BF054E Financial Derivatives

(1) Whether to use derivative instruments
(2) The content of financial operations (Ex Fwd/Future/Option...)
(3) The effect of financial operations (Ex cash flow...)
(4) Other suggestions

Company A is the world's top-ranked paper manufacturer. The company's financial report is priced in U.S. dollars.

 

Purchase 2 million hectares of forest land in Canada for 900 million Canadian dollars in February 2021

Purchase 1 million hectares of forest land in New Zealand for 500 million New Zealand dollars in June 2021

Acquire Brazil's largest paper manufacturer for 900 million Brazilian dollars in August 2021
 
The above transaction is expected to be completed before the end of the year

The company's profit margin is about 15%
The cost of a 10-year U.S. dollar loan is about USD3MLibor+80bps 10Y USD IRS 1.8%
Canadian dollar/New Zealand dollar/Brazilian dollar annual forward foreign exchange hedging cost 1%/1.3%/9%

 

The company's strategy is
(1) Does not bear the exchange rate impact of the balance sheet
(2) There are definite interest payments to facilitate financial planning. As the new chief financial officer, how can you achieve it?

Company B is a well-known consistent production grain and oil group/factory located in North China, Northeast and other places.

 

Assets over RMB 5 billion / equivalent cash 2.5 billion
The value of FOB cargo per ship is about 40 million U.S. dollars
Purchase at least 2 ships per month, payment in USD. 
Shipping schedule 3 months, 1 month for processing and sales, TT cash transaction
Adopt JIT low inventory management
Sales competition is fierce and there is no room for price increase, profit is only about 6% when operating properly
Large changes in soybean prices / real-time exchange rate changes.
Newly built factories of the same scale costs about RMB 1.5 billion
The cost of company loan is about 5%

 

The company's strategy is to quickly double its production capacity to seize the market without losing money. As the chief financial officer, how do you plan to ensure proper operation and not lose money?

Company C is a well-known raw material trader in Singapore

Assets of $500 million
Approximately USD250 million in cash/ USD 50 million in long-term liabilities/ USD 50 million in short-term liabilities

No long - and short-term liabilities

The amount of credit granted by the banks is approximately US$100 million
The company has been downsized with only three people in charge of finance and purchasing
Approximately 24 million barrels of crude oil are purchased annually and monthly purchase volumes are not affected by the season.
The payment will be paid within 30 days and the purchase price of this month will be 10% higher than the average purchase price of last month
Current year crude oil price USD40/barrel and future direction unknown
The futures price for the next delivery date is USD43/barrel  and the market has a premium of $3 per quarter

The company's goal is to ensure monthly and annual purchase quantity.  As the chief financial officer, how would you plan?

Company D is the world's top cabinet manufacturer
Headquarters in the Virgin Islands
Annual revenue of USD 360 million, annual growth rate of 10%, little change in monthly revenue, gross profit margin of 6%
U.S. dollar is the main currency for payment and receipt
No RMB income
The factories are located in Guangdong (80%) and Taiwan (20%)
Personnel expenses account for 50% of revenue
Raw materials accounted for 30% of revenue, purchased locally in RMB and U.S. dollars respectively
No long-term and short-term liabilities
The credit amount given by each bank is approximately US$50 million
Estimated that the cost of building a new factory in China is about CNY 900 million cents invested in 3 years.

 

Shareholders hope that the cash flow and revenue in the financial report will maintain steady growth in the next two years. As the chief financial officer, how do you plan?