1. Calculate your teams Portfolio Generated Cashflows for 15 June 2004. Follow the procedure set out on pages 15-16 of “Lecture 8 Managing Portfolio and Client

Cashflows.pdf” . You will need your teams performance report (see Blackboard) for Quarter 1, in particular page 6.

2. What is the Client cashflow for 15 June 2004.

HOMEWORK 2 (Self Practice)

For the practice game session we had in “Lecture 6 Trading Game Introduction”,

1. Calculate Gold team’s (i.e. the Model team’s) Portfolio Generated Cashflows for 15    September 2005. Follow the procedure set out on pages 15-16 of “Lecture 8 Managing Portfolio and Client Cashflows.pdf” . You will need Gold team’s performance report (see below) for Quarter 1, in particular page 6.

2. What is the Client cashflow for 15 September 2005.

QUEENSLAND ELECTRO POWER AUTHORITY (QEPA)

QEPA manages an electricity generating company. It has A$600 million of eight year debt which it is repaying fairly quickly out of operating profits. It’s projected revenue and expenses for the   coming year are:

(i)         Revenue                  Sales                                         A$180 000 000 (ii)        Expenses                Copper purchases                      A$20 018 647

Debt Service Payment                 A$94 273 680

Other                                           A$36 000 000

(iii)      Profit                                                                       A$29 707 673

QEPA purchases 5000 tonnes of copper on 15 March 2006. The forecast cost of copper over     the coming year has been calculated based on current forward rates. QEPA has outsourced their Treasury function to you. This allows you to make decisions regarding QEPA exposures. Such as whether to hedge FX and Copper, and the use of forwards etc.

A PORT AUTHORITY (APA)

APA currently has A$300 million of eight year debt. Annual repayment of principal and interest is budgeted at $47 136 840. APA is planning to borrow an additional A$100 million for eight    years to finance the construction of a new port facility. APA also has an obligation to pay a       European supplier EUR 5 000 000 in six months time (15 December 2005).

LOCAL GOVERNMENT (LG)

LG currently has A$100 million of seven year debt. It operates on a tight budget that is heavily dependent on State Government grants and rates. Its projected budget for the coming year is:

(i)        Revenue                        Rates                                 A$45 500 000 Grants                               A$60 000 000 Business Income               A$10 000 000

(ii)        Expenses                         Salaries                                 A$60 000 000

Debt Service Payment         A$17 483 336

Other                                   A$35 000 000

(iii)      Projected Surplus                                                      A$3 016 664

Portfolio generated cashflows:

1. Determine the value of Commercial paper that matures at the end of quarter 1;

This can be found on the ‘Face Value Summary’ as $201,737,417. This amount has to be

repaid so we will show as a negative:

-$201,737,417

2. Determine the value of bonds that matures at the end of quarter 1;

The balance sheet shows that no bonds mature until 15/6/2006 at the earliest.

3. Determine the value of bond coupons that must be paid at the end of quarter 1;

Bond coupons are only paid in June and December.

4. Determine the value of swap payments and receipts at the end of quarter 1;

Refer to the ‘Face Value’ column on page 6 of the performance report. Note that positive values in this table refer to issued liabilities. Therefore any payments (coupons, interest) in respect of these will have a negative sign (cash outflow) and vice versa for those items with negative values.

Thus, the -$200,000,000 (IRS-Floating) means that we are receiving floating on this amount of principal. The relevant rate is the mid CP rate at the start of the quarter (15/6/05) which was 5.67%.

Because the floating side of both the domestic and cross-currency swaps is at the same mid CP 3M rate we just need to add these:

-200,000,000

+200,000,000

=+0

the interest to be paid on the floating side of the CC Swap: 200,000,000 * 5.67% *92/365 = - 2,858,301. We use a negative sign here to indicate a payment.

Note: 92 days is the number of days between 15/6/2005 and 15/9/2005.

5. Determine the value of brokerage and variation margin to be paid at the end of quarter 1.

Brokerage (850 contracts x $5 = -$4,250) must be paid and variation margin received (+$819,511) where a profit is made, and deposit margin is received (+$1,724,296), in respect of deals done at the start of the quarter. All required information is found on the Balance Sheet (page 4 of the performance report).

6. Determine the admin charge to be paid at the end of quarter 1;

The admin fee can be found as a portfolio liability on the balance sheet and can also be calculated as: $1,100,000,000 * 0.5% *92/365 = -$1,386,301.37

7. What is the net portfolio generated cashflow?

Net portfolio generated cashflows are:

Commercial Paper

Futures

Administration

-201,737,417.00

+2,539,557

-1,386,301.37

-200,584,162