This assessment is to be completed individuallywith a word count of up to 2000 words. You are to complete the assessment in a report format
Learning Outcomes to be covered:
- Identify causality and equilibrium between financial markets and economic activity, using appropriate theoretical models.
- Use published market data in ‘real-world’ financial problems especially focusing on FX markets in terms of risk taking as well as hedging risk exposures using appropriate strategies and instruments“ GlaxoSmithKline – how to manage FX exposure due to investment to Germany”
The second-generation mRNA Covid-19 vaccine from GSK and its partner CureVac has been reported to be able induce a stronger immune response than the German biotech’s first vaccine. GSK is a British multinational pharmaceutical company headquartered in London. According to its head of vaccines research and development, the mRNA technology was a “strategic priority” for the company. GSK has approved a Euro 50 million investment in the partnership with CureVac, a German biopharmaceutical company, in the next move for the development.
In February 2022, it is revealed that the injection of funds from the UK company is needed in one year’s time.
The contract exposed the company to currency risks. In consideration of such risk exposure, what actions should be taken to facilitate the deal? Or if no action, why?
You are required to produce an individual report (up to 2000 words, marking to cease after +10% of the limit) which considers these decisions in the light of the market data available. You should seek to incorporate the answers to the following questions in your report to support your arguments.
- What type of currency risk exposure is this? What are the common principles and tools in financial market for hedging this type of exposure? Compare the pros and cons of them.
- First ignore the transaction costs and assuming that you want to hedge 100% the currency risk exposure, can you numerically demonstrate the two similar hedging strategies of forward and money market hedge? According to the current market data you find online, can you tell which one is better? What if transaction costs of both are taken into consideration?
- Analysing the historical currency price of EUR/GBP, what’s you expectation of the future trend of EUR? Find analysts’ articles to support your prediction. With this expectation do you want to change your hedging percentage?
- Use Google Scholar to do a simple literature review on the effectiveness of operational hedge on exchange rate risk, and advise the company accordingly?Marking
Criteria for Assessment
|Marking Criteria||Marks out of 100|
|Format Report structure, sequence and explanation of points considered. The purpose of this report is to make the hedging decision for the deal mentioned in the case. Introduction sets the scene of the report. Middle sections give reasons and evidence for your arguments. Conclusion section gives your recommendations.||5|
|Research/Referencing Evidence of wider reading with appropriate sources used to support work. Correct and consistent style of Harvard referencing throughout the whole of the report.||15|
|Content and Explanation Provide reasons to support your arguments. You need to at least answer the first two bullet points, and incorporate the answers into your arguments and recommendations in the end.||40|
|Analysis Analyse the scenario with relevant theory, current market data, and referencing. You need to at least answer the last two bullet points, and incorporate them coherently into your report.||40|
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