BAFI1002 Financial Markets and Institutions

 Assessment 3: Research Report – Case Study  Overview

 The assessment will involve a case study pertaining to different financial markets and instruments. Students will be required to prepare a comprehensive Investment Strategy Research Report for the client. 

Learning Outcomes

The targeted Course Learning Outcomes for this assessment are:

•        CLO1: Identify the nature and key components of financial systems domestically and globally to apply in diverse contexts. 

•        CLO2: Identify the nature, role and determinants of the structure and level of interest rates in economics and financial contexts. 

•        CLO3: Analyse the characteristics and functions of the main financial intermediaries and the role of regulatory bodies in in financial systems in a global context. 

•        CLO4: Assess the operations of the foreign exchange market including the nature and determinants of exchange rates and relevant investment strategies. 

•        CLO5: Explore the main features and theorems of capital markets, institutions and securities including debt securities, equity and derivative products. 

Assessment details

•        The assessment is a scenario-based research analysis report. You are required to conduct independent research and write a 3000 words (-/+10%) report. 

•        This assessment includes all the content covered in Topics 1 to 10. 

•        The assessment is worth a total of 50 marks and accounts for 50% of the total grade for this course. 

Formatting

•        The report must be presented in standard report structure. 

•        The report must be presented and submitted in Microsoft Word document. 

•        You may use hand-drawn diagrams where applicable. Include the image of the diagram – use balanced resolution so the information in the image is 

•        Guidelines for text formatting:    o        Font style: Times New Roman o            Font size: 12 (14 for headings) o            Spacing: 1.5 line spacing o            Page No: Page x 

Final Assessment – Research Report Case Study

Background:

As a financial advisor, you have the responsibility to educate and empower clients with a deep understanding of market and economic systems to remove the mystery and fear associated with investing. This approach fosters confidence and informed decision-making, enabling clients to invest wisely regardless of external economic conditions.

Your task is to prepare a comprehensive Investment Strategy Report for your new client, Mr. Cheong. This report should align with Mr. Cheong’s client profile, including his wealth, risk preferences, and investment objectives. The client information are available in the Appendix of this document. 

Report requirements: 

Your report should be well-supported with examples and credible sources, including peer-reviewed journal articles, papers, books, industry reports, institutional reports, regulatory standards, and official materials. Do not rely solely on general websites for information. A minimum of 8 references is expected.

Detailed instructions for each section:

❖  Executive summary:

Provide a brief summary of the key findings, recommendations, and the client’s profile and objectives.

❖  Introduction:

Offer context for the report and its purpose.

❖  Section 1: Market conditions and Monetary Policy

•        Discuss current market conditions in Australia and globally that may impact investment decisions.

•        Analyse and plot the yield curve by using monthly data released in September 2024 for 1-month, 3month Bank Accepted Bills, 3-year, 5-year, and 10-year commonwealth government bonds from the RBA website (https://www.rba.gov.au/statistics/tables/#interest-rates) and offer insights into the Australian economy’s trajectory.

•        Describe the intermediate target for monetary policy in Australia and explain the implementation process.

•        Offer examples of economic indicators that provide insights into future stages of the business cycle.

•        Explain how changes in key economic indicators influence cash rate decisions, referencing the recent RBA action.

❖ Section 2: Asset class discussion 

•        Select four distinct asset classes that you are knowledgeable about and conduct a comprehensive analysis of their defining characteristics, associated risks, potential returns, and provide illustrative examples for each asset class. You are encouraged to utilise diagrams, charts, tables and figures in the discussion.

•        Explain to Mr. Cheong regarding pros and cons of the right issue, assuming he owns 1000 Tesha shares and below scenario:

In 2024, Tesha, Inc. conducted a rights issue to raise additional capital for its growth and expansion plans. Shareholders were given the opportunity to purchase additional Tesha shares at a discounted price on a ratio of 1:5. Tesha’s stock price before the rights issue announcement was approximately $1000 per share. The discount price is $800 per share. Assuming Tesha has 1,000,000 shares and all shareholders exercise their rights. 

❖ Section 3: Funds under management 

•        Considering Mr. Cheong’s preference for cost-effective index funds and his pursuit of promising returns, provide an overview of funds in his portfolio.

•        Investigate and evaluate the historical performance, risk, and return of these funds compared to benchmark indexes.

•        Introduce two new funds aligned with Mr. Cheong’s needs.

•        Using the provided data for a certain fund, explain fund performance by calculating the Coefficient of

Variation, Sharpe ratio and Jensen’s Index and provide an interpretation of the results.

❖ Section 4: Hedging using Derivatives

•        Discuss the potential use of derivatives (e.g., options or futures) to hedge Mr. Cheong’s portfolio against adverse market movements.

•        Explain the benefits and risks associated with derivatives-based hedging strategies.

•        Assess the alignment of these strategies with Mr. Cheong’s risk tolerance and overall investment plan.

❖ Conclusion:

Summarize key takeaways from the report. Emphasise the importance of informed decision-making in achieving Mr. Cheong’s investment objectives.

❖ Referencing guidelines   

Use RMIT Harvard referencing style for this assessment.   

You must acknowledge all the courses of information you have used in your assessments.    

Refer to the RMIT Easy Cite referencing tool to see examples and tips on how to reference in the appropriated style. You can also refer to the library referencing page for more tools such as EndNote, referencing tutorials and referencing guides for printing. 

❖ Report writing guidelines

See details on Reports | Learning Lab (rmit.edu.au)

Appendix: 

Appendix 1. Client profile:

Mr. Cheong, a 45-year-old medical doctor originally from Singapore, currently resides in Australia. After retirement, he wants to live between both Singapore and Australia and seeks an investment strategy that aligns with this goal. Mr. Cheong has a wealth portfolio of 5 million Australian dollars and is willing to take moderate risks. His primary objective is to achieve portfolio growth over time, with a medium-term investment horizon of 15 years. Mr. Cheong is cost-conscious and prefers index funds for his portfolio but is open to exploring other suitable options that optimize portfolio performance. Mr Cheong is keen to invest 2 million Australian Dollars in your funds. You suspect the client has overconfidence bias and home bias.

Appendix 2. Fund List: 

Current Funds/Managers list in Mr. Cheong’s portfolio

Appendix 3. Excel Data file (available on canvas)