Câu 14: CFA Level 3

Garrison Investments is a money management firm focusing on endowment management for small colleges and universities. Over the past 20 years, the firm has primarily invested in U.S. securities with small allocations to high quality long-term foreign government bonds. Garrison's largest account, Point University, has a market value of $800 million and an asset allocation as detailed in Figure 1. Figure 1: Point University Asset Allocation *Bond coupon payments are all semiannual. Managers at Garrison are concerned that expectations for a strengthening U.S. dollar relative to the British pound could negatively impact returns to PointUniversity's U.K. bond allocation. Therefore, managers have collected information on swap and exchange rates. Currently, the swap rates in the United States and the United Kingdom are 4.9% and 5.3%, respectively. The spot exchange rate is 0.45 GBP/USD. The U.K. bonds are currently trading at face value. Garrison recently convinced the board of trustees at Point University that the endowment should allocate a portion of the portfolio into international equities, specifically European equities. The board has agreed to the plan but wants the allocation to international equities to be a short-term tactical move. Managers atGarrison have put together the following proposal for the reallocation:To minimize trading costs while gaining exposure to international equities, the portfolio can use futures contracts on the domestic 12-month mid-cap equity index and on the 12-month European equity index. This strategy will temporarily exchange $80 million of U.S. mid-cap exposure for European equity index exposure. Relevant data on the futures contracts are provided in Figure 2. Figure 2: Mid-cap index and European Index Futures Data Three months after proposing the international diversification plan, Garrison was able to persuade Point University to make a direct short-term investment of $2 million in Haikuza Incorporated (HI), a Japanese electronics firm. HI exports its products primarily to the United States and Europe, selling only 30% of its production in Japan. In order to control the costs of its production inputs, HI uses currency futures to mitigate exchange rate fluctuations associated with contractual gold purchases from Australia. In its current contract, HI has one remaining purchase of Australian gold that will occur in nine months. The company has hedged the purchase with a long 12-month futures contract on the Australian dollar (AUD). Managers at Garrison are expecting to sell the HI position in one year, but have become nervous about the impact of an expected depreciation in the value of theYen relative to the U.S. dollar. Thus, they have decided to use a currency futures hedge. Analysts at Garrison have estimated that the covariance between the local currency returns on HI and changes in the USD/Yen spot rate is -0.184 and that the variance of changes in the USD/Yen spot rate is 0.92. Which of the following types of exchange rate risk exposure has Haikuza hedged using currency futures?

1. A. Economic exposure.
2. B. Translation exposure.
3. C. Transaction exposure. — đáp án hiện tại