7405.docx - STRATEGY REPORT[Document subtitle FINM7405...

This preview shows page 1 - 5 out of 12 pages.

STRATEGY REPORT [Document subtitle] 0 FINM7405 FINANCIAL RISK MANAGEMENT
The Strategy and Performance of the Previous Manager for the Quarter 1 (Source: Portfolio Performance Report) The yield curve of the end of quarter 1 shows that steepened, short-dated bond rates declined more than the longer-dated bond rates. However, the overall yields at the end of quarter is below the yields at the start of the quarter. Under this condition, what the manager needs to do is focusing on decreasing duration, they should buy back long maturity and issue short maturity which is equivalent to receiving fixed and paying floating. 1
(Source: Portfolio Performance Report) The above figures indicate that the cost of fund of those transactions previous manager made like DB14 and DB19 exceed the portfolio benchmark cost of fund. For the 3-month commercial paper the previous manager could issue more instead. In my point of view, as the manager forecasted an improper trend of the yield curve, what their previous purpose is focusing increasing duration instead of decreasing duration which is based on the correct yield curve at the end of quarter. In this way, the previous manager should have received fixed and paid floating of swap, issued the commercial paper, bought bonds and bought 10-year futures. The State of the Australia Economy (source: Economy Onverview of September Quarter 2009) 2
As we can see from above graphes, there has occurred a sharp drop at the end of September of 2008 and it is much below the average. Due to the weak global market, business investments and household consumptions were in big contractions. Because the declined of fuel price and mortgage interest rates, the household disposable income has slowed also. As the expecting weakened of business, RBA cut the cash rate to 2.5% which led the CPI to the

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture