ASSESSMENT 2: GROUP ASSIGNMENTWEIGHT 20% OF THE UNIT TOTAL MARKSOverviewThe assignment provides students with an opportunity to work in a group anddemonstrate their capacity to conduct research on a prescribed topic on an academiclevel and to critically evaluate key concepts and issues related to the topic. Theassignment task is an opportunity for students to demonstrate evidence of broad andin-depth research on a chosen research topic:??? To clearly work out findings, and interpret and present them in a meaningful way.??? To clearly structure thoughts and arguments and to put findings into the context ofcurrent debates in the field.??? To apply textbook tools to solve practical problems.??? To present a written work in a professional manner.The assignment has two parts namely Part I and Part 2. Both parts are compulsory foreach group. There are four questions in Part I. Each group has to attempt all questionsin Part I. Part 2 requires writing an essay or a report on any of the three topics(options) described in section titled Assignment Task Part 2.Answers to Part I questions must be well organised and supported by workings.Detailed calculations must be provided. For Part II, well researched attempts will behighly rewarded. You are therefore expected to engage in in-depth academic researchto complete Part II of the assignment task. Three options have been prescribed and agroup has to choose any one of them. Each of the prescribed topics requires studentsto consult a variety of electronic resources, such as journal articles, books and thedatabases to which the UWS library subscribes. If you are unsure about the use ofelectronic resources, you should consult the liaison librarian by making priorappointment.Group SizeA group should consist of at least two students but the size must not exceed five inany case. Students should form the groups preferably with those enrolled in the sameclass by no later than Week 6 and inform the unit coordinator in written.?? Note: This assignment task may not be feasible for undertaking individually. If youwant to complete this task individually, let the coordinator know. However, please beadvised that doing the work individually will not be taken as a special case by anymean. The same marking criteria will apply regardless of whether it is completedindividually or in a group.Bank Management Group AssignmentSubmission RequirementsOrganization The assignment may be written in essay or report format. Students must befamiliar with these formats and follow the appropriate style of organising awritten work applicable to the chosen format. For example, if you choose thereport format, your written work must be organised like a report which includesamong others a table of contents, executive summary, introduction, analysis,interpretation of results, recommendation etc. Similarly, if you choose the essayformat, you should be familiar with the organisation of an essay.MinimumRequirementsIn any case (whether it is organised as a report or an essay) the assignmentmust satisfy the following requirements.? The assignment is attached to the appropriate coversheet. Thecoversheet can be downloaded from the unit website. Thecoversheet must be signed by each member of the group and showclearly their name and student ID. A submission without Student IDwill not be assessed. The assignment must be typewritten andstapled.? Must be organised in the appropriate manner for example must havesections such as introduction, analysis, results and interpretation,and finally a conclusion.? Must follow the recommended (Harvard) referencing style. Sourcesof any document, database, concept, definition etc. must be cited inthe appropriate manner.? Must provide a list of references. The list should include only thoseused or referred to in the body of the assignment. Penalty appliesfor not providing the list of references.Format The assignment should be formatted as follows:Font/Font size: Arial (preferred) /11, regularMargin: (Left, right, top and bottom) 2.54 cmPage numbers: yesLine Spacing: 1.5Paragraph Style: JustifiedReferencing The School of Business recommends the Harvard UWS referencing style.Full details of referencing systems can be found at:http://library.uws.edu.au/citing.php?arg=1&p=ofsA full range of resources for searching and citing references is available at:http://library.uws.edu.au/training.phtmlStudentEvaluation ofGroup MemberParticipationGroup assignment tasks must be done and submitted as a team. Free riders ina group are identified by confidential evaluation by the fellow students in thegroup. The questionnaire for the evaluation is available on the unit webpage.Should a student have to say anything about his/her group mate; he/she can doso by completing this questionnaire and submitting it confidentially to the unitcoordinator.?? Note: The unit coordinator will post assessment marks using the My Grade functionon the units vUWS site. For more comprehensive feedback, students should contactthe coordinator to make an appointment.Page 2 of 12Bank Management Group AssignmentDue Date and TimeThe assessment is due on Monday, 12 October 2015 by 11.55 PM.Submission modeThe assignment must be submitted online through the assignment drop box on the unitwebpage. Submission by any other means may not be accepted. Please note that eachgroup will be able to submit just one time. Do not drop the group member evaluationreport into the assignment drop box. If you do so the link will disappear immediatelyand you will not be able to submit your actual work. The group member evaluationreport is a confidential document. Submission of this report is not compulsory.However, you can send the coordinator a report about your fellow members if you feelit is necessary.Page 3 of 12Bank Management Group AssignmentGROUP ASSIGNMENT TASKS: PART IThis part of the assignment task is compulsory. There are four questions in this part.Each group must attempt these questions. Weight of each question is mentioned nextto the question number. The weight of this part of the assignment is 60 percent of thetotal marks (20) allocated to group assignment. Detailed calculations must be provided.Submission showing answers only will not be marked. Use math-type or MS-EquationEditor to type equations where necessary.Question 1 (20 marks)1. A bank buys 150 shares of a company on 1 January 2012 at a price of $156.30 per share.A dividend of $10 per share is paid on 1 January 2013. Assume that this dividend is notreinvested. Also on 1 January 2013, the bank sells 100 shares at a price of $165 pershare. On 1 January 2014, the bank collects a dividend of $15 per share (on 50 shares)and sells its remaining 50 shares at $170 per share.A. Write the formula to calculate the money-weighted rate of return on the banks portfolio.(10 marks)B. Calculate the time-weighted rate of return on banks portfolio.(10 marks)Question 2 (20 marks)A bank issued a $90 million 1-year note at 8 per cent add on annual interest (payingone coupon at the end of the year) and used the proceeds to fund a $100 million facevalue 2-year commercial loan at 10 per cent annual interest. Immediately after thesetransactions were (simultaneously) undertaken, all interest rates went up 150 basispoints.A. Use the duration model to estimate the change in the value of the loan due to theincrease in the interest rate.(5 marks)B. Find the exact change in the value of the loan using the valuation formula.(5 marks)C. Contrast the results obtained in (A) and (B). There is obviously a difference in theresults. Explain what makes this difference and show how the difference can becorrected. Show all workings and calculations.(10 marks)Page 4 of 12Bank Management Group AssignmentQuestion 3 (40 marks)Suppose you work at the help desk of Daffodil Bank. Your job is to help customerschoosing the right financial product. Currently you are dealing with a customer who isseeking a loan to buy a car costing $45,000 inclusive of GST. The customer owns a smallbusiness and she wants to buy the vehicle for business use only. Daffodil currently offersthe following two financing arrangements for this type of customers:i. She can borrow the money as a consumer loan. All Daffodil consumer loans arefully amortizing loans. Interest rate is 10.25% per annum fixed for the term of theloan.Orii. She can buy the car under a hire-purchase agreement since she is currentlyrunning a business. Under a hire-purchase agreement, interests are pre-computedat 10.25% per annum. Hire purchase loans are available for business purchasesonly. If the customer is buying the vehicle for her business, she is eligible to applyfor this finance arrangement.Following terms and conditions apply to both loan arrangements: balloon payment is availableup to 20% of the value of the vehicle; a once of application fee of $125 apply; term of the loan isup to 5 years.The customer wants to pay a down payment of 10% of the car value and balloon 10% of theloan size. She wants to pay off the loan in equal monthly payments over 5 years starting onemonth after the loan issue. She does not want to add up the application fee to the loan amount.The customer requires you to answer the following questions.A. How much she has to pay at the end of each month over the term of the loan under bothloan arrangements (amortizing and pre-computed)?(5 marks)B. What is the total amount outstanding (total amount the customer owes to the bank) atthe beginning of 30th period under both loan arrangements?(5 marks)C. What is the amount of interest payable with the 40th payment under both loanarrangements?(5 marks)Page 5 of 12Bank Management Group AssignmentD. The customer wants to accumulate the balloon amount by making an equal payment to asavings account at the end of each month over the term of the finance (5 years). If thesavings account pays a fixed interest of 4.5% per annum over 5 years, how much shehas to deposit to the savings account each month? Taking this deposit into account,what will be her total cash outflow (financial obligation) per month under both loanarrangements?(5 marks)E. According to the current taxation law, interests on hire-purchase loans are taxdeductible. So if the customer buys the car for her business, she is eligible to claim taxrefund for the interest paid on the hire purchase. Furthermore, if the vehicle is forbusiness use, the customer is also eligible to claim back the GST (10%) paid on thepurchase1. Taking these two incentives into account, calculate the net financial cost(interests and fees net of tax deductions and GST claim) for the purchase of the vehicleunder pre-computed finance arrangements at the time of borrowing. Assume that thecustomer purchases the vehicle at the beginning of a financial year while all taxdeductions and GST are claimable at the end of the financial year; the customers taxrate is 30% and it will remain the same for the next 5 years and that the appropriate ratefor the customer to discount future cash flows is 4.5% p.a. fixed for five years.(15 marks)F. Also calculate the financial cost under the consumer loan (amortizing) arrangements.(5 marks)Summarize your answer to questions A through F in a table. Show workings beneath the table.All supporting documents for example the Excel document must also be submitted if you solvethe problem on Excel.Question 4 (20 marks)Suppose that each of two investments has a 4% chance of loss of $ 10 million, a 2% chancethat of loss of $1 million, and a 94% chance of profit of $1 million. They are independent of eachother.A. What is the VaR for one of the investments when the confidence level is 95%?(3 marks)B. What is the expected shortfall when the confidence level is 95%?(3 marks)1 The customer may also be eligible to claim deduction for depreciation of the vehicle if it is used only for business purposes. Butyou are not required to consider the depreciation.Page 6 of 12Bank Management Group AssignmentC. What is the VaR for a portfolio consisting of the two investments when the confidencelevel is 95%?(7 marks)D. What is the expected shortfall of for a portfolio consisting of the two investmentswhen the confidence level is 95%?(7 marks)Page 7 of 12Bank Management Group AssignmentGROUP ASSIGNMENT TASKS: PART IIWrite an essay or a report on any one of the following topics. Word limit is 2,000. Thislimit includes everything appearing in the main body of the written work but does notinclude appendices. Only the most relevant supporting materials for example Excelspreadsheet etc. should be attached to the essay or report. The weight of this part ofthe assignment is 40 percent of the total marks (20) allocated to group assignment.Assignment topic: Option 1SustainablebankWestpac named worlds most sustainable company at Davos? George LiondisWestpac has been ranked the worlds most sustainable company in a majorglobal coup for the Australian bank. The bank was handed the prestigious prizeat the World Economic Forum in Davos, Switzerland, where Westpac chief GailKelly is attending alongside global business and political leaders, includingPrime Minister Tony Abbott.Speaking from Davos, Mrs Kelly said Westpac had been recognised for itscommitment to social, environmental and economic responsibility. ?I amdelighted that Westpacs sustainability performance has been rated so highly onthe global stage, Mrs Kelly said.Westpac topped the list ahead of US biotech firm Biogen, Finnish miningtechnology and capital goods company Outotec Oyj and Norwegian oil giantStatoil.ANZ Banking Group, Commonwealth Bank of Australia, Stockland andWesfarmers were the only other Australian companies on the list and wereranked at number 19, 25, 32 and 92 respectively.The list is compiled every year by Corporate Knights, a research companybased in Toronto, Canada.?Westpac has a long history of leadership and innovation in corporatesustainability. It was the first bank to join the Australian governmentsGreenhouse Challenge Plus and the first financial institution in Australia tocreate a matching donation program, Corporate Knights said in a statement.As part of its ?2017 sustainability strategy, Westpac has committed up to $6billion for lending and investment in clean technologies and environmentalservices. It will also make up to $2 billion available for lending and investmentin social and affordable housing.?It is wonderful recognition of the work of our people to help create asustainable future and deliver long-term value for our customers, employees,shareholders and the community, Mrs Kelly said.Corporate Knights chief executive Toby Heaps said the worlds 100 mostsustainable companies had outperformed the broader market by an average of3.2 per cent over the past year.Page 8 of 12Bank Management Group Assignment?The results speak for themselves. Topping a well-diversified benchmark is noteasy, but the Global 100 has managed to squeak out marginal outperformanceacross a turbulent period in the history of the capital markets, he said.?We attribute this excess return to the growing investment relevance of coresustainability themes, including water scarcity, rising energy prices and growingcompetition for human capital.Source: The Sydney Morning Herald (Business) January 23, 2014 ? 11:55am.http://www.smh.com.au/business/banking-and-finance/westpac-named-worldsmost-sustainable-company-at-davos-20140123-31ab3.html.This assessment task requires your responses to the above newspaper article. It isexpected that you critically evaluate Westpacs performance in terms of profitability,solvency and sustainability. In doing so, you should not only focus the key attributesthat take Westpac to the top of the list of the worlds most sustainable companies, butalso highlight the banks approach to profitability, solvency, customer care andemployees welfare.The evaluation needs to be supported by empirical evidence. For instance, if you haveto say that the Westpac profitability has been better than CBA in the past few years;you should provide data/chart supporting your argument. You should also describe thecosts and benefits of being a sustainable company and how a bank should minimizethese costs and maximize the benefits. Specific areas to be addressed are listed below(under Assessment Criteria). Your work will be treated as suboptimal if it fails toconsider any of these aspects.Option 1: Marking guideYour submission will be evaluated in accordance with the criteria outlined below.CRITERIA A comparative analysis of Westpacs performance with other bankse.g. CBA, ANZ and NAB in terms of profitability, solvency andsustainability.50marksCosts and benefits of a sustainable company. 25marksWestpacs approach to customer care and employees welfare. 15marksLogical flow of information, adoption of correct referencing styleand use of appropriate structure. Please refer to the submissionrequirements before submitting your work.10marksPage 9 of 12Bank Management Group AssignmentIt is expected that students pay due attention to the following attributes whileresponding to the above assessment criteria.Knowledgeof contentDescription of key ideasUse of own words ? paraphrase ideas borrowed from the textbook or othersourcesUse of diagrams to illustrate conceptUnderstanding the issue, critical analysis and constructive recommendations.Structureof AnswerClarity of argumentCommunication of ideas and quality of expression, spelling and grammarNeatness of presentationOrganisation of contentsSources acknowledged correctlyPage 10 of 12Bank Management Group AssignmentAssignment topic: Option 2Value at Risk(VaR)?VaR is an attractive (risk) measure because it is easy to understand. Inessence, it asks the simple question ?How bad can things get? This is thequestion all senior managers want answered. (Hull 2008: 396).This task of the assignment requires you to choose any three ASX listed stocksand calculate 10-day VaR at 99 percent level of confidence of an equallyweighted portfolio of these three assets at certain point of time using any two ofthe following methods:??? Historical simulation??? Parametric method??? Monte Carlo simulationYou may choose any size of the investment say $100,000 or whatever you like.The other requirements are as under:Calculate the amount of capital charges required as per the Basel Accord if abank wants to invest in that portfolio. Justify your choice of the method for VaRcalculation.Useful References:Alexander, C 2008, Value at risk models: market risk analysis IV, John Wiley &Sons.Hull, J 2008, Fundamentals of futures and options markets, 6th edn, PearsonInternational.Marrison, C 2002, The fundamentals of risk management, McGraw Hill.Option 2: Marking guideCRITERIA Justification for the method chosen. Advantages and limits of thechosen methods are precisely described.20marksClear presentation of VaR calculation.Provide supporting files especially if the results are obtained throughprogramming on a software platform. For example, provide the Excelspreadsheet that shows cell formulae if MS Excel is used.60marksCalculation of capital requirement for a bank investing in theportfolio.Briefly describe the Basel Accord in regard to capital charges formarket risk.10marksOrganisation of the written work for example adoption of theappropriate referencing style, logical flow of information etc.10marksPage 11 of 12Bank Management Group AssignmentAssignment topic: Option 3The LIBORScandalHave you heard of the LIBOR scandal? If not, just google the libor scandal.This task requires you to write an essay or report on the issue. The essay or report mustaddress the questions mentioned in the following section.Option 3: Marking guideCRITERIA Define LIBOR. Give examples of its use. Why is it so important inglobal finance?15marksDescribe how LIBOR is determined. 15marksIllustrate with examples how a trader might benefit frommanipulating libor. Describe how libor was manipulated by TomHayes, a trader based in London. Name the banks or financialinstitutions who were fined for manipulating LIBOR.20marksWhat changes are put in place since the evidence of manipulationwas revealed?20marksDescribe the effects that Australian banks and financial institutionsmight have to encounter for a LIBOR manipulation in the future andhow might the banks and regulators avoid such effects.20marksOrganisation of the written work for example adoption of theappropriate referencing style, logical flow of information etc.10marksPage 12 of 12
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