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金融风险管理代写-PAGE 1
时间：2022-04-20
CTM PORTFOLIO MANAGEMENT GAME PAGE 1
WELCOME TO THE
CTM PORTFOLIO MANAGEMENT GAME
The portfolio management game is designed to reinforce the concepts covered in the lectures
and case studies to help you understand how a Corporate Treasury manages debt and other
exposures.
Participants are grouped into teams. Each team plays the role of the Corporate Treasury. At the
start of the game each team has identical exposures. Teams will make their own decisions on
how to manage these exposures and any new exposures which arise during the game.
The game is played in a series of decision sessions. During each session the team analyses its
cash flows, reviews its exposures, past performance, current market rates and data on future
economic conditions and decides which transactions to undertake.
OBJECTIVE
You are the Corporate Treasury for a number of government clients. In this game you have
three clients: Queensland Electro Power Authority (QEPA), A Port Authority (APA) and Local
Government (LG).
They each have funding requirements and other exposures that they look to you to manage.
Your task is to provide funding for your clients and actively manage their financial market
risk exposures with the aim of providing the lowest possible cost relative to established
benchmarks and within certain constraints.
CENTRAL TREASURY PROFILE
BACKGROUND
Central Treasury is the corporate treasury for a number of government clients. It operates as a
‘not for profit’ treasury. Central Treasury’s core business is liability management. However, it
also provides the full range of treasury services including hedging foreign exchange and
commodities exposures.
In its liability management activities, Central Treasury accesses financial markets to obtain funds
for its clients. There is not a one to one link between the funds raised and the funds lent to
clients. All funds are pooled to form a Portfolio and clients’ requirements are funded from the
Portfolio. The benchmark for the funding portfolio has been designed to match the
requirements of the customers’ loans it is funding. The funding cost generated by the Portfolio
is passed on to the clients at zero spread.
Funding costs (market value interest costs) are charged according to the proportion of each
client’s loan from the Portfolio. Hedging of foreign currency and commodity exposures are kept
separate from the Portfolio to ensure clients of the Portfolio do not cross-subsidise these
activities.
CTM PORTFOLIO MANAGEMENT GAME PAGE 2
OPERATIONAL STRUCTURE
To accommodate the separation of its core business activities and the other treasury activities,
the Central Treasury operates two cost centres, one for Portfolio management (Portfolio) and
the other for general administration (Central Treasury). The Portfolio cost centre is used for all
transactions relating to the raising and funding of clients’ debt. Foreign currency and commodity
exposures are excluded from the Portfolio cost centre. Clients requesting hedging of their
foreign currency and commodities exposures are charged the cost to the Central Treasury.
Funds required to pay for hedges or purchases on foreign exchange come directly from the
client and are not required to be funded through the Portfolio.
Transactions recorded in the Central Treasury cost centre include:
Commodities/foreign exchange
Operating expenses, and
Penalties incurred by the portfolio manager resulting from poor management.
ADMINISTRATION/OPERATING EXPENSES
Clients pay an administration fee of 50 basis points per annum based on the amount of debt
outstanding at the beginning of the quarter. This fee is calculated using the actual days in the
quarter. The Central Treasury administration fee is accrued throughout the quarter and is funded
through the Portfolio at the time it is due to be paid to the Central Treasury. The administration
fee is paid to the Central Treasury on the first day of the subsequent quarter.
Central Treasury’s operating expenses are 30 basis points per annum based on the amount of
debt outstanding at the beginning of the quarter. They are incurred by the Central Treasury and
not by the Portfolio. The Central Treasury pays operating expenses at the end of each quarter.
Operating expenses have no impact on the Portfolio bank account.
OPENING POSITION
It is assumed the Central Treasury has just opened its doors for business. This means all
cashflows, with the exception of your clients’ funding requirements, will have already been
incorporated into the opening position.
GAME RULES
You must ensure that your clients’ funding needs are met at all times. You may raise new funds
at anytime. If you have borrowed more than your clients require you may invest the surplus
funds in three month commercial paper or you can retire debt by buying back bonds which you
have issued at the then market price (you cannot buy back more than you have issued in any
bond).
BORROWING FACILITIES
You can raise funds through any of the following facilities:
Commercial Paper Facility
CP3M Borrowing - Commercial Paper Facility 3 month Bank Bill
CTM PORTFOLIO MANAGEMENT GAME PAGE 3
Domestic Bond Facility
DB05 Domestic Bond - 1 year A$ bonds maturing 15 March 2005 5.70% Coupon
DB07 Domestic Bond - 3 years A$ bonds maturing 15 March 2007 5.75% Coupon
DB09 Domestic Bond - 5 years A$ bonds maturing 15 March 2009 5.79% Coupon
DB14 Domestic Bond - 10 years A$ bonds maturing 15 March 2014 5.87% Coupon
Eurobond Facility
US07 Eurobond Program - 3 years US$ bonds maturing 15 March 2007 2.00% Coupon
US14 Eurobond Program - 10 years US$ bonds maturing 15 March 2014 4.50% Coupon
EUR09 Eurobond Program - 5 years EUR bonds maturing 15 March 2009 3.50% Coupon
Note:
1. You must have a minimum of 15 per cent exposure in each facility class.
2. All foreign currency denominated bonds must be swapped into floating (three monthly
resets) on drawdown.
ADDITIONAL PORTFOLIO MANAGEMENT FACILITIES
Cross Currency Swaps
CCSUS07 Cross Currency Swap for US$ bonds maturing 15 March 2007 2.00% Coupon
CCSUS14 Cross Currency Swap for US$ bonds maturing 15 March 2014 4.50% Coupon
CCSEUR09 Cross Currency Swap for EUR bonds maturing 15 March 2009 3.50% Coupon
Interest Rate Swaps
IRSDB07 Interest Rate Swap for A$ bonds maturing 15 June 2007 5.75% Coupon
IRSDB09 Interest Rate Swap for A$ bonds maturing 15 June 2009 5.79% Coupon
IRSDB14 Interest Rate Swap for A$ bonds maturing 15 June 2014 5.87% Coupon
Interest Rate Futures
FUT3YR 3 Year Generic Bond Futures Contract 6.00% Coupon
FUT10YR 10 Year Generic Bond Futures Contract 6.00% Coupon
Futures Contract Information
1. The contract size for both the three year and 10 year contract is $100 000.
2. Contracts expire three months from the respective decision making points and a new
contract will apply from that point.
3. Deposit margins of $700 per three year contract and $2000 per 10 year contract apply. No
span margin calculations apply. Deposit margins must be funded for by the Portfolio at the
time of the deal and will earn the Portfolio interest at the three month commercial paper
rate.
4. Variation margins are to be paid upon the expiry of the contract. That is, at the next decision
making point after the futures are traded.
5. Brokerage applies at a rate of $5.00 per contract. This is also to be funded through the
Portfolio at the expiration of the contract.
6. The maximum number of contracts for the three year and 10 year futures is 5000 contracts
each.
CTM PORTFOLIO MANAGEMENT GAME PAGE 4
INVESTMENT FACILITIES
INVCP3M Investment - Commercial Paper Facility 3 month Bank Bill
Surplus cash can be invested in three month commercial paper or used to buy back bonds you
have issued. When investing in three month commercial paper you must decide which
counterparty to deal with. Details of the counterparties available are as follows:
Counterparty Credit Rating
Coolum Treasury Corporation AAA
First Mudjimba Bank AA
Peregian Trust Bank A-
Bli Bli Corporation Ltd A-
Each counterparty issues its commercial paper at a yield reflecting their current credit rating and
amount they have on issue. The investment yield for each counterparty is available on the rate
sheet provided each quarter. The face value of the total investments in three month commercial
paper cannot, at any one time, exceed $500 000 000. Further, there are limitations as to how the
investments can be allocated across the counterparties:
Counterparty Minimum Percentage of Total Face Value of Investments
Maximum Percentage of Total
Face Value of Investments
Coolum Treasury Corporation 40% 100%
First Mudjimba Bank 0% 60%
Peregian Trust Bank 0% 40%
Bli Bli Corporation Ltd 0% 40%
BENCHMARK
The modified duration of your benchmark portfolio at the start of the game is 3.75 years. The
composition of the benchmark portfolio will change at the start of each quarter, rebalancing the
modified duration to 3.75 years, taking into account the yields at that time.
The initial benchmark portfolio comprises:
Instrument Weight
CP3M 20.0%
DB05 12.5%
DB07 17.5%
DB09 20.0%
DB14 30.0%
You have discretion to manage duration to benchmark +/- 1.0 year.
CTM PORTFOLIO MANAGEMENT GAME PAGE 5
You can change the duration of your portfolio by varying either:
(i) the amounts drawn down under each program
(ii) the use of swaps and futures
(iii) the use of physical bonds.
FOREIGN CURRENCY/COMMODITIES
You are also required to manage commodity price risk and foreign exchange rate risk for your
clients if they have any in the coming four quarters. This is done on a back to back basis, where
contracts are executed for a specific customer. These transactions do not form part of the
Portfolio. You may be hedged or unhedged up to 100 per cent of the exposure. Any benefits or
costs resulting from these exposures are passed directly to the client concerned.
Your performance will be assessed against a benchmark based on if you undertook 100 per cent
of the hedging at the time you are notified of the exposure.
Foreign exchange and commodity exposures which are not covered by settlement date will be
force liquidated at penalty rates of US$100 per tonne for copper and 100 points for foreign
exchange worse than the then market rate. (Note: a deal slip is still required to be completed on
the date of delivery of the foreign currency amount or commodity for all unhedged amounts.)
CASH BALANCES
At the start of the game Central Treasury has a balance of $2 000 000 in its A$ bank account and
zero balance in its US$ and EUR accounts. Central Treasury’s starting cash balance earns
interest at five per cent per annum. This cash balance and the administration revenue received
each quarter is used to meet operating expenses and penalty costs.
Penalties associated with poor cash management and errors will be paid by the Central Treasury
and will not be passed onto your clients. Poor cash management includes large uninvested cash
balances.
If the Portfolio’s bank account is overdrawn, the following penalty rates will apply to the
Central Treasury:
0 – 20 000 0%
20 000 – 1 000 000 5% pa
> 1 000 000 10% pa
The Portfolio in this case will be charged the three month commercial paper cost of funds.
Uninvested Portfolio cash balances will attract the following penalties to the Central
Treasury:
0 – 20 000 0%
> 20 000 3 month commercial paper rate
CTM PORTFOLIO MANAGEMENT GAME PAGE 6
PENALTIES
Penalties may be incurred for the following reasons:
Using the wrong side of the bid/offer spread
Using wrong interest/exchange rates
Incomplete deal dockets
Failure to enter into Cross Currency Swaps to convert foreign currency bond issues
Overdrawn cash balances
Uninvested cash balances
Failure to undertake foreign currency or commodity transactions for the physical position
Violation of management ranges (benchmark, investment and facility class)
STARTING PROFILE
At the start of the game (15 March 2004) you have issued the following amounts to generate the
A$1 billion which has been onlent to your clients.
(i) Domestic Bond Program
DB05
Face Value A$125 000 000
Maturity 15 March 2005 (1 year)
Coupon 5.70% pa (semi-annual payable September and March)
Yield 5.70% pa
Issue Price $100.00
DB07
Face Value A$125 000 000
Maturity 15 March 2007 (three years)
Coupon 5.75% pa (semi-annual payable September and March)
Yield 5.75% pa
Issue Price $100.00
DB09
Face Value A$200 000 000
Maturity 15 March 2009 (five years)
Coupon 5.79% pa (semi-annual payable September and March)
Yield 5.79% pa
Issue Price $100.00
DB14
Face Value A$150 000 000
Maturity 15 March 2014 (10 years)
Coupon 5.87% pa (semi-annual payable September and March)
Yield 5.87% pa
Issue Price $100.00
CTM PORTFOLIO MANAGEMENT GAME PAGE 7
(ii) Commercial Paper Facility
CP3M
Face Value A$202 797 180.25
Maturity/Rollover 15 June 2004 (92 days)
Yield 5.53% pa
Issue Price $98.625298443
(iii) Eurobond Program (US$)
US14
Face Value US$76 500 000
Maturity 15 March 2014 (10 years)
Coupon 4.50% pa (semi-annual payable September and March)
Yield 4.40% pa
Issue Price US$100.80200927
Swapped into floating rate A$:
CCSUS14
Exchange rate 0.7650
A$ Principal A$100 000 000
Pay 3 month A$ Bank Bills Currently 5.53% pa
Receive fixed coupon US$ 4.50% pa (semi-annual payable September and March)
Fixed yield 4.63% pa
Maturity 15 March 2014
(iv) Eurobond Program (EUR)
EUR09
Face Value EUR60 500 000
Maturity 15 March 2009 (5 years)
Coupon 3.50% pa (semi-annual payable September and March)
Yield 3.48% pa
Issue Price EUR100.09106016
Swapped into floating rate A$:
CCSEUR09
Exchange rate 0.6050
A$ Principal A$100 000 000
Pay 3 month A$ Bank Bills Currently 5.53% pa
Receive fixed coupon EUR 3.50% pa (semi-annual payable September and March)
Fixed Yield 3.73% pa
Maturity 15 March 2009
CTM PORTFOLIO MANAGEMENT GAME PAGE 8
(v) You have entered into the following interest rate swaps:
IRSDB07
Principal A$50 000 000
Maturity 15 March 2007 (3 years)
Pay fixed coupon A$ 5.75% pa (semi-annual payable September and March)
Fixed Yield 6.06% pa
Receive 3 month Bank Bills Currently 5.53% pa
IRSDB14
Principal A$150 000 000
Maturity 15 June 2014 (10 years)
Pay fixed coupon A$ 5.87% pa (semi-annual payable September and March)
Fixed Yield 6.10% pa
Receive 3 month Bank Bills Currently 5.53% pa
CLIENT PROFILES
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$16 369 891
Debt Service Payment A$96 093 664
Other A$36 000 000
(iii) Profit A$31 536 445
QEPA purchases 5000 tonnes of copper on 15 December 2004. 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 $48 046 832. 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 September 2004).
CTM PORTFOLIO MANAGEMENT GAME PAGE 9
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$17 771 012
Other A$35 000 000
(iii) Projected Surplus A$2 728 988
BORROWING RATES FOR ADVANCES
Debt Service Payments are based on an assumption that all client debt is lent on a credit foncier
basis. The appropriate interest rate (which includes an administration margin of 0.50%) for each
advance can be found in the following table. All clients repay on a quarterly basis. You will need
to calculate Debt Service Payments for all future advances based on the rates at the time of the
advance.
The borrowing rates for Quarter 1 advances are shown below.
Term (years) Borrowing Rate
1 6.16%
2 6.19%
3 6.21%
4 6.23%
5 6.25%
6 6.27%
7 6.29%
8 6.31%
9 6.33%
10+ 6.33%
PLAYING THE GAME
TODAY IS 15 MARCH 2004
APA have just notified you that they need to borrow A$100 million for eight years from 15
March 2004.
You must decide:
(i) The impact of the drawdown on the portfolio position
(ii) Which is your preferred duration (relative to benchmark), and
(iii) What transactions to perform to structure your portfolio to take advantage of your
CTM PORTFOLIO MANAGEMENT GAME PAGE 10
anticipation of movement in rates and to raise funds to cover APA’s drawdown and any
futures deposit margins.
You can also decide to hedge future obligations through forward copper and foreign exchange
contracts if this is consistent with your view of the relevant markets.
FUTURE QUARTERS
At the start of each of the future quarters you will need to manage your cash flows and
determine your portfolio position relative to benchmark in light of the current economic
climate. Cashflow variables will include portfolio generated cashflows and cashflows relating to
client requirements.
Portfolio generated cashflows include:
Maturity of commercial paper
Coupon payments on bonds
Interest payments on swaps
Administration
Futures Deposit Margins/Variation Margins and Brokerage Costs
Client cashflows include:
Debt service payments
Advances
Repayments
At the start of this and subsequent sessions you will be given a report which shows your
performance during the previous session. You are required to review your performance to learn
from your past actions.
Rates will change after each session. Deals done must reflect the most recently available price
information.
For simplicity all cash flows (eg, drawdowns, repayments, coupons, debt service payments,
foreign exchange and commodity payments etc) will occur on the 15 of June, September,
December or March.
STRATEGY REPORT
You are required to complete a Strategy Report at the start of each session. This articulates your
view on rates and the actions which you plan to follow to put your strategy into practice during
the coming quarter.
You are provided with a rate sheet at the start of each quarter. This updates you on the market
rates which are then available.
You are also provided with the Economic Overview. This will help you formulate your Team view
which will be important in formulating your strategy.
CTM PORTFOLIO MANAGEMENT GAME PAGE 11
DEAL SLIPS
When you decide to do a transaction you must complete the relevant deal slip and submit it to
the Back Office.
Separate deal tickets exist for different transactions:
Commercial Paper
Bonds
Swaps
FX
Commodities
Futures
It is important to correctly record all relevant information on the deal slip. This will include:
Transaction date
Security Code
Counterparty for Investments
Specifics of the transaction - eg, currency, amount, rates, maturity date, whether you are
buying or selling etc
Your signature or initials
Should the details on the deal slip be incorrect, the details will be corrected. However, your team
will be penalised for recording incorrect details.
Deal slips must be submitted by the designated cut-off times otherwise they will be
ignored. Deal slips will be collected prior to the issue of a fresh rate sheet.
You are advised to keep a record (blotter) of all deals done.
PERFORMANCE MEASUREMENT
The real value of the portfolio management game lies in how much you learn from playing it.
Your team’s performance will be measured across a number of areas and you will be given a
performance report each quarter detailing your financial performance. The report will include:
Market Value Cost of Funds versus that of the other teams and against benchmark.
Profit or loss from management of commodity and currency exposures.
Penalties incurred (if any) from poor cash management or operational errors.
Number of errors made.
A major weighting in the assessment of your team’s performance will be your strategy - how
well was it formulated, did your actions match your strategy, how well were you able to adapt to
change, etc?
TECHNOLOGY
Each team is provided with a set of spreadsheets that will assist you in your decision making.
CTM PORTFOLIO MANAGEMENT GAME PAGE 12
You can use these spreadsheets to do scenario analyses.
Deals are only done when you submit the deal slip.
You will be given instruction on how to use the computer models.
DISPUTES
The Back Office has absolute power to vary rules at any time and their decision on any dispute
is final.
CHECK LIST
Each quarter you are required to do the following:
1. ASCERTAIN YOUR FUNDING REQUIREMENTS
To calculate how much you need to raise, calculate your bank balance after settlements.
What is your opening bank balance?
What Portfolio inflows and outflows are occurring on balance date?
What new drawdowns/client repayments are required?
You should consider:
Portfolio generated cashflows
Coupon payments due
Swap payments due
Administration charges
Maturing commercial paper
Variation margins
Deposit margins and brokerage costs
Client cashflows
Debt service payments due
Repayments
Advances
After determining your portfolio generated cashflows you should ensure that the duration of
your initial position is approximately that of the closing position on your performance report.
This will indicate that you have correctly calculated the portfolio generated cashflows.
2. DETERMINE YOUR STRATEGY
Review economic scenarios.
Establish your view on the direction that rates will move during the coming quarter/year.
Decide on your target duration.
CTM PORTFOLIO MANAGEMENT GAME PAGE 13
3. COMPLETE DEAL SLIPS
What deals will achieve your strategy?
Decide what bonds/commercial paper you will issue or redeem.
Decide what swaps and/or futures you will do.
Decide if you wish to hedge your future copper and foreign currency exposures.
Keep a record of the deals done.
Confirmed deals blotter
Commodity exposure report
USD exposure report
EUR exposure report
4. SUBMIT RECORDS TO THE BACK OFFICE
All deal slips
Bank balance calculation
Coupon payment calculations
Maturities calculation
Swap payments calculations
Strategy report
Futures calculations
PARTICIPANT’S SPREADSHEET
Every quarter you are required to determine how you wish to manage your portfolio. You are
given a spreadsheet with eight sheets per quarter (seven in Quarter 1) to assist you to make these
decisions. There is a clicker at the top of each page to facilitate movement between the sheets.
Each sheet contains different information and it is advised that you use all of the information
contained in these sheets before deciding on the final deals that you wish to undertake. The
eight sheets supplied are:
1. Information – Displays the main information about each security and the benchmark of
your portfolio for the current quarter.
2. Rates – Displays the current rates, implied forward rates and allows you to enter in a ‘what
if’ scenario.
3. Yield Curve – Graphs the current rates, implied forwards and the ‘what if’ scenario.
4. Initial Position – Shows in detail the break-up of the initial position of your portfolio. This
includes the proportion you have of your portfolio in each facility class, your actual
proportions against benchmark and your actual duration against benchmark. You are also
given your opening bank balance and shows the Portfolio Generated Cashflows that was
entered on the previous screen. You are able to go to the Portfolio Generated Cashflows page via
this screen.
5. Deal Entry – This is where you enter in your Client Cashflows and determine what deals
you wish to do. The graph here shows the duration of your portfolio after each deal you
have confirmed.
6. Position Including Deals – This shows the same information as the Initial Position page
but includes confirmed deals.
7. Proportions – This shows the actual and benchmark proportions of Commercial Paper and
Domestic Bonds.
8. Portfolio Generated Cashflows – This is where you enter your Portfolio Generated
Cashflows. You are required to calculate this at the beginning of Quarters 2, 3 and 4. This
figure combined with your Client Cashflows determines your Net Funding Requirements.
You are able to change this figure during the session if you need to. This page can be
accessed via the Initial Position page.
The following pages will examine each sheet in further detail. This will assist you in extracting as
much information as possible from the spreadsheet.
Some sheets in the spreadsheet require you to input values. The cells that you are required to
change are formatted RED. The sheets that require you to enter values are as follows:
1. Portfolio Generated Cashflows
This takes into account:
Bond Coupons
Swap Payments
Maturities
Administration
Futures Variation Margins/Deposit Margins/Brokerage
2. Deal Entry
Client Cashflows
Advances
Repayments
Debt Service Payments
CTM PORTFOLIO MANAGEMENT GAME PAGE 14
1. INFORMATION
This page gives you information about each of the instruments that you can use to manage your
portfolio. It provides a description of each instrument, its maturity, coupon and currency. It also
provides a reference for the benchmark proportions of your portfolio for the current quarter,
along with some management ranges that you need to comply with.
2. RATES
This page displays the rates for the quarter. It shows the buy/sell rates that are used for any
deals that you wish to do during the quarter. It is up to you to determine which side of the
spread is appropriate for the deal that you are doing. Changes in rates will be updated during the
game for your use in subsequent quarters. These rates are graphed and can be viewed on the
Yield Curve page.
CTM PORTFOLIO MANAGEMENT GAME PAGE 15
3. YIELD CURVE
This graph shows the rates for the current quarter, the implied forward rates and allows you to
graph where you think rates might be going by moving the red yield curve using the clickers on
the table.
4. INITIAL POSITION
This shows your initial position for the quarter. It supplies you with the proportions of each
facility class, benchmark and actual weights, and the benchmark and actual duration of your
portfolio. The main table provides you with detailed information about your opening position.
This includes the face value, market value, coupon and duration of each security on issue. The
total value of your portfolio is also shown.
Your starting bank balance is shown as well as your Portfolio Generated Cashflows for the
quarter (the value entered on the Portfolio Generated Cashflows sheet for Quarters 2, 3 and 4).
Your Cash at Bank will be positive for those with cash in the bank and negative for those in
overdraft. These figures, combined with your Client Cashflows determine your Net Funding
Requirements.
CTM PORTFOLIO MANAGEMENT GAME PAGE 16
5. DEAL ENTRY
CTM PORTFOLIO MANAGEMENT GAME PAGE 17
CTM PORTFOLIO MANAGEMENT GAME PAGE 18
How to Use the Deal Entry Screen
The Deal Entry Screen will be the most frequently used screen during each session. The graph
gives you an up to date indication of where your portfolio is positioned with respect to
benchmark. The small white box shows the duration of your initial position and the blue arrow
shows the duration of your portfolio after your confirmed deals. At the beginning of Quarter 1,
ensure that the initial position duration and the duration of your portfolio are the same (the blue
arrow should be sitting on the white box). In Quarters 2, 3 and 4, ensure that the initial position
duration (after your Portfolio Generated Cashflows have been entered) is approximately that of
the closing duration shown on your Performance Report.
After you have checked this information, enter in your Client Cashflows. In Quarter 1 you are
required to fund $100 000 000 for APA. Enter this value as -100 000 000 in the Client
Cashflows box. All funds to be raised by the portfolio are to be entered as a negative while
repayments from your clients would be entered as a positive.
Once you have entered this information, you are now able to determine what deals you would
like to do to manage your portfolio to your desired duration.
How to Enter a Deal
Once you have decided what type of deal you would like to do, select it from the clicker on the
left. This will then bring up information about that security (maturity date, coupon etc). You
then need to select whether you want to Buy/Sell, Issue/Invest or Pay/Receive using the second
clicker on that row. There are two clickers for Swap transactions to allow for both sides of the
swap. Now you need to enter in the details of the transactions. The information required is:
Face Value (Currency of Issue)
Yield that the deal is done at (ensure you have the correct side of the spread)
Spot rate for Eurobond and Cross Currency Swaps (this is the mid rate)
After entering these details, the proceeds of this deal will then be displayed. If you would like to
see the effect that this deal would have on your portfolio, tick the ‘Confirm’ checkbox. The
graph will then update with the new duration of your portfolio. The green area of this graph
shows the management range that you must stay within. If you enter the red section, you have
violated the management range. If you decide that you do not want to include a deal, leave the
‘Confirm’ checkbox blank. You do not have to delete the deal.
After you have decided on the deals that you wish to do, you should record them on the blotter
provided and write up a deal slip. At the end of the session, you must submit your deal slips to
the Back Office for processing. If there are incorrect values (eg, rates) entered, the Back Office
will correct them though penalties may be incurred.
Some Tips on Entering Deals
Check that the rates you enter are the correct ones or the position of your portfolio will be
different to what you expect.
Ensure you enter into a Cross Currency Swap for each Eurobond deal.
When entering into a Swap transaction, enter the Fixed side on the first line and the Floating
side on the second.
For the Floating side of a Swap, use the Mid Rate.
For Eurobond and Cross Currency Issues, use the Mid Rate when entering in the Spot Rate.
Ensure that you have both the Pay and Receive side of each Swap.
6. POSITION INCLUDING DEALS
Like the Initial Position sheet, this shows you a breakdown of your portfolio taking into account
the deals that you have Confirmed with a tick. It shows your initial position, the position of the
deals that you have done and your total position. Again, it shows you the proportion of each
facility class, your benchmark duration and the actual duration of your portfolio. Use this page
to ensure that you comply to all management ranges.
7. PROPORTIONS
These graphs show you the proportions of Commercial Paper and Domestic Bonds compared
to Benchmark for both your Initial Position and your portfolio after Confirmed Deals. These
are useful to see if the deals you confirm correspond to your strategy.
CTM PORTFOLIO MANAGEMENT GAME PAGE 19
8. PORTFOLIO GENERATED CASHFLOWS
At the beginning of Quarters 2, 3 and 4 you are required to calculate your Portfolio Generated
Cashflows. These include Maturities, Coupon Payments, Swap Payments and Administration.
Once you have determined your Portfolio Generated Cashflows, you are required to enter the
value on this sheet. The value should be positive if you are receiving and negative if you
are paying.
Once this value is entered, click the ‘Continue to Initial Position’ button. This will then bring
you to the next screen. If you need to change the value of your Portfolio Generated Cashflows,
you can do this via the ‘Re-enter Portfolio Generated Cashflows’ button on the Initial Position
screen.
CTM PORTFOLIO MANAGEMENT GAME PAGE 20
DEAL SLIPS
CTM PORTFOLIO MANAGEMENT GAME PAGE 21
FUTURES
TRANSACTION ADVICE
Transaction Date
/ /
dd/mm/yy
Security Code Buy Sell
FUT3YR Number of Contracts
FUT10YR Price per Contract
Office use only
Deal No Checked
Errors Entered Signature
CTM PORTFOLIO MANAGEMENT GAME PAGE 22
CTM PORTFOLIO MANAGEMENT GAME PAGE 23
CTM PORTFOLIO MANAGEMENT GAME PAGE 24
CTM PORTFOLIO MANAGEMENT GAME PAGE 25
WELCOME TO THE
CTM PORTFOLIO MANAGEMENT GAME
The portfolio management game is designed to reinforce the concepts covered in the lectures
and case studies to help you understand how a Corporate Treasury manages debt and other
exposures.
Participants are grouped into teams. Each team plays the role of the Corporate Treasury. At the
start of the game each team has identical exposures. Teams will make their own decisions on
how to manage these exposures and any new exposures which arise during the game.
The game is played in a series of decision sessions. During each session the team analyses its
cash flows, reviews its exposures, past performance, current market rates and data on future
economic conditions and decides which transactions to undertake.
OBJECTIVE
You are the Corporate Treasury for a number of government clients. In this game you have
three clients: Queensland Electro Power Authority (QEPA), A Port Authority (APA) and Local
Government (LG).
They each have funding requirements and other exposures that they look to you to manage.
Your task is to provide funding for your clients and actively manage their financial market
risk exposures with the aim of providing the lowest possible cost relative to established
benchmarks and within certain constraints.
CENTRAL TREASURY PROFILE
BACKGROUND
Central Treasury is the corporate treasury for a number of government clients. It operates as a
‘not for profit’ treasury. Central Treasury’s core business is liability management. However, it
also provides the full range of treasury services including hedging foreign exchange and
commodities exposures.
In its liability management activities, Central Treasury accesses financial markets to obtain funds
for its clients. There is not a one to one link between the funds raised and the funds lent to
clients. All funds are pooled to form a Portfolio and clients’ requirements are funded from the
Portfolio. The benchmark for the funding portfolio has been designed to match the
requirements of the customers’ loans it is funding. The funding cost generated by the Portfolio
is passed on to the clients at zero spread.
Funding costs (market value interest costs) are charged according to the proportion of each
client’s loan from the Portfolio. Hedging of foreign currency and commodity exposures are kept
separate from the Portfolio to ensure clients of the Portfolio do not cross-subsidise these
activities.
CTM PORTFOLIO MANAGEMENT GAME PAGE 2
OPERATIONAL STRUCTURE
To accommodate the separation of its core business activities and the other treasury activities,
the Central Treasury operates two cost centres, one for Portfolio management (Portfolio) and
the other for general administration (Central Treasury). The Portfolio cost centre is used for all
transactions relating to the raising and funding of clients’ debt. Foreign currency and commodity
exposures are excluded from the Portfolio cost centre. Clients requesting hedging of their
foreign currency and commodities exposures are charged the cost to the Central Treasury.
Funds required to pay for hedges or purchases on foreign exchange come directly from the
client and are not required to be funded through the Portfolio.
Transactions recorded in the Central Treasury cost centre include:
Commodities/foreign exchange
Operating expenses, and
Penalties incurred by the portfolio manager resulting from poor management.
ADMINISTRATION/OPERATING EXPENSES
Clients pay an administration fee of 50 basis points per annum based on the amount of debt
outstanding at the beginning of the quarter. This fee is calculated using the actual days in the
quarter. The Central Treasury administration fee is accrued throughout the quarter and is funded
through the Portfolio at the time it is due to be paid to the Central Treasury. The administration
fee is paid to the Central Treasury on the first day of the subsequent quarter.
Central Treasury’s operating expenses are 30 basis points per annum based on the amount of
debt outstanding at the beginning of the quarter. They are incurred by the Central Treasury and
not by the Portfolio. The Central Treasury pays operating expenses at the end of each quarter.
Operating expenses have no impact on the Portfolio bank account.
OPENING POSITION
It is assumed the Central Treasury has just opened its doors for business. This means all
cashflows, with the exception of your clients’ funding requirements, will have already been
incorporated into the opening position.
GAME RULES
You must ensure that your clients’ funding needs are met at all times. You may raise new funds
at anytime. If you have borrowed more than your clients require you may invest the surplus
funds in three month commercial paper or you can retire debt by buying back bonds which you
have issued at the then market price (you cannot buy back more than you have issued in any
bond).
BORROWING FACILITIES
You can raise funds through any of the following facilities:
Commercial Paper Facility
CP3M Borrowing - Commercial Paper Facility 3 month Bank Bill
CTM PORTFOLIO MANAGEMENT GAME PAGE 3
Domestic Bond Facility
DB05 Domestic Bond - 1 year A$ bonds maturing 15 March 2005 5.70% Coupon
DB07 Domestic Bond - 3 years A$ bonds maturing 15 March 2007 5.75% Coupon
DB09 Domestic Bond - 5 years A$ bonds maturing 15 March 2009 5.79% Coupon
DB14 Domestic Bond - 10 years A$ bonds maturing 15 March 2014 5.87% Coupon
Eurobond Facility
US07 Eurobond Program - 3 years US$ bonds maturing 15 March 2007 2.00% Coupon
US14 Eurobond Program - 10 years US$ bonds maturing 15 March 2014 4.50% Coupon
EUR09 Eurobond Program - 5 years EUR bonds maturing 15 March 2009 3.50% Coupon
Note:
1. You must have a minimum of 15 per cent exposure in each facility class.
2. All foreign currency denominated bonds must be swapped into floating (three monthly
resets) on drawdown.
ADDITIONAL PORTFOLIO MANAGEMENT FACILITIES
Cross Currency Swaps
CCSUS07 Cross Currency Swap for US$ bonds maturing 15 March 2007 2.00% Coupon
CCSUS14 Cross Currency Swap for US$ bonds maturing 15 March 2014 4.50% Coupon
CCSEUR09 Cross Currency Swap for EUR bonds maturing 15 March 2009 3.50% Coupon
Interest Rate Swaps
IRSDB07 Interest Rate Swap for A$ bonds maturing 15 June 2007 5.75% Coupon
IRSDB09 Interest Rate Swap for A$ bonds maturing 15 June 2009 5.79% Coupon
IRSDB14 Interest Rate Swap for A$ bonds maturing 15 June 2014 5.87% Coupon
Interest Rate Futures
FUT3YR 3 Year Generic Bond Futures Contract 6.00% Coupon
FUT10YR 10 Year Generic Bond Futures Contract 6.00% Coupon
Futures Contract Information
1. The contract size for both the three year and 10 year contract is $100 000.
2. Contracts expire three months from the respective decision making points and a new
contract will apply from that point.
3. Deposit margins of $700 per three year contract and $2000 per 10 year contract apply. No
span margin calculations apply. Deposit margins must be funded for by the Portfolio at the
time of the deal and will earn the Portfolio interest at the three month commercial paper
rate.
4. Variation margins are to be paid upon the expiry of the contract. That is, at the next decision
making point after the futures are traded.
5. Brokerage applies at a rate of $5.00 per contract. This is also to be funded through the
Portfolio at the expiration of the contract.
6. The maximum number of contracts for the three year and 10 year futures is 5000 contracts
each.
CTM PORTFOLIO MANAGEMENT GAME PAGE 4
INVESTMENT FACILITIES
INVCP3M Investment - Commercial Paper Facility 3 month Bank Bill
Surplus cash can be invested in three month commercial paper or used to buy back bonds you
have issued. When investing in three month commercial paper you must decide which
counterparty to deal with. Details of the counterparties available are as follows:
Counterparty Credit Rating
Coolum Treasury Corporation AAA
First Mudjimba Bank AA
Peregian Trust Bank A-
Bli Bli Corporation Ltd A-
Each counterparty issues its commercial paper at a yield reflecting their current credit rating and
amount they have on issue. The investment yield for each counterparty is available on the rate
sheet provided each quarter. The face value of the total investments in three month commercial
paper cannot, at any one time, exceed $500 000 000. Further, there are limitations as to how the
investments can be allocated across the counterparties:
Counterparty Minimum Percentage of Total Face Value of Investments
Maximum Percentage of Total
Face Value of Investments
Coolum Treasury Corporation 40% 100%
First Mudjimba Bank 0% 60%
Peregian Trust Bank 0% 40%
Bli Bli Corporation Ltd 0% 40%
BENCHMARK
The modified duration of your benchmark portfolio at the start of the game is 3.75 years. The
composition of the benchmark portfolio will change at the start of each quarter, rebalancing the
modified duration to 3.75 years, taking into account the yields at that time.
The initial benchmark portfolio comprises:
Instrument Weight
CP3M 20.0%
DB05 12.5%
DB07 17.5%
DB09 20.0%
DB14 30.0%
You have discretion to manage duration to benchmark +/- 1.0 year.
CTM PORTFOLIO MANAGEMENT GAME PAGE 5
You can change the duration of your portfolio by varying either:
(i) the amounts drawn down under each program
(ii) the use of swaps and futures
(iii) the use of physical bonds.
FOREIGN CURRENCY/COMMODITIES
You are also required to manage commodity price risk and foreign exchange rate risk for your
clients if they have any in the coming four quarters. This is done on a back to back basis, where
contracts are executed for a specific customer. These transactions do not form part of the
Portfolio. You may be hedged or unhedged up to 100 per cent of the exposure. Any benefits or
costs resulting from these exposures are passed directly to the client concerned.
Your performance will be assessed against a benchmark based on if you undertook 100 per cent
of the hedging at the time you are notified of the exposure.
Foreign exchange and commodity exposures which are not covered by settlement date will be
force liquidated at penalty rates of US$100 per tonne for copper and 100 points for foreign
exchange worse than the then market rate. (Note: a deal slip is still required to be completed on
the date of delivery of the foreign currency amount or commodity for all unhedged amounts.)
CASH BALANCES
At the start of the game Central Treasury has a balance of $2 000 000 in its A$ bank account and
zero balance in its US$ and EUR accounts. Central Treasury’s starting cash balance earns
interest at five per cent per annum. This cash balance and the administration revenue received
each quarter is used to meet operating expenses and penalty costs.
Penalties associated with poor cash management and errors will be paid by the Central Treasury
and will not be passed onto your clients. Poor cash management includes large uninvested cash
balances.
If the Portfolio’s bank account is overdrawn, the following penalty rates will apply to the
Central Treasury:
0 – 20 000 0%
20 000 – 1 000 000 5% pa
> 1 000 000 10% pa
The Portfolio in this case will be charged the three month commercial paper cost of funds.
Uninvested Portfolio cash balances will attract the following penalties to the Central
Treasury:
0 – 20 000 0%
> 20 000 3 month commercial paper rate
CTM PORTFOLIO MANAGEMENT GAME PAGE 6
PENALTIES
Penalties may be incurred for the following reasons:
Using the wrong side of the bid/offer spread
Using wrong interest/exchange rates
Incomplete deal dockets
Failure to enter into Cross Currency Swaps to convert foreign currency bond issues
Overdrawn cash balances
Uninvested cash balances
Failure to undertake foreign currency or commodity transactions for the physical position
Violation of management ranges (benchmark, investment and facility class)
STARTING PROFILE
At the start of the game (15 March 2004) you have issued the following amounts to generate the
A$1 billion which has been onlent to your clients.
(i) Domestic Bond Program
DB05
Face Value A$125 000 000
Maturity 15 March 2005 (1 year)
Coupon 5.70% pa (semi-annual payable September and March)
Yield 5.70% pa
Issue Price $100.00
DB07
Face Value A$125 000 000
Maturity 15 March 2007 (three years)
Coupon 5.75% pa (semi-annual payable September and March)
Yield 5.75% pa
Issue Price $100.00
DB09
Face Value A$200 000 000
Maturity 15 March 2009 (five years)
Coupon 5.79% pa (semi-annual payable September and March)
Yield 5.79% pa
Issue Price $100.00
DB14
Face Value A$150 000 000
Maturity 15 March 2014 (10 years)
Coupon 5.87% pa (semi-annual payable September and March)
Yield 5.87% pa
Issue Price $100.00
CTM PORTFOLIO MANAGEMENT GAME PAGE 7
(ii) Commercial Paper Facility
CP3M
Face Value A$202 797 180.25
Maturity/Rollover 15 June 2004 (92 days)
Yield 5.53% pa
Issue Price $98.625298443
(iii) Eurobond Program (US$)
US14
Face Value US$76 500 000
Maturity 15 March 2014 (10 years)
Coupon 4.50% pa (semi-annual payable September and March)
Yield 4.40% pa
Issue Price US$100.80200927
Swapped into floating rate A$:
CCSUS14
Exchange rate 0.7650
A$ Principal A$100 000 000
Pay 3 month A$ Bank Bills Currently 5.53% pa
Receive fixed coupon US$ 4.50% pa (semi-annual payable September and March)
Fixed yield 4.63% pa
Maturity 15 March 2014
(iv) Eurobond Program (EUR)
EUR09
Face Value EUR60 500 000
Maturity 15 March 2009 (5 years)
Coupon 3.50% pa (semi-annual payable September and March)
Yield 3.48% pa
Issue Price EUR100.09106016
Swapped into floating rate A$:
CCSEUR09
Exchange rate 0.6050
A$ Principal A$100 000 000
Pay 3 month A$ Bank Bills Currently 5.53% pa
Receive fixed coupon EUR 3.50% pa (semi-annual payable September and March)
Fixed Yield 3.73% pa
Maturity 15 March 2009
CTM PORTFOLIO MANAGEMENT GAME PAGE 8
(v) You have entered into the following interest rate swaps:
IRSDB07
Principal A$50 000 000
Maturity 15 March 2007 (3 years)
Pay fixed coupon A$ 5.75% pa (semi-annual payable September and March)
Fixed Yield 6.06% pa
Receive 3 month Bank Bills Currently 5.53% pa
IRSDB14
Principal A$150 000 000
Maturity 15 June 2014 (10 years)
Pay fixed coupon A$ 5.87% pa (semi-annual payable September and March)
Fixed Yield 6.10% pa
Receive 3 month Bank Bills Currently 5.53% pa
CLIENT PROFILES
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$16 369 891
Debt Service Payment A$96 093 664
Other A$36 000 000
(iii) Profit A$31 536 445
QEPA purchases 5000 tonnes of copper on 15 December 2004. 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 $48 046 832. 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 September 2004).
CTM PORTFOLIO MANAGEMENT GAME PAGE 9
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$17 771 012
Other A$35 000 000
(iii) Projected Surplus A$2 728 988
BORROWING RATES FOR ADVANCES
Debt Service Payments are based on an assumption that all client debt is lent on a credit foncier
basis. The appropriate interest rate (which includes an administration margin of 0.50%) for each
advance can be found in the following table. All clients repay on a quarterly basis. You will need
to calculate Debt Service Payments for all future advances based on the rates at the time of the
advance.
The borrowing rates for Quarter 1 advances are shown below.
Term (years) Borrowing Rate
1 6.16%
2 6.19%
3 6.21%
4 6.23%
5 6.25%
6 6.27%
7 6.29%
8 6.31%
9 6.33%
10+ 6.33%
PLAYING THE GAME
TODAY IS 15 MARCH 2004
APA have just notified you that they need to borrow A$100 million for eight years from 15
March 2004.
You must decide:
(i) The impact of the drawdown on the portfolio position
(ii) Which is your preferred duration (relative to benchmark), and
(iii) What transactions to perform to structure your portfolio to take advantage of your
CTM PORTFOLIO MANAGEMENT GAME PAGE 10
anticipation of movement in rates and to raise funds to cover APA’s drawdown and any
futures deposit margins.
You can also decide to hedge future obligations through forward copper and foreign exchange
contracts if this is consistent with your view of the relevant markets.
FUTURE QUARTERS
At the start of each of the future quarters you will need to manage your cash flows and
determine your portfolio position relative to benchmark in light of the current economic
climate. Cashflow variables will include portfolio generated cashflows and cashflows relating to
client requirements.
Portfolio generated cashflows include:
Maturity of commercial paper
Coupon payments on bonds
Interest payments on swaps
Administration
Futures Deposit Margins/Variation Margins and Brokerage Costs
Client cashflows include:
Debt service payments
Advances
Repayments
At the start of this and subsequent sessions you will be given a report which shows your
performance during the previous session. You are required to review your performance to learn
from your past actions.
Rates will change after each session. Deals done must reflect the most recently available price
information.
For simplicity all cash flows (eg, drawdowns, repayments, coupons, debt service payments,
foreign exchange and commodity payments etc) will occur on the 15 of June, September,
December or March.
STRATEGY REPORT
You are required to complete a Strategy Report at the start of each session. This articulates your
view on rates and the actions which you plan to follow to put your strategy into practice during
the coming quarter.
You are provided with a rate sheet at the start of each quarter. This updates you on the market
rates which are then available.
You are also provided with the Economic Overview. This will help you formulate your Team view
which will be important in formulating your strategy.
CTM PORTFOLIO MANAGEMENT GAME PAGE 11
DEAL SLIPS
When you decide to do a transaction you must complete the relevant deal slip and submit it to
the Back Office.
Separate deal tickets exist for different transactions:
Commercial Paper
Bonds
Swaps
FX
Commodities
Futures
It is important to correctly record all relevant information on the deal slip. This will include:
Transaction date
Security Code
Counterparty for Investments
Specifics of the transaction - eg, currency, amount, rates, maturity date, whether you are
buying or selling etc
Your signature or initials
Should the details on the deal slip be incorrect, the details will be corrected. However, your team
will be penalised for recording incorrect details.
Deal slips must be submitted by the designated cut-off times otherwise they will be
ignored. Deal slips will be collected prior to the issue of a fresh rate sheet.
You are advised to keep a record (blotter) of all deals done.
PERFORMANCE MEASUREMENT
The real value of the portfolio management game lies in how much you learn from playing it.
Your team’s performance will be measured across a number of areas and you will be given a
performance report each quarter detailing your financial performance. The report will include:
Market Value Cost of Funds versus that of the other teams and against benchmark.
Profit or loss from management of commodity and currency exposures.
Penalties incurred (if any) from poor cash management or operational errors.
Number of errors made.
A major weighting in the assessment of your team’s performance will be your strategy - how
well was it formulated, did your actions match your strategy, how well were you able to adapt to
change, etc?
TECHNOLOGY
Each team is provided with a set of spreadsheets that will assist you in your decision making.
CTM PORTFOLIO MANAGEMENT GAME PAGE 12
You can use these spreadsheets to do scenario analyses.
Deals are only done when you submit the deal slip.
You will be given instruction on how to use the computer models.
DISPUTES
The Back Office has absolute power to vary rules at any time and their decision on any dispute
is final.
CHECK LIST
Each quarter you are required to do the following:
1. ASCERTAIN YOUR FUNDING REQUIREMENTS
To calculate how much you need to raise, calculate your bank balance after settlements.
What is your opening bank balance?
What Portfolio inflows and outflows are occurring on balance date?
What new drawdowns/client repayments are required?
You should consider:
Portfolio generated cashflows
Coupon payments due
Swap payments due
Administration charges
Maturing commercial paper
Variation margins
Deposit margins and brokerage costs
Client cashflows
Debt service payments due
Repayments
Advances
After determining your portfolio generated cashflows you should ensure that the duration of
your initial position is approximately that of the closing position on your performance report.
This will indicate that you have correctly calculated the portfolio generated cashflows.
2. DETERMINE YOUR STRATEGY
Review economic scenarios.
Establish your view on the direction that rates will move during the coming quarter/year.
Decide on your target duration.
CTM PORTFOLIO MANAGEMENT GAME PAGE 13
3. COMPLETE DEAL SLIPS
What deals will achieve your strategy?
Decide what bonds/commercial paper you will issue or redeem.
Decide what swaps and/or futures you will do.
Decide if you wish to hedge your future copper and foreign currency exposures.
Keep a record of the deals done.
Confirmed deals blotter
Commodity exposure report
USD exposure report
EUR exposure report
4. SUBMIT RECORDS TO THE BACK OFFICE
All deal slips
Bank balance calculation
Coupon payment calculations
Maturities calculation
Swap payments calculations
Strategy report
Futures calculations
PARTICIPANT’S SPREADSHEET
Every quarter you are required to determine how you wish to manage your portfolio. You are
given a spreadsheet with eight sheets per quarter (seven in Quarter 1) to assist you to make these
decisions. There is a clicker at the top of each page to facilitate movement between the sheets.
Each sheet contains different information and it is advised that you use all of the information
contained in these sheets before deciding on the final deals that you wish to undertake. The
eight sheets supplied are:
1. Information – Displays the main information about each security and the benchmark of
your portfolio for the current quarter.
2. Rates – Displays the current rates, implied forward rates and allows you to enter in a ‘what
if’ scenario.
3. Yield Curve – Graphs the current rates, implied forwards and the ‘what if’ scenario.
4. Initial Position – Shows in detail the break-up of the initial position of your portfolio. This
includes the proportion you have of your portfolio in each facility class, your actual
proportions against benchmark and your actual duration against benchmark. You are also
given your opening bank balance and shows the Portfolio Generated Cashflows that was
entered on the previous screen. You are able to go to the Portfolio Generated Cashflows page via
this screen.
5. Deal Entry – This is where you enter in your Client Cashflows and determine what deals
you wish to do. The graph here shows the duration of your portfolio after each deal you
have confirmed.
6. Position Including Deals – This shows the same information as the Initial Position page
but includes confirmed deals.
7. Proportions – This shows the actual and benchmark proportions of Commercial Paper and
Domestic Bonds.
8. Portfolio Generated Cashflows – This is where you enter your Portfolio Generated
Cashflows. You are required to calculate this at the beginning of Quarters 2, 3 and 4. This
figure combined with your Client Cashflows determines your Net Funding Requirements.
You are able to change this figure during the session if you need to. This page can be
accessed via the Initial Position page.
The following pages will examine each sheet in further detail. This will assist you in extracting as
much information as possible from the spreadsheet.
Some sheets in the spreadsheet require you to input values. The cells that you are required to
change are formatted RED. The sheets that require you to enter values are as follows:
1. Portfolio Generated Cashflows
This takes into account:
Bond Coupons
Swap Payments
Maturities
Administration
Futures Variation Margins/Deposit Margins/Brokerage
2. Deal Entry
Client Cashflows
Advances
Repayments
Debt Service Payments
CTM PORTFOLIO MANAGEMENT GAME PAGE 14
1. INFORMATION
This page gives you information about each of the instruments that you can use to manage your
portfolio. It provides a description of each instrument, its maturity, coupon and currency. It also
provides a reference for the benchmark proportions of your portfolio for the current quarter,
along with some management ranges that you need to comply with.
2. RATES
This page displays the rates for the quarter. It shows the buy/sell rates that are used for any
deals that you wish to do during the quarter. It is up to you to determine which side of the
spread is appropriate for the deal that you are doing. Changes in rates will be updated during the
game for your use in subsequent quarters. These rates are graphed and can be viewed on the
Yield Curve page.
CTM PORTFOLIO MANAGEMENT GAME PAGE 15
3. YIELD CURVE
This graph shows the rates for the current quarter, the implied forward rates and allows you to
graph where you think rates might be going by moving the red yield curve using the clickers on
the table.
4. INITIAL POSITION
This shows your initial position for the quarter. It supplies you with the proportions of each
facility class, benchmark and actual weights, and the benchmark and actual duration of your
portfolio. The main table provides you with detailed information about your opening position.
This includes the face value, market value, coupon and duration of each security on issue. The
total value of your portfolio is also shown.
Your starting bank balance is shown as well as your Portfolio Generated Cashflows for the
quarter (the value entered on the Portfolio Generated Cashflows sheet for Quarters 2, 3 and 4).
Your Cash at Bank will be positive for those with cash in the bank and negative for those in
overdraft. These figures, combined with your Client Cashflows determine your Net Funding
Requirements.
CTM PORTFOLIO MANAGEMENT GAME PAGE 16
5. DEAL ENTRY
CTM PORTFOLIO MANAGEMENT GAME PAGE 17
CTM PORTFOLIO MANAGEMENT GAME PAGE 18
How to Use the Deal Entry Screen
The Deal Entry Screen will be the most frequently used screen during each session. The graph
gives you an up to date indication of where your portfolio is positioned with respect to
benchmark. The small white box shows the duration of your initial position and the blue arrow
shows the duration of your portfolio after your confirmed deals. At the beginning of Quarter 1,
ensure that the initial position duration and the duration of your portfolio are the same (the blue
arrow should be sitting on the white box). In Quarters 2, 3 and 4, ensure that the initial position
duration (after your Portfolio Generated Cashflows have been entered) is approximately that of
the closing duration shown on your Performance Report.
After you have checked this information, enter in your Client Cashflows. In Quarter 1 you are
required to fund $100 000 000 for APA. Enter this value as -100 000 000 in the Client
Cashflows box. All funds to be raised by the portfolio are to be entered as a negative while
repayments from your clients would be entered as a positive.
Once you have entered this information, you are now able to determine what deals you would
like to do to manage your portfolio to your desired duration.
How to Enter a Deal
Once you have decided what type of deal you would like to do, select it from the clicker on the
left. This will then bring up information about that security (maturity date, coupon etc). You
then need to select whether you want to Buy/Sell, Issue/Invest or Pay/Receive using the second
clicker on that row. There are two clickers for Swap transactions to allow for both sides of the
swap. Now you need to enter in the details of the transactions. The information required is:
Face Value (Currency of Issue)
Yield that the deal is done at (ensure you have the correct side of the spread)
Spot rate for Eurobond and Cross Currency Swaps (this is the mid rate)
After entering these details, the proceeds of this deal will then be displayed. If you would like to
see the effect that this deal would have on your portfolio, tick the ‘Confirm’ checkbox. The
graph will then update with the new duration of your portfolio. The green area of this graph
shows the management range that you must stay within. If you enter the red section, you have
violated the management range. If you decide that you do not want to include a deal, leave the
‘Confirm’ checkbox blank. You do not have to delete the deal.
After you have decided on the deals that you wish to do, you should record them on the blotter
provided and write up a deal slip. At the end of the session, you must submit your deal slips to
the Back Office for processing. If there are incorrect values (eg, rates) entered, the Back Office
will correct them though penalties may be incurred.
Some Tips on Entering Deals
Check that the rates you enter are the correct ones or the position of your portfolio will be
different to what you expect.
Ensure you enter into a Cross Currency Swap for each Eurobond deal.
When entering into a Swap transaction, enter the Fixed side on the first line and the Floating
side on the second.
For the Floating side of a Swap, use the Mid Rate.
For Eurobond and Cross Currency Issues, use the Mid Rate when entering in the Spot Rate.
Ensure that you have both the Pay and Receive side of each Swap.
6. POSITION INCLUDING DEALS
Like the Initial Position sheet, this shows you a breakdown of your portfolio taking into account
the deals that you have Confirmed with a tick. It shows your initial position, the position of the
deals that you have done and your total position. Again, it shows you the proportion of each
facility class, your benchmark duration and the actual duration of your portfolio. Use this page
to ensure that you comply to all management ranges.
7. PROPORTIONS
These graphs show you the proportions of Commercial Paper and Domestic Bonds compared
to Benchmark for both your Initial Position and your portfolio after Confirmed Deals. These
are useful to see if the deals you confirm correspond to your strategy.
CTM PORTFOLIO MANAGEMENT GAME PAGE 19
8. PORTFOLIO GENERATED CASHFLOWS
At the beginning of Quarters 2, 3 and 4 you are required to calculate your Portfolio Generated
Cashflows. These include Maturities, Coupon Payments, Swap Payments and Administration.
Once you have determined your Portfolio Generated Cashflows, you are required to enter the
value on this sheet. The value should be positive if you are receiving and negative if you
are paying.
Once this value is entered, click the ‘Continue to Initial Position’ button. This will then bring
you to the next screen. If you need to change the value of your Portfolio Generated Cashflows,
you can do this via the ‘Re-enter Portfolio Generated Cashflows’ button on the Initial Position
screen.
CTM PORTFOLIO MANAGEMENT GAME PAGE 20
DEAL SLIPS
CTM PORTFOLIO MANAGEMENT GAME PAGE 21
FUTURES
TRANSACTION ADVICE
Transaction Date
/ /
dd/mm/yy
Security Code Buy Sell
FUT3YR Number of Contracts
FUT10YR Price per Contract
Office use only
Deal No Checked
Errors Entered Signature
CTM PORTFOLIO MANAGEMENT GAME PAGE 22
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