Investing the Remaining Cash available in bank$7,750,000.00 Total OutflowUSD 2,024,965.73 RemainingUSD 5,725,034 Time Deposit 3 Months Amount Invested in Time DepositUSD 5,725,034.27 Rate 10% BankCBZ BANK Monday, September 01, 2014 Enter 3 months time deposit Time Deposit USD 5,725,034.27 Monday, December 01, 2014Receive the principle and interestUSD 6,297,537.70 Profit USD 572,503.43 Monday, December 01, 2014 Cash available in bankUSD 6,297,537.70 Time Deposit 1 Months Amount Invested in Time DepositUSD 6,297,537.70 Rate 0.15550% Monday, December 01, 2014 Enter 1 month USD LIBOR USD 6,297,537.70 Wednesday, December 31, 2014Receive the principle and interestUSD 6,298,353.76 Profit USD 816.06 The balance at bank on December 31 2014 Receive the principle and interestUSD 6,298,353.76 Inflow on December 31 2014USD 614,682.12 Total amount on Bank on December 31 2014USD 6,913,035.88