Background

OceanaGold is a multinational mid-tier gold mining company based in New Zealand engaged in the extraction and processing of gold at various sites globally. OceanaGold's forecast quarterly production (scaled down for ease of calculation) for the next two quarters is presented in the following table.

OceanaGold's forecast quarterly productionQuarterGold (troy ounces)June 20192,000September 20192,200December 20192,500

OceanGold's forecast quarterly production (2019) created by Swinburne Online

OceanaGold's sales of gold metals are denominated in US dollars. In addition, OceanaGold has a long-term variable rate loan (5-year maturity) of AUD$50 million and a variable rate loan (3-year maturity) USD $20 million. The next reset dates are 30 March and 30 June 2020, respectively.

Requirements

You are required to assume that you are a recently appointed hedge strategist with OceanaGold and that you have been requested to prepare a report for presentation to their Investment Strategy Committee at its next meeting. You have been specifically requested to address the following. Note that the following content will form 75% of your total grade for this assignment.

Section 1 (25%)

(a) Identify the specific financial risk exposures faced by OceanaGold (please limit the financial risks to what is taught in this unit). In this section you must discuss the outlook (forecast) for each underlying variable and identify whether it will present a risk to the firm. You need to provide adequate justification for your responses. (15%)

(b) Make firm recommendations on whether to hedge all, part or none of the financial risk exposures that you identified in part (a) above. You must provide some explanation for each of your recommendationsi.e. the reasons for suggesting this strategy. (You are not required to specify the type of derivative to be used to hedge in response to this question). (10%)

Section 2 (25%)

(c) Make recommendations on which derivative instruments (for example, options, futures etc) to use to implement any hedges that you have recommended in part (b) above. Once again, you must explain your recommendations (i.e. justify the choice of derivative instrument). This means that you will need to provide very well researched and fully explained reasons for your responses to parts (a) and (b). (15%).

(d) Irrespective of your recommendations in parts (b) and (c) above, assume that OceanaGold wishes to hedge 100 percent of its gold deposits with exchange traded futures or options. Provide a schedule that shows:

• the risk you are hedging against
• the number of futures and/or option contracts that would be required
• the reason for choosing futures or options
• the contract months used
• whether you are going long or short futures and, in the case of options, whether you are buying puts or calls
• the option strike prices that you recommend and the premium costs involved.

(Note: in responding to part (d) you only have to implement the hedgeyou do not need to calculate any hypothetical future outcome). In this section you must show all calculations and include your responses in a table format as presented in the following. (10%)

Format for calculationsPlease include calculations of the number of contracts in the appropriate cell.Type of riskExposure to be hedgedProportion of the exposure to be hedgedDerivatives i.e. futures or optionsExplain the choice of derivative instrument/strategyNumber of contractsContract monthsLong/short/put/callSpike prices, premiums/futures prices, etc.

Format for calculations (2019) created by Swinburne Online

Section 3 (25%)

(e) Propose TWO option combination strategies that involve more than one option contract for the USD variable rate loan (USD $20 million), for all relevant risks faced by this portfolio. OceanaGold's management has expressed a desire to retain some of the upside benefits that hedging with options can permit but without paying a lot of money in option premiums. That is, your recommended strategies should provide a 'reasonably effective' hedge but keep the option premium payment limited to a 'reasonable amount' (it does not have to be zero!). As the strategist, it is up to you what you consider 'reasonable' for this purpose. You must also describe the benefits and possible shortcomings of your proposed option strategies. You must use actual option data to illustrate your option strategies and to hypothetically demonstrate their benefits and shortcomings. Calculate the number of contracts required for each strategy and provide the strike prices and total premium costs.

Structure

Your report should follow the following structure:

• Executive summary
• Introduction
• Body (sections 1-3)
• Conclusion
• References
• Appendices (optional)

Note:References and appendice are not included in the word count.

Please note the following:

1. You are expected to use actual data for your recommended hedging strategies for requirement (d). Futures and option prices can be found atCME Group(Links to an external site.)
2. (2019) andASX(Links to an external site.)
3. (2019).
4. The price data you use in your assignment will depend on the prices on the date that you access the data. That is, assignments submitted by different students will most likely have different prices.
5. It is your task to research the necessary futures and options contracts and the contract specifications in order to implement your proposed hedge strategies.
6. Assistance will only be provided if it is clear that you have made a substantive research effort.
7. Answers to each part should be strictly separated. Answers to different parts should NOT be combined under any circumstance.
8. There are no definitive answers for this assignment. Your submission will be evaluated based on the clarity of your report and the quality of your arguments as responses to the requirements.
9. Conduct research as widely as possible (up to 8-12 sources). You must use sources that are considered academically reputable.

Supporting resources

The following resources will assist you with completing this assignment:

• CME Globex(Links to an external site.)
• (CME Group 2019) is an electronic trading system that you can use to source real-world data for this assignment.
• Student Hub
• Academic Writing and Presenting(Links to an external site.)
• Academic Practice(Links to an external site.)
• Teamwork

i need hel,p with section d please