| Course | GF584 Treasury Management II |
|---|---|
| Unit | Unit 4 |
| Paper type | Forward contract analysis |
| Length | About 870 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Finance |
| Updated | October 2026 |
Free sample paper for GF584 Unit 4
Locked In on 22 Million, Open on the Rest: A Unit 4 Forward Contract Analysis for Australian Receipts
[Student Name]
Purdue University Global
GF584: Treasury Management II
Unit 4 Forward Contract Analysis
[Instructor Name]
[Date]
The dryer maker, its orders, the deposit rates and the outcomes are composite and illustrative; the articles and textbook cited are real.
Committed Orders Only
The previous workup put the year's net Australian receipts at $4.30 million of risk at 95 percent confidence. This analysis addresses one slice of it: dealer orders already booked, 16.0 million Australian dollars for the first quarter and 6.0 million for the second. Forecast sales are excluded on purpose. A forward on sales not yet made would become a speculative position if dealers bought less than forecast, since the company would owe Australian dollars it never received.
Parity at Four Tenors
Forward rates follow from interest rate parity: the forward equals spot multiplied by one plus the dollar deposit rate for the period, divided by one plus the Australian deposit rate for the same period. With spot at 0.6620, a dollar rate of 4.05 percent and an Australian rate of 3.60 percent:
1. Three months: 0.6627.
2. Six months: 0.6635.
3. Nine months: 0.6642.
4. Twelve months: 0.6649.
The Australian dollar trades at a small forward premium because Australian deposit rates are lower than dollar rates. The premium reflects the rate differential, not a forecast that the currency will rise. A bank quoting a forward is not predicting anything; it is pricing the cost of borrowing one currency and depositing the other (Eiteman et al., 2016).
The Hedge, Specified
1. Sell 16.0 million Australian dollars for settlement at the end of the first quarter at 0.6627: $10.6038 million.
2. Sell 6.0 million Australian dollars for settlement at the end of the second quarter at 0.6635: $3.9808 million.
Total locked-in proceeds: $14.5846 million, about $20,600 more than converting the same 22.0 million at today's spot of 0.6620. Proceeds are computed on unrounded forward rates.
Both Directions of the Outcome
The table sets the hedged proceeds against what the same 22.0 million would bring unhedged at five settlement rates.
1. At 0.60: unhedged $13.200 million; hedged $14.585 million; the hedge is $1.385 million better.
2. At 0.63: unhedged $13.860 million; the hedge is $0.725 million better.
3. At 0.6620: unhedged $14.564 million; the hedge is $0.021 million better.
4. At 0.68: unhedged $14.960 million; the hedge is $0.375 million worse.
5. At 0.70: unhedged $15.400 million; the hedge is $0.815 million worse.
A forward removes uncertainty in both directions. Showing the rising-rate rows matters as much as the falling ones, because a board that sees only the protection may later judge the hedge a mistake when the currency rises.
The forward makes the committed $14.58 million certain, but it does nothing about the forecast receipts, late payers or the bank's own credit, so a rerun of the risk measure still finds $3.20 million of the original $4.30 million open.
Seventy-Four Percent Still Open
Rerunning the previous unit's measure with the committed orders fixed leaves $3.20 million of 95 percent cash flow at risk, about 74 percent of the original. Most of the remaining risk sits in the third and fourth quarters, which hold only forecast sales and the longest horizons.
The Residual Register
Forecast volumes. About 42.0 million Australian dollars of gross receipts are forecast, not ordered. Size: most of the $3.20 million. Response: options, addressed in the next unit, because an option does not create an obligation if orders fall short.
Dealer payment timing. Some dealers pay 20 to 40 days late in a slow harvest. If 3.0 million of first-quarter receipts arrive a month after the forward settles, the company must deliver Australian dollars it does not yet hold. Response: a window forward allowing settlement over a range of dates, or a short swap to roll the shortfall, at a cost of a few pips.
Counterparty credit. If the rate falls to 0.60, the bank owes the company about $1.385 million on the contracts. Response: deal only with banks rated A-minus or better and keep each bank's exposure inside a limit.
Sydney office costs. The 1.3 million Australian dollars a quarter of local costs already offset receipts. Size: about 5.2 million a year. Response: none, but if the office is closed or moved, the natural offset disappears and the measured exposure grows.
Why Hedge at All
Firms that use currency forwards mostly use them to reduce exposure rather than to take views, and those that hedge show smaller sensitivity of value to rates (Allayannis & Ofek, 2001). A detailed study of one manufacturer's program found that hedges were concentrated on firm commitments and near-term forecasts, with cover falling as horizons lengthened, the same shape this analysis uses (Brown, 2001).
Recommendation
Sell the 22.0 million of committed receipts forward at the rates above, document each contract against the orders it covers, and address the forecast receipts with options rather than further forwards. As new dealer orders are booked during the year, each can be added to the forward program in the same way, so the committed share of the hedge grows with the order book rather than with the forecast.
References
Allayannis, G., & Ofek, E. (2001). Exchange rate exposure, hedging, and the use of foreign currency derivatives. Journal of International Money and Finance, 20(2), 273-296. https://doi.org/10.1016/S0261-5606(00)00050-4
Brown, G. W. (2001). Managing foreign exchange risk with derivatives. Journal of Financial Economics, 60(2-3), 401-448. https://doi.org/10.1016/S0304-405X(01)00049-6
Eiteman, D. K., Stonehill, A. I., & Moffett, M. H. (2016). Multinational business finance (14th ed.). Pearson.
Reading the GF 584 Unit 4 instructions
Unit 4 of GF584 asks you to analyze a forward hedge and what it leaves behind. Start from the exposure measured earlier and state which slice the forward addresses, with the reason, usually committed amounts only. Derive forward rates from interest rate parity at several tenors and explain what the premium or discount reflects. Specify the hedge by amount, date and rate. Show outcomes at several settlement rates in both directions, so the cost in a favorable market is visible. Rerun the risk measure to find the residual. Then list what the forward leaves open, such as forecast volumes, payment timing, counterparty credit and natural offsets, each with a size and a response. Recommend next steps. Cite treasury texts and hedging research in APA 7.
Inside the GF584 Unit 4 example
The inherited $4.30 million and the decision to hedge committed orders only open the sample. Parity rates at four tenors follow, with a note citing Eiteman and colleagues that the premium reflects rate differentials rather than a forecast. The hedge is specified for two quarters. A five-row outcome table runs from 0.60 to 0.70, and the highlighted sentence keeps the hedge's effect in proportion. A rerun puts the residual at $3.20 million. The residual register sizes forecast volumes, late dealer payments with a window forward as a response, the bank's credit exposure and the Sydney cost offset. A section on why firms hedge cites Allayannis and Ofek and Brown, and the recommendation adds new orders as they are booked.
Reading the GF584 Unit 4 grading rubric
Credit on a GF584 forward analysis starts with correct parity rates and a clearly specified hedge sized to committed amounts. Graders check that outcomes are shown in both directions and that the residual is measured rather than assumed. The largest analytical share rewards a residual register that sizes each remaining risk and pairs it with a response, including payment timing and counterparty credit, which most analyses skip. Explaining that the forward premium reflects interest differentials shows understanding of pricing. Instructors in the MS in Finance program value a recommendation that turns one trade into a repeatable process. Hedging research and the multinational finance text cited in APA 7 complete the marks.
Common GF584 Unit 4 mistakes, and how to avoid them
Many GF584 Unit 4 analyses hedge the full forecast with forwards, creating an obligation that outruns the business if sales fall short. Others present only the falling-rate outcome, which makes the hedge look free. The forward premium is described as a forecast that the currency will rise. The residual is not measured, so the reader cannot tell how much risk remains. Late payments and counterparty credit are ignored. For any receivable or payable your case supplies, keep the steps: inherited exposure, the slice hedged, parity pricing, the hedge specified, outcomes both ways, the residual measured, a residual register and next steps.
Get a GF584 Unit 4 example written to your instructions
Amounts, currencies, settlement dates and any interest rates quoted for Unit 4, together with the prompt and rubric, let the analysis begin. The custom version prices the forward from parity, shows outcomes in both directions and sizes whatever it leaves uncovered; delivery takes 24-48h and the first is free. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
More GF584 papers and MS in Finance samples
- GF584 Unit 1: Won Exposure in a Dollar Invoice Post
- GF584 Unit 2: Seven Items Exposure Classification
- GF584 Unit 3: Cash Flow at Risk Measurement Workup
- GF584 Unit 5: Option Strategy Comparison
- GF584 Unit 6: Seminar Reflection
- GF584 Unit 7: Interest Rate Swap Memo
- GF584 Unit 8: Treasury Policy Extract
- GF584 Unit 9: Debt Issuance Brief
- GF584 Unit 10: Risk Management Report
- GF583 Unit 4: Due-Date Disbursement Timing Memo
- GF582 Unit 4: Card Portfolio Sampling Exercise
- GF581 Unit 4: Yen Exposure Hedging Decision Memo
- GF570 Unit 4: Foundation Asset Allocation Model
GF584 Unit 4 questions, answered
Should the forward cover the whole expected amount?
Usually only the portion that is committed or highly probable. A forward is an obligation to deliver currency, so covering sales that may not happen creates a position of its own if they fall short. Many policies set lower cover ratios for forecast amounts and reserve options for them. State the ratio chosen and the reason behind it.
What happens if the customer pays late?
The forward still settles on its date, so the firm must either deliver currency it has not yet received or adjust the contract. Banks commonly roll the forward to a later date with a short swap, priced from the interest differential over the extra days. The analysis can size that cost and record it as a timing residual.
Is a forward risk-free once signed?
No. It removes exchange rate uncertainty on the covered amount but leaves counterparty risk, the chance the bank cannot perform, and it uses credit capacity the firm may need elsewhere. There is also opportunity cost: if the rate moves favorably, the gain is forgone. A complete analysis names each of these rather than calling the hedge perfect.
Where can I find a free GF584 Unit 4 sample paper?
A complete GF584 Unit 4 forward contract analysis is available here, hedging 22.0 million Australian dollars of committed receipts at parity rates, with outcomes both ways, a residual register and APA 7 references.
Why hedge only the committed orders?
A forward obliges the company to deliver currency. If forecast sales did not happen, the company would owe Australian dollars it never received, so the forward would create a position instead of removing one.