| Course | GF584 Treasury Management II |
|---|---|
| Unit | Unit 6 |
| Paper type | Seminar reflection |
| Length | About 860 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 6
Not Bad Luck on a Sound Hedge: A Unit 6 Seminar Reflection on CITIC Pacific's 2008 Contracts
[Student Name]
Purdue University Global
GF584: Treasury Management II
Unit 6 Seminar Reflection
[Instructor Name]
[Date]
Case facts are limited to what was widely reported in 2008; the contract illustration and the classmates are invented; the articles cited are real.
The Verdict Before the Session
My notes before the seminar were short. CITIC Pacific, a Hong Kong company, needed Australian dollars to meet costs at an iron ore project in Western Australia. It hedged by agreeing to buy Australian dollars in advance. The currency then fell sharply, from above 0.95 US dollars in July 2008 to below 0.70 by late October, and in October the company disclosed losses commonly reported near 15.5 billion Hong Kong dollars. I wrote that this could happen to any hedger: a company that locks in a rate loses when the market moves the other way, and the loss on the hedge should be offset by cheaper Australian dollars for the project.
Drawing the Payoff First
The instructor did not let us discuss the loss until we had sketched the payoff of the contracts as reported. Our sketches did not look like a forward. A forward is a straight line through the contract rate. The reported structures stopped paying once the Australian dollar rose to a set level, and obliged the company to buy more when it fell below the contract rate. The line was capped on one side and steepened on the other.
That sketch changed my question. A forward exchanges uncertainty for a fixed rate. This structure gave up most of the upside and doubled the downside in return for a better contract rate than a forward offered at the time.
A Grain Trader's Question
Lena, who trades corn and soybean contracts for a grain cooperative, then asked what amount the company had actually needed. Her point was that in her job, the first test of any hedge is whether its size matches the physical need. Reports at the time indicated that the potential purchases under the contracts far exceeded what the project required. The group agreed that once the obligation is larger than the need, the excess is no longer a hedge. It is a position.
The losses were not bad luck on a sound hedge: the structure capped the company's gains, doubled its purchases as the currency fell and committed it to more Australian dollars than it needed, so the loss came from the contract's design rather than from the market alone.
Four Rates, Two Contracts
After the session I built my own illustration, invented and simplified, to see the difference in numbers. It compares a contract buying 10 million Australian dollars a month at 0.87, ending if the rate reaches 0.92 and doubling to 20 million below 0.87, with a plain forward buying 10 million a month at 0.87.
1. At 0.95: the forward gains $0.80 million that month. The structure has already ended at 0.92, so its gains stop.
2. At 0.90: both gain $0.30 million.
3. At 0.80: the forward loses $0.70 million; the structure, buying 20 million, loses $1.40 million.
4. At 0.65: the forward loses $2.20 million; the structure loses $4.40 million, twice as much.
The illustration shows the asymmetry plainly. In a rising market the structure's gains are cut off; in a falling one its losses run at twice the forward's rate. Stulz (1996) makes the case that a company gains from risk management when it eliminates the costly tail outcomes, the states in which it could not fund its plans, and a structure that doubles purchases in exactly those states works against that aim.
What I Now Think
My revised view has three parts. First, the payoff shape matters more than the name of the contract; anything called a hedge should be drawn before it is signed. Second, the size of an obligation must be tied to the measured need, and any structure whose notional can grow as the market moves breaks that link. Smith and Stulz (1985) explain the value of hedging through lower expected costs of financial distress, which only holds if the hedge offsets an exposure the firm already has. Third, a better contract rate is never free; in this case it was paid for with sold options the company may not have priced.
Surveys of US nonfinancial firms show that most restrict derivatives use through written policies, and that boards often approve the purpose of hedging without seeing the payoff of each instrument (Bodnar et al., 1998). The CITIC Pacific case suggests that the payoff, not the purpose, is what a policy should govern.
Two Rules Carried Forward
For the policy extract two units later, I will propose two rules. No instrument may have a notional amount that can increase with market movements. No hedge may commit the company to more currency than the measured exposure it covers.
An Open Question
How should a treasurer respond when a bank offers a structure with a visibly better rate and the board asks why the company is accepting the worse rate on a plain forward?
References
Bodnar, G. M., Hayt, G. S., & Marston, R. C. (1998). 1998 Wharton survey of financial risk management by US non-financial firms. Financial Management, 27(4), 70-91. https://doi.org/10.2307/3666414
Smith, C. W., & Stulz, R. M. (1985). The determinants of firms' hedging policies. Journal of Financial and Quantitative Analysis, 20(4), 391-405. https://doi.org/10.2307/2330757
Stulz, R. M. (1996). Rethinking risk management. Journal of Applied Corporate Finance, 9(3), 8-24. https://doi.org/10.1111/j.1745-6622.1996.tb00295.x
The Purdue Global GF584 Unit 6 instructions
Unit 6 of GF584 pairs a seminar on a hedging case with a written reflection. Record your view before the session, briefly and honestly. Limit case facts to what was widely reported and say so. Then describe what changed your view, attributing each point to the instructor or a classmate, such as sketching the payoff before discussing the loss or asking whether the hedge matched the underlying need. Build your own illustration, labeled as invented, comparing the structure with a plain forward at several rates. Connect the lesson to research on why firms manage risk. State your revised view and the rules it implies for later policy work. Close on a question still unresolved. Use the first person and cite sources in APA 7 within the length guidance.
How the GF 584 Unit 6 example is put together
The writer's pre-session notes open the sample, describing the company's need, the currency's fall and the reported loss, and concluding it could happen to any hedger. The instructor's request to sketch the payoff first shows a line capped on one side and steepened on the other. Lena, a grain cooperative trader, asks what amount the company actually needed, and the highlighted sentence records the change in view. The writer's illustration compares a contract buying 10 million Australian dollars a month at 0.87, ending at 0.92 and doubling below 0.87, with a plain forward at four rates, citing Stulz. A section on the revised view cites Smith and Stulz and Bodnar and colleagues. Two rules for the policy extract follow, and a question about explaining a plain forward to a board closes the reflection.
GF584 Unit 6 rubric: what earns full points
GF584 seminar reflections are graded on an honest starting view and a clear account of how the session changed it. Graders look for case facts kept to what was reported and illustrations clearly labeled as the writer's own. Most points reward showing how the discussion moved the question from market direction to contract design and sizing, with each contribution attributed. An illustration that compares the structure with a plain forward in numbers shows understanding of the payoff. Instructors in the MS in Finance program value rules the writer carries into later policy work. Research on corporate hedging cited in APA 7 and a question that grows from the session complete the marks.
Common GF584 Unit 6 mistakes, and how to avoid them
Many GF584 reflections on hedging failures blame the market or the managers without explaining the mechanism. Others retell the case at length and spend little space on how the writer's view changed. Invented contract terms are presented as reported facts. The comparison with a plain forward is missing, so the special features of the structure stay vague. Lessons are general, such as being careful with derivatives, rather than rules a policy could enforce. If your seminar studied a different case, keep the structure: starting view, reported facts, what shifted the view, a labeled illustration, research, revised view, rules carried forward and an open question.
Get a GF584 Unit 6 example written to your instructions
Tell us which failed hedge your section examined around Unit 6 and send the readings, any figures discussed and the rubric. The reflection written for you tracks one view through the session, labels every illustration and keeps reported figures attributed; it is ready in 24-48h with the first free, and your own seminar contributions are left bracketed. 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 4: Australian Receipts Forward Contract
- GF584 Unit 5: Put or Participating Forward Comparison
- 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 6: Customer Payment Pause Reflection
- GF582 Unit 6: Fund Persistence Seminar Reflection
- GF581 Unit 6: Baht Float 1997 Seminar Reflection
- GF570 Unit 6: Norway Pension Fund Seminar Reflection
GF584 Unit 6 questions, answered
How much of the company's story should the reflection include?
Only what the argument uses: who needed which currency and why, what kind of contract was used, roughly when the market moved and what was reported. A paragraph usually suffices. The reflection is graded on how your reasoning changed, so each historical fact should earn its place by testing or supporting a view you held.
Can I build my own illustration instead of using the real contract terms?
Yes, and it is often better, because full contract terms in public cases are rarely available. Label the illustration clearly, keep its shape faithful to what was reported, such as a cap on gains or a multiplier on losses, and use round numbers so the reader sees the mechanism. Never present invented terms as the company's own.
Should the reflection assign blame?
It can reach a judgment, but blame without mechanism reads as opinion. Explain what in the structure, sizing or approval process produced the loss, and what control would have caught it. That kind of conclusion connects naturally to later policy work, and graders tend to reward it over a verdict about individuals.
Where can I find a free GF584 Unit 6 sample paper?
You can read a complete GF584 Unit 6 seminar reflection on CITIC Pacific's 2008 Australian dollar contracts here, with a labeled payoff illustration, a revised view, two policy rules and APA 7 references.
How did the structure differ from a plain forward?
It stopped paying once the Australian dollar rose to a set level and obliged the company to buy twice as much when the currency fell below the contract rate, so gains were capped and losses ran at double the forward's rate.