Outline the potential financial risks and operational risks faced byHilditch and explain these risks in details. Explaining the impact of current macroeconomic conditions to Hilditch’s business, in your discussion, please include the discussion of at least two news items listed in Appendix 1.

Suppose you are a risk management professional working for iManageRisk firm which is located in Melbourne. iManageRisk provides consulting services to firms such as airline companies and mining companies on their risk management. Mr. Robert Lee, the treasurer of Hilditch Pte Ltd, approaches you today (assume it is now March 2019) to ask you for advice on the financial risk management of his company.
Hilditch (Australia) Pte Ltd is mining company which specializes in base oils, fuels and other refined oil products. In the decades, Hilditch has grown and evolved to supply many more products and services to markets around the world. Hilditch trades with groups in Korea, Japan, China, Singapore, Indonesia, Thailand, Malaysia, Taiwan, United Kingdom, Europe, South Africa, USA and of course Australia. As a growth company, Hilditch’s reveue is positively related to oil price and it aims to a growing cash flow from expanding oil trading operations and seeking to define up to 20 million gallons of jet fuel.
The company’s profit and loss is subject to many risk factors, such as the price change of oil, foreign exchange rate fluctuations and the macroeconomic conditions. As the market price of oil is quite volatile, the company is considering using some strategies to manage its risk exposure. One way to hedge these exposures is to use futures contracts. For instance, the futures contracts traded in the NYMEX.

This assignment requires students to provide a risk management consulting report to a client. It is used to assess the CLOs: 2, 4, 5 and 6. A marking rubric (in a separated rubric file) will be used to mark this report. In the report, students need to address the issues faced by the client as mentioned in the case. The report should follow the general format of a consulting report. 25 marks are allocated to the addressing of the questions indicated in the case. In addi

tion, another 5 marks are allocated to the conclusion and other aspects of the report (including the format of the report, writing clarity, grammatical accuracy, relevance of justification, etc).

 

Requirements:

  1. Students may form a group of 3-4 students
  2. Answer all the questions raised in the case. Follow the general format of a consulting report, which could be, but not limited to, the sample posted on Canvas;
  3. Source Material: You need to use some source materials to support your arguments.
  4. Reference Style: Follow AGPS Harvard Style or APA style.
  5. The report should use proper English expression and grammar.
  6. The assignment must be submitted electronically via Submission Point on Canvas by the due date.
  7. Late submission will attract a deduction of 4 marks per day for penalty.
  8. Word Limit: 15 pages excluding references & appendixes.

 

SUBMISSION:

 

Students are required to sign up their groups online via Canvas.

Go to the course site on Canvas. Submit your assignment under the submission point. Only one submission is required per group.

The assignment must be Word-processed, using Times New Roman, 12 Font, double-spaced for the main text, and single spaced for tables, figures & appendixes.

Marks MAY be deducted if all requirements and submission instructions are not completed.

 

Academic integrity:

In order to ensure the academic integrity of your submission and to deter others from copying your work, your submission will be processed through a text-matching software.

Turnitin will provide a similarity report of your submission against a large database of academic and professional documents. If your submission’s similarity report is above 35%, you will receive a mark of zero and you will be referred to the academic disciplinary committee.

Further information can be found here

 

Scenario:

 

Suppose you are a risk management professional working for iManageRisk firm which is located in Melbourne. iManageRisk provides consulting services to firms such as airline companies and mining companies on their risk management. Mr. Robert Lee, the treasurer of Hilditch Pte Ltd, approaches you today (assume it is now March 2019) to ask you for advice on the financial risk management of his company.

 

Hilditch (Australia) Pte Ltd is mining company which specializes in base oils, fuels and other refined oil products. In the decades, Hilditch has grown and evolved to supply many more products and services to markets around the world. Hilditch trades with groups in Korea, Japan, China, Singapore, Indonesia, Thailand, Malaysia, Taiwan, United Kingdom, Europe, South Africa, USA and of course Australia. As a growth company, Hilditch’s reveue is positively related to oil price and it aims to a growing cash flow from expanding oil trading operations and seeking to define up to 20 million gallons of jet fuel.

 

The company’s profit and loss is subject to many risk factors, such as the price change of oil, foreign exchange rate fluctuations and the macroeconomic conditions. As the market price of oil is quite volatile, the company is considering using some strategies to manage its risk exposure. One way to hedge these exposures is to use futures contracts. For instance, the futures contracts traded in the NYMEX.

 

 

 

 

 

In your consulting report, please address the following questions.

 

  • Outline the potential financial risks and operational risks faced byHilditch and explain these risks in details.

 

  • Explaining the impact of current macroeconomic conditions to Hilditch’s business, in your discussion, please include the discussion of at least two news items listed in Appendix 1.

 

  • Please devise a hedging strategy for Hilditch:
    1. What position should it take if Hilditch wants to use crude oil futures to hedge the exposure?
    2. What is the optimal hedge ratio?
    3. What is the optimal number of futures contracts with tailing of the hedge?
  • Robert is concerned with the use of derivatives. He has heard from his long-term friend, Mr MF, who graduated with a Master of Finance degree from RMIT University, on the dangers of misusing of derivatives products such as futures to firms. Mr MF also mentioned that derivatives pose a danger to the whole financial system, and thus they should be banned. Recently a complex derivatives trade has caused over $5 billion losses at J.P. Morgan. Above all, an investment guru, Warren Buffett, once referred derivatives to as “time bombs” and financial “weapons of mass destruction” (details can be found in the Appendix). In your report, please address his concerns. And you also need to address whether the company like Hilditchshould use derivatives. Please use some source materials (such as academic journal articles and newspaper articles) to support your arguments in your report. Follow a proper referencing and citation style.

 

 

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