For this assignment, you will be taking the role of CFO or financial manager at a simulated company. You need to construct a practical scenario that will use derivatives to reduce interest-rate risks, currency volatility risks, and economic risks in your company’s pension plan. Your scenario should include investments in equity and bonds.
- Create a simulated company that meets the following criteria:
- Multi-national with divisions in the U.S., Europe (Germany), and Japan.
- Has banking relationships in those same countries with loans priced in LIBOR and Prime Rate.
- Pension plan should be based in the U.S. and have exposure to S&P 500 equity index and Intermediate Corporate Bond Index with a 60% and 40% respective split.
- Evaluate your company’s exposure to risk.
- Formulate techniques and methods using derivatives to address risk.
- Structure a derivative management program.
- Apply option trading strategies as a method of portfolio insurance.
The Reducing Company Pension Plan Risks using Derivatives Paper
- Must be five to six double-spaced pages in length of at least 1500 words (not including title and references pages) and formatted according to APA style.
- Minimum four sources
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