*** P4 December 2015 Exam was.. Instant Poll and comments ***

mate please condider this
the downside of tranching is, the company can only issue a percentage of the total receipts to serve as incentive to subscribe the loan, in the exam it was 80% i think

too much costs involved in setting up the programme

it can send bad signals about a company cuz if u hear that a company is doing tranching, this means the company desperately needs cash and is willing to loose some of the receivables 20% just to get the 80% cash and this can cause share price fluctuations

sukuk is islmaic bonds,

the only difference with coporate bonds is that sukuk there is no interest paid annually. the compensation is in the form of sharing of gains made by the issuer of the bond in the investment he made the gain. if he made no gain in the investment then the bond holders get nothing.

this means as a company issuing sukuk bonds u must have had a good history of being a good business company so that all bonds can be subscribed for.

@Obiora and Juve: Thanks brothers. You made my day. I used 90% as collateral pool as well. InshaAllah we all will get through. great start of the day. Just woke up after a good long night sleep.

@yanchen15 you buy put option to hedge Euro receipt because the contract currency was also in Euros. So when you receive Euros on 28th Feb you will sell those euros to money changer/bank to buy $s. As contract Currency is also in euros so you will buy 164 Put Options. so the decision on whether to go for PUT OR BUY IS BASED ON WHAT YOU ARE DOING WITH CONTRACT CURRENCY. iN SUMMERY IF SEELING CONTRACT CURRENCY THEN PUT; AND IF BUYING CONTACT CURRENCY THEN CALL.

@harriet88 said:
Other option was P5 which I sat on Wednesday! Fingers crossed never have to sit one again!! Did you sit P7 this sitting or last?

Nah, I just sat P4 this time round. Did P2 and P7 together, then P1 and P3 together in December 2014. Fingers crossed! 18 January are results right? P7 seemed a significant amount of writing for the amount of marks, but is to be expected given it’s a wordy paper! How was P5?

Anybody remembers what was q1(d)

In terms is of Q3 – did it ask to just set up the hedges in relation to FRA,Futures and Options not to show the result of the hedges?

Might be wrong here but I just set up the hedges using the three questions for Futures and Options,

1, Buy or Sell
2. how many conts
3. which date

Am I on the right lines or have I missed something?

Also thought the discussion section was worded funny – found it difficult to ascertain what they were after.

So i describes the benefits of using derivatives to reduced Forex risk and then I described the difference between treasury and finance department and the benefits or having the sep department. My writing by this point was horrific though due to tiredness – hope this can be overlooked.

Additionally i would advise anyone to tackle section B first as section one is very time consuming and can bog you down from collecting easier marks on shorter questions when you are fresh.

@jeffrey1989 said:
In terms is of Q3 – did it ask to just set up the hedges in relation to FRA,Futures and Options not to show the result of the hedges?

Might be wrong here but I just set up the hedges using the three questions for Futures and Options,

1, Buy or Sell
2. how many conts
3. which date

Am I on the right lines or have I missed something?

Also thought the discussion section was worded funny – found it difficult to ascertain what they were after.

So i describes the benefits of using derivatives to reduced Forex risk and then I described the difference between treasury and finance department and the benefits or having the sep department. My writing by this point was horrific though due to tiredness – hope this can be overlooked.

Additionally i would advise anyone to tackle section B first as section one is very time consuming and can bog you down from collecting easier marks on shorter questions when you are fresh.

Not sure for the question about setting up or actually hedging, I did the whole calculations doing the premium for options, the tick size, and the cost of hedge.

I found the part b of Q3 to be worded funny too, and ended up taking assumptions and other risks, but later figured it was actually asking about basis risks and the over and under hedging.

I got WACC of approx 14% in Q1
I used the following steps at arriving at this:
1) ungear C’s beta equity to arrive at C asset beta
2) weight asset betas of both companies (C and A) to receive combined asset beta as instructed in question
3) re-gear combined asset beta to arrive at combined equity beta
4) using CAPM receive Ke
5) using pre-tax cost of debt 6% of combined Co receive WACC at approx. 14% (ratio of 40:60 holds after business combination)
6) this WACC was used to discount potential synergy (tax&lay offs)

Why so many people here write that they got 9%?

@vasabk said:
I got WACC of approx 14% in Q1
I used the following steps at arriving at this:
1) ungear C’s beta equity to arrive at C asset beta
2) weight asset betas of both companies (C and A) to receive combined asset beta as instructed in question
3) re-gear combined asset beta to arrive at combined equity beta
4) using CAPM receive Ke
5) using pre-tax cost of debt 6% of combined Co receive WACC at approx. 14% (ratio of 40:60 holds after business combination)
6) this WACC was used to discount potential synergy (tax&lay offs)

Why so many people here write that they got 9%?

Precisely, thats what i did

@dennis98 said:
Was this the first ever foreign currency hedging question where you are given the contracts in the foreign currency (euros) as opposed to the home currency (dollars) ? I think this meant that when calculating the number of contracts there was no conversion to be done as the figures were already in euros. And likewise for the gain/loss on the futures and the premium for the options there was no conversions to be done as the figures were already in dollars?

True, the currency wasn’t supposed to be converted before calculating no of contracts.

However when calculating the premium you had to convert because the premium prices were given in Cents. i.e Home currency.

@Faisal 1990: I think regarding premium, you didn’t have to convert because premium will be in $ already and when you convert the Euro receipt on 28th feb to $ then you will deduct $ premium from that receipt.
That’s how I did it regarding currency option.

I started with Q3, then did Q2, it was rather easy, then I had 1.5 hour left for Q1 but it was so hard for me…I did all about theory, but the main part of 18 mark was terrible for me((

If I m not mistaken, the Q3:
a – chose hedging option (13 marks)
b – factors to consider when chosing a hedging strategy (5 marks)
c – should a separate treasury function be created (7)