An Executive Summary - the Social Responsibility of...

Respond to the position made by Milton Freedman on corporate social responsibility at this site (if this does not connect directly please copy and past on a separate web page on the URL line): http://www.ethicsinbusiness.net/case-studies/the-social-responsibility-of-business-is-to-increase-its-profits/ Do you agree or disagree with Friedmans position? Why? What is most positive about his position? What is most negative about his position? This was written in 1970, does it apply in todays global/high tech economy? Why or why not? The Social Responsibility of Business is to Increase its Profits * An Executive Summary – The Social Responsibility of Business it to Increase its Profits The Social Responsibility of Business is to†¦show more content†¦He ma}. feel impelled by these responsibilities to de ­vote part of his income to causes he regards as worthy, to refuse to work for particular corpo ­rations, even to leave his job, for example, to join his country’s armed forces. Ifwe wish, we may refer to some of these responsibilities as â€Å"social responsibilities.† But in these respects he is acting as a principal, not an agent; he is spending his own money or time or energy, not the money of his employers or the time or energy he has contracted to devote to their purposes. If these are â€Å"social responsibili ­ties,† they are the social responsibilities of in ­dividuals, not of business. What does it mean to say that the corpo ­rate executive has a â€Å"social responsibility† in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers. For example, that he is to refrain from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price in crease would be in the best interests of the corporation. Or that he is to make expendi ­tures on reducing pollution beyond the amount that is in the best interests of the cor ­poration or that is required by law in order to contribute to the social objective of improving the environment. Or that, at the expense of corporate profits, he is to hire â€Å"hardcore†Show MoreRelatedProfitability Analysis Essay1556 Words   |  7 PagesBAE Business report on Woolworths Limited Student name: Can CAO (Phil) Student number: 32174 Class: BAE 5 Date: 18 June 2013 Word count: 1307 Table of contents Executive summary--------------------------------------------------------1 1 Introduction----------------------------------------------------------------2 2 Evaluation of ethical behavior---------------------------------------3 Read MoreThe Financial Impact of Corporate Ethics: Positive for Some, Not for All1059 Words   |  4 PagesTable of contents Executive summary...1 Introduction...1 Changing attitudes towards corporate responsibility...1 Corporate responsibility and ethics...2 Case study: Starbucks...2 Conclusion...3 The financial impact of corporate ethics: Positive for some, not for all Executive summary This paper provides a general overview of changing attitudes towards corporate ethics, along with a specific case study of the Starbucks Corporation. 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Human Resource Development Free Essays

string(130) " recognized standards which offers effective and quality to customers and better guarantee of a job candidate’s competency\." Table of Content Assignment Brie Introduction2 1. 0Task 013 2. 1 Role of UK Government in training development3 2. We will write a custom essay sample on Human Resource Development or any similar topic only for you Order Now 2. 1 NVQs and competency movements in the UK4 2. 2. 2 NVQ Levels of UK5 2. 3 Contemporary trainings initiatives in Sri Lanka6 2. 3. 1 Vocational Institute of Sri Lanka6 2. 3. 2 Tertiary and Vocational Education Commission (TVEC)6 . 3. 3 National Apprentice and Industry Training Authority (NAITA)7 2. 3. 4 The Ceylon German Technical Training Institute (CGTTI)7 2. 3. 5 NVQs in UK and Sri Lanka8 3. 0. Task 039 3. 1 Training and Development9 3. 2 Identifying Employee Training Needs10 3. 3 Importance of Employee Training for the Bank10 3. 4 Factors for Training and Development11 3. 5 Importance of Evaluation11 3. 6 The Way of Evaluation Needs To Be On Going12 4. 0 Conclusion13 5. 0 Reference14 1. 0 Introduction Human Resource Development is a process and planned activities designed, such as use of training, organization, and career development efforts by an organization to improve individual, group and organizational effectiveness. The development process builds up major competencies that facilitate to execute current and future job demands and enable the organization to meet its strategic objectives. Human resource management (HRM) includes many roles and Human resource development (HRD) is just one of the functions within Human Resource Management. Functions of the HRD are Training and development, Career development and Organizational development. HRD manager’s role towards this is incorporate HRD with organizational goals and strategies while modify HRD to corporate needs and budget, Promotes HRD as a profit enhancer and employee performance enhancement. According to the theories of learning in HRD, is important to recognize how do people learn and thus there are six main theories comes under learning styles; such as behaviorism, cognitivism, social learning theory, social constructivism, multiple intelligences and brain based learning. NVQs and competency movements are established in the UK government in order to enhance occupational skills of employees. These are based on national occupational standards. Standards are statements of performance describe what capable people in a particular occupation are expected to be able to do. HRD include ways and methods of identifying training and development needs and how training contribute to achieve of business objectives and the role a training and development policy for a business organization. Evaluations on factors are significant which are important for planning a training and development. Human Resource Development is vital towards achieving company objectives and need to be aware of when training and development need to be. 1. 0 Task 01 2. 1 Role of UK Government in training development United Kingdom government is identify occupations for which skills and training required, recognizes the significance of training and provide incentives to attract and retain the employees. And discover the issues in manpower planning, development and determine that government can execute to promote training. The Department of Employment and Learning-UK This department provided wide range of training and development programmes to the people around the United Kingdom. Aim of the department is to promote learning and skills, to prepare people for work and to support the economy. Objectives are to support economic, social and personal development through high quality learning, help people into employment, research and skills training and offer good employment practices. Major activities of the department * Develop the demand and condition of learning skills, entrepreneurship, management, enterprise and leadership skills. * Maintain and increase the level of research and development, innovation and creativity in the Northern Ireland economy; * support individuals to find jobs, including self employment, and improving the relationship among employment programmes and skills development; * The development and maintenance of the framework of employment rights and responsibilities. Skills solution service offers a single point of contact for employees, departmental trained skills adviser is available to meet employee to discuss training needs and advice to accomplish his/her necessities, help progress an application, assist with applying for financial support where appropriate. 2. 2. 1 NVQs and competency movements in the UK National Vocational Qualifications (NVQs) are based on skills, knowledge and understanding of an individual possess which are related to specific area of work. Reason for the Introduction of NVQs was to address weaknesses in current systems of vocational qualifications in United Kingdom, 1986. According to the publication of the White Paper Working together, education and training, the National Council for Vocational Qualifications (NCVQ) was set up. Then NCVQ developed as a framework of NVQs which include five levels and 11 occupational areas. the government funded for NVQs are based Industry Training Organizations to develop the occupational standards , with awarding bodies developing the assessment and quality assurance arrangements to criteria set by NCVQ. In 1994 White Paper Competitiveness, a majority of employers were either using or expected to benefit from NVQs and 40,000 managers were responsible NVQs as proof of lifetime learning. And NVQs continue up to date and the content and structure of all NVQs reviewed by April 1996. These qualifications are based on national occupational standards (NOS). NOS standards are define the abilities, knowledge and understanding required for a given occupation, and identifies outcomes that can be assessed. NOS are cover almost every occupation, existing as units and form the basis of all National Vocational Qualifications. NVQs are diverse from traditional qualifications on what people can do and demonstrate at work place. Traditional qualifications are just part of the curriculum is learned and assessed. According to NVQ, everything that is specified in the qualification must be achieved and assessed, encourage and support the candidate to gain knowledge of how to do the remainder and evaluate what the candidate can do at the work place. NVQs offer benefits for individuals such as Recognition of job competencies regardless of how they were acquired Certification as having met national standards for an occupational role, improved employability and transferability a flexible route to becoming qualified. Employers can have advantages an effective way of developing staff that has internationally recognized standards which offers effective and quality to customers and better guarantee of a job candidate’s competency. You read "Human Resource Development" in category "Essay examples" For the national level, NVQs are assured workers’ skills on goods and services produced and making the country more competitive and enhances the attractiveness of the labor force to foreign investors by providing certification of occupational competence. 2. 2. 2 NVQ Levels of UK BTEC Higher National Diplomas (HND) provides greater strength and specialization, Edexcel is one of the main awarding and examining organization in the UK and right through the world. NVQs have developed for five levels of competencies, Level 01 – Entry level Foundation Skills – This level identifies capabilities of different work activities performed in a variety of perspectives. Activities are simple and especially significant supervision is needed throughout the initial steps and early months. Level 02 – skilled occupation – Identifies competence in various work activities and performed in different contexts, some of activities are complex and non – routine, some are responsibility and autonomy. Guidance is required throughout the work. Level 03 – Technician and supervisory occupations Recognizes capabilities in a broad range of complex, which are related to technical or Professional work activities execute in wide variety of contexts. The individual should be competent of self-directed application, exhibits problem solving, designing, planning and supervisory capabilities. Level 04 – technical specialist and middle management occupations This level recognizes competencies involving the application of fundamental principles and complex techniques on wide area of perspectives. Level 04 is Equivalent to diploma, First degree, Higher National Diploma and nursing or teaching qualification. Level 05 – chartered professional and senior management occupations Level identifies the ability to use of personal professional responsibility for development, designing, product growth, process, system or services. And this level recognizes technical and managerial competencies at the highest level and people who are occupied in the highest responsibility and made outstanding contribution to the promotion and practice of their occupation. This level is equivalent diploma, Master’s degree, PhD and PGC 2. 3 Contemporary trainings initiatives in Sri Lanka 2. 3. 1 Vocational Institute of Sri Lanka Under the provisions of the Vocational Training Authority of Sri Lanka Act No: 12 of 1995, Vocational Training Authority (VTA) was established in Sri Lanka which is operating under the Ministry of Youth Affairs and Skills Developments. This has 6 National Vocational Training Institutes with 22 District Vocational Training Centers and 232 Vocational training centers. VTA is implementing the skills development programs and offer skills training for rural youth according to various fields. The Exposure of training for rural youth to information technology and other areas develop their skills and entrepreneurship. Functions of the VTA as follows, * Conduct research development (RD), career * development workshops and counselling programmes, * Offer Vocational Training and coordinate with the other institutions * Arrange final assessments, trade tests, final assessments and issue NVQ certificates through the Tertiary Vocational Education(TVEC) * Organize trainer training programs in order to manage the vocational training programmes effectively and efficiently. Assist the youth who have undergone for trainings and reward supplementary trainings, place employments and for self employment. 2. 3. 2 Tertiary and Vocational Education Commission (TVEC) TVEC setup and it introduced national certification structure for the Technical and Vocational Education and Training (TVET) sector of Sri Lanka, which is called the National Vocational Qualifications (NVQ) frame work which effect from January 2005. TVEC of Sri Lanka is associated with the Skills Development Project (SDP) and funded by the Asian Deve lopment Bank. Purpose of NVQ for Sri Lankan is in order to make globally competitive workforce Industry specific, through a standardized Technical and Vocational Education system. 2. 3. 3 National Apprentice and Industry Training Authority (NAITA) Apprentice and Industrial Training Authority of Sri Lanka (NAITA) was established in 1971 by an Act of Parliament. The functions of the organization towards people provide distance education, Curriculum Development, Monitoring Progress Instruction offer distance Education, Trade Testing and Certification. NAITA focus on small, medium and large scale enterprises and conduct island wide training programmes . Assistant is gained from the United Nations Development Programme and International Labor Organization. 2. 3. 4 The Ceylon German Technical Training Institute (CGTTI) This is incorporated as a separate training body by an act of parliament, established in 1959 and integrated to Develop modern Technology Training Centre (MTTC) at the CGTTI to meet future industry requirements. CGTTI providing training on technology related to Automobile and other technical trades and to be properly prepared to perform at the highest level of acceptance in the field maintains the standard. . 3. 5 NVQs in UK and Sri Lanka Sri Lankan Main objectives for setting NVQ are to recognize locally and internationally, create an internationally competitive workforce in Sri Lanka, match and provide Vocational training/ skills with market demand and recognize the certificates those possessed through the NVQ system. NVQ Sri Lanka is aligned with More proactive training, National goals, aware of responsiveness to Ind ustry training needs, enhance of linkage with Industry and other stakeholders and Collaboration and rationalization among the training agencies. The Sri Lankan NVQ framework comprised of 7 levels of upward mobility UK government is providing Education Maintenance Allowances, Undergraduate, Postgraduate courses and supporting the career and development aspirations of learners. ABC PLC can use of Edexcel NVQs. In the UK Edexcel NVQs determine for a huge variety of careers and Commitment to excellent customer service, Edexcel NVQ external verifiers also provides support, advice and guidance to Edexcel-approved centres. NVQs programs are provide an opportunity to ABC Plc enhance and overcome the problems occurred in performance. Conduct research development, Offer Vocational Training and coordinate with the other institutions, Assist the youth who have undergone for trainings and reward supplementary trainings , And this facilitate to ABC Plc forecast that will achieve business benefits. According to the NVQs ABC Plc reduce waste and improve its productivity therefore company can be expected their rate through business improvement techniques in NVQs. UK based NVQ programmes provides significant benefits for employer as well as employee. 3. 0. Task 03 Commercial Bank of Sri Lanka is known as benchmark private sector bank in Sri Lanka. Over decades the bank has created its own identity with the clear vision, set standards and unique trend in banking sector. 3. 1 Training and Development Commercial Bank is providing training and development programmes to its employees and objectives for training are in order to better performance, economical reduce wastage and improve quality of the service, motivation and lesser staff turnover. Bank is using ADDIE model as systematic approach to training and development. Functions of TD in the bank are, designing and developing programmes after identifying training necessities and developing a comprehensive training programme. Train the trainer programme, Outbound training activity, Credit Programme, Junior Executive Officer Programme, Behavior Modification. And also managing and conducting training in technical and soft skills, facilitating the management of overseas training and Publication of official newsletter ‘Compulse’. The bank has identified Advantages of training development as follows, better performance of employees usually shows a greater increase in and a higher quality of work out put than the untrained group. And when the employees are given proper training, supervision responsibility is lesser as well as increases the self-esteem and confidence is increased. Trained personnel will be able to make better and economical use of materials and equipment and service will be quality. Staff is motivated and feels sense of recognition when they sent on training. TD have a favorable impact on staff turnover lesser staff turnover due to better training. TD has drawback as well such as Information and learning areas might change day by day, therefore need to do the training all over again and this may waste the time and money. Diverse learning and training styles for those being trained can cause to be bored due to too basic or it may cause some to be frustrated because complicated. Some employees may leave the company after the training and this would be waiting of time and money of the organization. Time allocation might be not sufficient for covering all the training areas therefore some important tasks may neglected. Sometime losing control of the training content and the wrong person might do the training without knowing the mmanagement. 3. Identifying Employee Training Needs Identifying the people who need the training and requirements is vital for each and every organization to reduce wasting money and time. Commercial Bank HRD division is usually conducting a job task analysis of the employee in order to recognize the people who require trainings. It’s important to know exactly what the prospects are for the job to provide effective training. Identify the discrepancies and areas need to impr ove by comparing employee performance to the job expectations and by performance appraisals. HRD Managers recognize the reason for the discrepancy those are may be due to personnel issues, work process issues, such as not knowing how to complete a specific task, or ignorance of the specific task. Work process issues can be identify by employee training, while personnel issues can be addressed by an employee review process. Schedule departmental meetings with all employees and discuss and ask them to raise and make list of suggestions that which areas they consider to be more training is needed. Evaluate legal requirements such as health and safety training. Bank is get feedback from customers of the bank, such using interviews or surveys in areas such as customer satisfaction. And also use tests such as computer base, trials and observations. 3. 3 Importance of Employee Training for the Bank Employee training contributes to the achievement of business Objectives of the bank. Employee training increases the stability and flexibility of the bank and best available methods of performing the work can be standardized and made available to all employees. They are decrease wastages of resources and work both efficiently and effectively towards bank’s targets. Trained employees will be able to better use of materials and equipments whilst improving the quality of the service. Such as providing IT training to the prospective employees may cause to achieve more targets and make Bank profitable and can work adapt to the changing technology. Better training enables the organization to face competition from the other banks. Trained people decreased workplace stress and increased employee effectiveness which leads to satisfaction for the customer of the bank and keep up Bank’s image around the world. 3. 4 Factors for Training and Development According to the Commercial Bank training and development planning, one key aspect is to consider is each employee’s abilities which means should match the abilities of the employee suitable to corresponding training programme otherwise there will be a problem. For an instance bank is sending an employee to an accounting course , be competent of doing the accounting and HRD manager should ensure he/she good at accounting and numbers. Cost incurred for T D process is very much considerable factor; management should be aware of minimize wastages and conduct the process. Time is another aspect which is specially significant for the Bank, saving time and money will gain profits. Techniques are another factor for planning the training and development process. Bank is exercise diverse methods to address the employees. Most of the time HRD department is using presentations, role plays, speeches, and using internal and expertise. Bank is also considered about number of trainees going to be train, culture of the bank and attitude among the employees. 3. 5 Importance of Evaluation TD process is comes under specific objectives of the bank and spent ore money and time on analyzing, designing, development and implementation process, therefore it’s important to ensure training is successful or not. The response of the trainees can be acquired through questionnaires, smile sheets. To assess the amount of learning, Bank considers using of pre tests and the post tests. Tests determine how far people have developed skills, knowledge and attitudes. There eval uating the effectiveness of the provided training. Such as observations, interviews, self diaries. Evaluation can be carried out at the end of the training and can be compared with the objectives of the training and outcomes. Finally evaluation determines week points of training programme and in future such things can be taken care of and at the last it helps to discover whether organizational benefits has yielded. 3. 6 The Way of Evaluation Needs To Be On Going Evaluation process includes according to the ADDIE model, Analysis, Design, Development, Implementation and Evaluation. According to the analysis process identifying training needs, assess the learner’s existing capabilities, identify the audience and their characteristics are crucial to make training programmes. Recognize the training materials will develop and make budgets and time frame for the programme. Training requirements and needs for the staff can be identified as the difference between estimated level of performance and definite level of performance. Training areas can be recognized through the performance appraisals and tests. Next step is design, according to this, design materials and plan the strategy to be used for the training programme. This may also include design of a class or demonstration, depending on how the programme will be delivered. The development phase involves development of training programme. And gather the training programme, all associated materials necessary for a successful training programme, in this phase is testing and clear up procedures. During the process of implementation a procedure for training the facilitator and the learner is developed and delivered, conduct the trainer training programmes, installation of training modules, activating modules and establishing logins. At the end of the training it should be evaluated; questionnaires can be use in the training programme in every week or month and tests , observations, evaluation forms can be use for one day training ctivities. And it’s important to assess the training effectiveness, enhance initiatives and programmes. 4. 0 Conclusion Human Resource Development module reviewed and analyzed the framework influencing the role of government in training and development and the growing emphasis on continuous development and lifelong and constant development. Evaluated on NVQs, MCI and competency movement in the selected organization. Module is examined modern-day training initiatives introduced by the Sri Lankan Government and compared with the Government of UK. According to Task two, explore the differentiated theories of learning and explained their contribution to the process of planning and designing of organizational learning events. Tasks three critically evaluated and explained current approaches of the training and development of the organization and discussed about drawbacks. Explained how training contributes to attain company objectives and the role of a training and development policy, importance of evaluating factors of planning, training and development. Discussed the importance of evaluation and how it helps to market the contribution of training and development to the organization. The knowledge and experience enhanced throughout the Human Resource Development module and learnt how it’s important in the organization for achieve business objectives. 5. 0 Reference * Wikipedia (2012) ‘human resource development’ human resource development. [accessed 22 May 2012], available at http://en. wikipedia. org/wiki/Human_resource_development. * Hotel mule (2012) ‘the key role of training and development in tourism and hospitality’ Understanding the context: national level responses to training. [accessed 25 May 2012], available at http://hotelmule. com/showthread. php? 49-the-key-role-of-training-and-development-in-tourism-and-hospitality. * Pearson Education Ltd (2012) ‘NVQ and competence-based qualifications (QCF)’ qualification [accessed 28 May 2012], available at http://www. edexcel. com/quals/NVQ-competence-based-qcf/Pages/What-are-NVQs. aspx. * Department for Employment and Learning (2010) ‘About the Departmentâ₠¬â„¢home. [accessed 28 May 2012], available at http://www. delni. gov. uk/index/about-the-dept. htm. * TVE Council (2003 – 2009) ‘how NVQs differ from other certifications’ home. [accessed 29 May 2012] available at http://www. tvetcouncil. com. bb/compare. tml. * Vocational Training Authority Sri Lanka (2011) ‘about us’ Overview [accessed 29 May 2012] available at http://www. vta. lk/index. php? option=com_contentview=articleid=55:overviewcatid=36:about-usItemid=28. * Commercial Bank of Ceylon PLC (2012) ‘Our Training Programme’ Careers. [accessed 29 May 2012], available at http://www. combank. lk/newweb/info/105? oid=57. * e how money(2012) ‘Instructions Identify Employee Training Needs ‘how to identify employee training needs. [accessed 29 May 2012], available at http://www. ehow. com/how_2076444_identify-employee-training-needs. html. How to cite Human Resource Development, Essay examples

Financial Risk Management For Dynamic Hedging - Free Sample

Question: 1. Calculate the delta hedge updates, adjustments and forward contract valuations in Appendix 2. 2. Do you think Scout Finch would view delta hedging as more or less risky for Dayton than an ordinary forward contract or purchased option hedge? Justify your answer with reference to literature. 3. How would you respond to the accusation that delta hedging is very subjective in its approach to viewing both the direction of an exchange rate movement and the proportion of hedge cover? Discuss with reference to literature. 4. If you were Scout Finch, what recommendation on the use of delta hedging would you make to your CFO? Justify your recommendation.? Answer: 1. Delta hedge updates: Following are the inputs for the initial delta, as given in the case. Table 1: Inputs Inputs Spot rate $1.3309/Euro Strike price (same units as Spot) $1.335/Euro volatility (annualized) 10.00% domestic interest rate (annualized) 3.30% foreign interest rate (annualized) 2.00% time to maturity in days 92 Put option value $0.0265/Euro Delta Calculation: Here delta is calculated using the formula S0: Spot rate. X: Strike rate. r: domestic rate. q: foreign exchange rate. Sigma: annualized volatility. t: time to maturity. Delta calculation is done as illustrated by Jorion, (2009) in the book Financial Risk Manager Handbook. The following gives the formula for put delta: The initial vale of delta using this formula is (-0.4859). The negative sign indicates a put delta. Using the above value of delta as initial value, proportionate hedging is done by buying forward contracts, while some part of the portfolio is kept uncovered. When 86 days to maturity are left, the delta is recalculated for the new spot price and time to maturity. The portfolio is re aligned with new values of delta. The process is repeated every week till maturity. Table 2 below lists down the deltas and forward contracts bought and sold at updated values of delta. Table 2: Daytons Delta Hedging Analysis US Dollar /Euro Spring 2005 Update number Number of Days to maturity Spot Rate Delta Optimal hedge Hedge adjustments Remaining uncovered Sold or bought Forward Forward rate Forward proceeds. 1 92 1.3309 -0.4859 -485900 0 514100 -485900 1.3353 648822.27 2 86 1.2956 -0.6986 -698600 -212700 301400 -212700 1.2996 276424.92 3 78 1.2893 -0.7455 -745500 -46900 254500 -46900 1.2929 60637.01 4 71 1.2908 -0.7501 -750100 -4600 249900 -4600 1.2941 5952.86 5 64 1.2926 -0.754 -754000 -3900 246000 -3900 1.2956 5052.84 6 57 1.3068 -0.6784 -678400 75600 321600 75600 1.3095 -98998.2 7 50 1.2919 -0.7917 -791700 -113300 208300 -113300 1.2942 146632.86 8 43 1.2834 -0.8594 -859400 -67700 140600 -67700 1.2854 87021.58 9 36 1.2643 -0.9513 -951300 -91900 48700 -91900 1.2659 116336.21 10 29 1.2555 -0.9817 -981700 -30400 18300 -30400 1.2568 38206.72 11 22 1.2568 -0.9909 -990900 -9200 9100 -9200 1.2578 11571.76 12 15 1.2227 -0.9992 -999200 -8300 800 -8300 1.2234 10154.22 13 8 1.2128 -0.9996 -999600 -400 400 -400 1.2132 485.28 14 1 1.2239 -0.9999 -999900 -300 100 -300 1.2239 367.17 15 0 1.2200 Table 3 calculates the final value of the portfolio at the end of the period. The uncovered proceeds are added to the forward proceeds, bought at different updates: Table 3: Delta hedge results Delta hedge results Net Proceeds from forwards 1308668 Proceeds from uncovered 122 Total dollar Proceeds 1308790 The four hedging strategies are compared in table 4. Here forward contract is used as benchmark and value of the portfolio at the end of the period using each of the strategies are compared. Table 4: Hedging Alternatives Comparison with Simple full forward covered. Hedging Alternatives Comparison with Simple full forward covered Remained uncovered 1220000 -115300 Forward covered 1335300 0 Put Option Cover 1308500 -26800 Delta Hedge 1308789.5 -26510.5 Performance of Delta hedging in the current context: Table 5: Dollar movement Scenarios and strategy performance comparison: Dollar Stable Dollar Strong Dollar Strong Dollar Strong Strike Rate 1.75 no 1.75 yes 1.9 no 1.335 no Volatility 5.06% 5.06% 10% 10% Domestic interest rates 6% 6% 3.30% 3.30% Foreign Interest rates 8% 8% 4% 2% Forward Rate Range 1.754 1.7612 1.754 1.7371 1.905 1.8286 1.3353 1.2239 Spot Rate Range 1.764 1.7618 1.764 1.735 1.9111 1.8311 1.3309 1.22 Remained uncovered 1761800 2792.00 1735000 -10522 1831100 -41577 1220000 -88789.5 Forward covered 1754000 -5008.00 1754000 8478.00 1904960 32283.00 1335300 26510.50 Put Option Cover 1734625 -24383.00 1734635 -10887 1863818 -8859 1308500 -289.50 Delta Hedge 1759008 0.00 1745522 0.00 1872677 0.00 1308790 0.00 Note: here Delta hedge is kept as reference and other strategies are compared with that. The above table compares the performance of Delta hedge with respect to 4 different strategies. The green indicates money is made and red indicates the money is lost with respect to the Delta hedge strategy. The comparison is done in the 4 scenarios given in the case. Case1: Stable Dollar- In case of Stable dollar, the forward contract loses money. For the Put option, as discussed by John H, (2013), the cost of purchasing a put option is very high and hence the strategy looses the highest in this case. Here delta hedging is the closest to the opening spot rate conversion of the accounts receivable for Dayton, which is by definition the motive behind hedging as discussed by Longo J (2009). This value of portfolio minimizes the uncertainty in portfolio performance with change in underlying value change. For stable dollar, uncovered strategy pays the most, as the exchange rate moves around a pegged value. Case2: Dollar Strong- In scenario 2 as given in the case study the dollar is going to be stronger and thus taking a forward position on the entire portfolio is the best strategy. Put Option Cover and uncovered both losses a big sum of money, with respect to Delta hedge and forward rate contract. The same thing repeats in the scenario 3 and scenario 4 as well. Riskiness of Delta Hedging for Dayton Manufacturing: In the current context, if we compare the 4 scenarios as given in the case study and rank the strategies: Delta hedge ranks 2nd best in all 4 cases. This makes the delta hedging strategy as the best of 4 strategies. Table 6: Rank wise comparison of the 4 strategies: Scenario 1 Scenario 2 Scenario 3 Scenario 4 Dollar Stable Dollar Strong Dollar Strong Dollar Strong Remained uncovered 1 4 4 4 Forward covered 3 1 1 1 Put Option Cover 4 3 3 3 Delta Hedge 2 2 2 2 2. Justification for delta hedging to be better than other strategies: In the case study given, in 3 out of 4 scenarios, dollar was going to be stronger. While in only one case the dollar was predicted to be stable. Delta hedging similarity to forward contract: Delta hedging uses linear hedging (forward covered options) for hedging the position as discussed at optiontradingtips. Delta value tells the amount of the portfolio that should be covered to the total portfolio to make the risk of the portfolio to zero as discussed by Giovanni B (June 1987). Delta here is borrowed from the Black and Scholes model basics. So in a way, delta hedging is forward covered hedging, but a part of portfolio is forward covered, and the part is decided by delta. Continuous update of delta for best performance: Delta is kept to be updated, as the value of the underlying, (here the spot rates) changes the delta value changes, and the portfolio is no longer a risk free portfolio for new value of the delta. Hence the delta value needs to be updated and the value of the portfolio under the forward cover needs to be changed. When the number of the updates is increased the performance of the portfolio improves further, and in fully dynamically updated delta hedging, the portfolio delta is changed every day to achieve best results. The same thing is discussed by Rajiv S. (2014) in the book Derivative and Risk management. When the movement of the underlying of the portfolio is known, then it is better to not to go for delta hedging, but simply go for a forward contract. The forward contract will fetch the best results, if the dollar is predicted to go stronger and uncovered contract if the dollar to go weak. But such kinds of cases are hardly available. Minimal cost of Hedging: Secondly, every hedging scheme comes with a cost, while delta hedging suggests a value of optimum value of hedging required to make the portfolio risk free. This makes delta hedging a better strategy than standard forward contract hedging for 100% portfolio or buying put option cover. The cost of hedging is minimized by the Flexibility: Delta hedging increases the flexibility for the hedgers. The losses made by delta hedging can be considered as reasonable price for the level of flexibility offered by delta hedging. Conclusion: For any arbitrary context, when the movement of the underlying is not predictable, Delta hedging, with the most number of updates is the most suitable strategy. Delta hedging takes a position making the portfolio risk free for that particular value of spot price, which is tuned by updating the value of delta every time, making the overall performance of the delta hedge better. Also the hedging cost is minimized by using delta hedging strategy. 3. Subjectivity of Delta hedging in its approach to both the direction of an exchange rate movement and the proportion of hedge cover: Delta hedging is a selective forward rate hedging technique, with a part of the portfolio only covered with forward contract, while remaining part uncovered. To compare the subjectivity for the delta on either side changes in the underlying (Here spot price of the stock is the underlying.), Let us consider the following graph, which shows the put delta values for the underlying price. Figure 1: Delta values w.r.t. change in underlying values The curve is a symmetric curve on both the sides with the value of delta changing the most in the middle and saturating at the ends. This clearly shows that the delta is not specific to the movements on either side of the exchange rates. The curve is taken from Dynamic Hedging. (2015) from riskencyclopedia.com Now as delta hedging used these values of deltas, delta hedging is also symmetric for either side of exchange rate changes. Sometimes, by observing the movement of the delta with respect to the change in the spot rate, it may seem that delta is changing more on one direction with the change in value of spot rate. The reason for this is the delta is a function of time and volatility, in addition to the spot rate. So as the time to maturity reduces, delta tends to move towards 0 in stable dollar case and -1 in stronger dollar case. This movements in delta with respect to time curtails the opposite side movement of delta due to exchange rate moving in opposite direction then the normal trend. Thus it is clear that Delta is not subjective on the movement directions of the underlying spot rates. With symmetric delta, the hedge cover also becomes symmetric with respect to the movement in interest rates. 4. Recommendations of Delta hedging for Dayton manufacturing: A scenario based hedging strategy, would be recommended to the CFO, where in for some predicted spot rate changes, forwards rate hedging would be suggested, while in case of times when exchange rate is moving randomly, a delta hedging strategy will be suggested. Exchange rate against Dayton manufacturing (Dollar getting stronger): As we saw in scenario 2, 3 and 4 in table 5, whenever the exchange rate is moving against the company, forward rate hedging becomes the best strategy. Forward rate hedging clips the losses happening due to domestic currency going stronger. So, whenever the domestic and foreign interest rates and other macroeconomic parameters are indicating strengthening of the dollar, than a plain forward rate hedging would be suggested as given by Banks (2006) in his book for a exporting form like Dayton. Exchange rates moving randomly in a bounded region around a pegged value: But, when the exchange rate movements are totally unpredictable and may go up and down from its center value, as in case of the scenario 1, where exchange rates were stable, Delta hedging would be recommended. Moreover, more number of updates would be recommended for the delta hedging. The frequency of the updates will be decided by the volatility of the underlying spot rate. As being delta hedged, the spot rates movements are not affecting the portfolio because the delta hedging is making it risk free every time whenever delta update is made. But as discussed by Antonio C. (2009) higher the value of volatility of spot rate, faster and larger is the movement of the spot rate. With every movement of spot rate the delta equilibrium is disturbed and an update is required. Greeks like Vega can be used to monitor the movements of the volatility. Exchange rate movements favorable to Dayton Manufacturing (Dollar getting weaker): When it is expected that dollar is going to be weaker. As discussed by Alok D (2012) this condition is favorable for the company with receivables in the foreign currency; the dollar returns are going to be higher. In that case an uncovered portfolio will be the best option.Thus, a balanced mix of 3 strategies should be used for different kind of movements if exchange rate. References: Jorion, Philippe (2009).Financial Risk Manager Handbook(5 ed.). John Wiley and Sons. Rajiv S. (2014). Derivatives and risk management. New Delhi: OUP India. Alok D, Surendra Y, P.K. Jain. (2012). Derivative Markets in India: Trading, Pricing, and Risk. India: McGraw Hill Education. Greeks/delta. (2015) Option Delta. [Online] Available from: https://www.optiontradingtips.com/greeks/delta.html [Accessed: 7th June 2015]. John H, Sankarshan B. (2013). Options, Futures and other Derivatives. India: Pearson. Dynamic Hedging. 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