Background

Wilmar International Ltd is a company primarily engaged in the activities of cultivation of palm oil across Asia and Africa.

Wilmar International Ltds forecast monthly palm oil production for the January and April

quarters as the following table.

Month	Crude Palm Oil (Metric tons)
January 2021	90,600
February 2021	100,000
March 2021	100,000
April 2021	110,000
May 2021	111,000
Jun 2021	115,000

Part of Wilmar International Ltd investment portfolio as at 10 November 2020 includes the following:

Investment Type	Amount(m)	Portfolio Beta	Representative Index / Security
Commercial Paper	US$11,500	-	Euro dollars
Bank Accepted Bills	A$500	-	BABs
Equity investments (US)	US$1,500	1.5	S&P 500
Equity investments ()	700	1.0	FTSE 100
Liabilities
3-year variable rate loan (next re-set date 30th June 2021)	US$10,000	-

Wilmar International Ltds sales of Crude Palm Oil is denominated in US dollars. Wilmar International Ltd is unsure of the direction of the financial variables and have appointed you to identify the risks and recommend suitable hedges.

Required:

Assume that you are a recently appointed hedge strategist with Wilmar International Ltd. and that you have been requested to prepare a report for presentation to the board of directors at its next board meeting. You have been specifically requested to address the following issues:

Section I (25%)

1. To identify the specific financial risk exposures faced by Wilmar International Ltd. (please limit the financial risks to what is taught in this unit). In this section, you MUST discuss the outlook (forecast) for each underlying variable and identify whether it will present a risk to the firm. You need to provide adequate evidence to support the justification for your responses.

(15%)

2. Make firm recommendations on whether to hedge all, part or none of the financial risk exposures that you identified in part (a) above. You MUST provide some explanation for each of your recommendations. (i.e. the reasons for suggesting this strategy. (You are not required to specify the type of derivative to be used to hedge in response to this question). (10%)