Assignment/Coursework Remit

Assignment:

Overall word limit: 2,000 words

Total marks: 100

Assume you are an external consultant for firm ABC, operating in industry XYZ. You are required to analyse the risk profile and prepare recommendations to improve the risk management practices in firm ABC. To do so, the proposal should contain the following core sections. It will include some general discussions on whether or not a firm should conduct risk management activities (i.e., the motivation or cost/benefit). After that, you can analyse the potential risk sources for the entire industry XYZ. For example, which risk is more important for that industry? In the last part, you should analyse firm ABC’s business profile and risk exposures and propose suitable and specific risk management actions. You are free to add other sections to make the proposal more appealing.

Below are some hints.

1. To generally discuss about the motivation of corporate hedging, you can refer to the current academic research by using google scholar to search some key words, such as “corporate hedging”, “corporate risk management”, “derivatives and firm value”.

2. For the industry XYZ, please choose one specific industry from the Fama and French 48 industries. The industry classification data is available at Prof. French’s personal website (https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html#Research). However, financial industry should be excluded. For each industry, there can be a max of 4 students choosing the same industry.

3. To identify the potential risk sources for industry XYZ, please focus on the interest rate risk, foreign exchange risk, and commodity risk. You can do a qualitative analysis, or quantitative analysis. For the quantitative analysis, you can regress the industry’s stock return on the interest rate, foreign exchange rate, or commodity prices, and compare the industry stock return is more sensitive to which factor, or whether it changes along time? Other related risks could also be discussed. The industry return data is available at Prof. French’s personal website. Please collect the other data by yourself.

4. To analyse firm ABC’s business profile and risk exposures, please choose a typical firm from the industry XYZ, read the firm’s annual report. Does the firm suffer the same risk exposure as the entire industry? Have the firm conducted any hedging activities? Do you have any proposed activities to further manage the firm’s risk? Each student must choose a different firm.

5. If needed, to save space, you can list the detailed empirical analysis or any other information you think necessary into an appendix.

Module Learning Outcomes:

The student could also have a taste of the recent research on the risk management literature and think more deeply on the necessity of risk management.

Grading Criteria:

The requirements of the assignment are as follows:

1. This is an individual assignment.

2. Deadline for the assignment is:

12.00 noon (UK time GMT), Friday, 3^th May 2024

3. Five percent of the marks will be deducted for each day of late submission unless permission is granted before the deadline.

4. The assignment should contain 2000 words. Five percent of the marks will be deducted if you are 10% above or below the limit.

5. The assignment must include a title page (ONLY with the ID number), a table of contents and a bibliography clearing listing down all the articles and books that are cited in the assignment. These will not be accounted into the 2000-word limit.

Feedback to Students:

Both Summative and Formative feedback is given to encourage students to reflect on their learning that feed forward into following assessment tasks. The preparation for all assessment tasks will be supported by formative feedback within the tutorials/seminars. Written feedback is provided as appropriate.  Please be aware to use the browser and not the Canvas App as you may not be able to view all comments.

Plagiarism:

It is your responsibility to ensure that you understand correct referencing practices. You are expected to use appropriate references and keep carefully detailed notes of all your information sources, including any material downloaded from the Internet. It is your responsibility to ensure that you are not vulnerable to any alleged breaches of the assessment regulations. More information is available at https://intranet.birmingham.ac.uk/as/registry/policy/conduct/plagiarism/index.aspx.