Description of the activity and instructions

New York Financial Services, a company dedicated to the automotive financial services sector, has more than 40 years of experience in the U.S. market. It is an independent company that guarantees nationwide service coverage and offers financial formulas and services for the purchase of all types of vehicles: personal, commercial and industrial.

New York Financial Services offers a personal financing plan adapted to the needs of each client, both for individuals and companies: financing, leasing, renting and different combinations of added services that can be chosen. In other words, New York Financial Services acts as the sole interlocutor for the acquisition and financing of a car.

The finance company also offers a specialized service in vehicle fleet management and maintenance, with tailor-made formulas and modular services for companies, and guarantees, through official services, the maximum care of automobiles.

Despite being a sector that is usually characterized by high cash positions, during the recession, the drop in activity and high default ratios led to the closure of many financial companies. New York Financial Services was able to resist thanks to a capital increase process and a restructuring of its costs, mainly on the personnel expense side.

At present, the company has a high volume of cash on hand, around USD 30 million, given the good results of its last few years. Only a negative change in the current macroeconomic scenario could change the company's cash position.

Despite the good omens for the future, they do not rule out the possibility that, should some latent elements of instability materialize (due to geopolitical tensions and uncertainties about world growth), there could be a significant reduction in the availability of this cash, which could, in the worst-case scenario, be as low as USD 10 million.

The Company's Board of Directors has asked its Chief Financial Officer for a report on how to distribute such cash or liquidity surpluses in different alternatives of financial products and assets, as well as to evaluate the time horizon of such investments. All this taking into account the conditions imposed by the Board of Directors regarding liquidity management, which will be given later.

In this sense, and after analyzing several financial investment alternatives, it obtains from the main banking entities with which it operates the following proposals and prices (all interest rates are in nominal annual rates) for various investment instruments:

1. Short-term financial investment instruments:

Product 1: Certificates of deposit (CDs or time deposits). The CDs of the main bank with which New York Financial Services operates have a credit rating of A+ according to Standard & Poor's credit rating agency.

• Types of CDs:

• 3M: 1.55 %.
• 6M: 1.65 %.
• 9M: 1.75 %.
• 12M: 1.95 %.

• Minimum nominal amount to invest to obtain these rates is: USD 500,000.

Product 2: Treasury bills (T-bills):

• Types:

• 3M: 1.15 %.
• 6M: 1.15 %.
• 9M: 1.55 %.
• 12M: 1.85 %.
• 18M: 2.05 %.

• Minimum nominal amount to invest: USD 500,000 to achieve these rates.

Product 3: Financial promissory notes issued by private companies. After analyzing several alternatives existing in the money market from different issuers, with varying credit rating levels, the financial institution you are talking to proposes the following possibilities:

• VRA Bank promissory note:

• Entity's credit rating: AA.
• Minimum nominal amount to invest: USD 1 million or multiples of USD 1 million.
• (Terms from 1M to 12M to choose from):

• 1M: 1.30 %.
• 3M: 1.50 %.
• 6M: 1.60 %.
• 9M: 1.80 %.
• 12M: 2.00 %.

• Etredesa promissory note:

• Entity's credit rating: A.
• Minimum nominal amount to invest: USD 500,000 or multiples.
• Terms from 1M to 12M to choose from:

• 1M: 1.45 %.
• 3M: 1.65 %.
• 6M: 1.85 %.
• 9M: 1.95 %.
• 12M: 2.15 %.

• Tilofon promissory note.

• Entity's credit rating: B.
• Minimum nominal amount to invest: USD 500,000 or multiples.
• Terms from 1M to 12M to choose from:

• 1M: 1.65 %.
• 3M: 1.95 %.
• 6M: 2.15 %.
• 9M: 2.25 %.
• 12M: 2.45 %.

2. Long-term financial investment instruments:

Fixed-income instruments: Among these instruments, different alternatives have been analyzed with the financial institution, which has proposed several instruments to the company:

• U.S. Treasury Bonds:

• Rating: AA+.
• IRR 2 years: 2.45 %.
• IRR 3 years: 2.70 %.
• IRR 5 years: 3.00 %.
• Minimum nominal amount to invest: USD 500,000 or multiples.

• American D. bank corporate bonds:

• Rating: BBB
• IRR 2 years: 3.15%.
• IRR 3 years: 3.40%.
• IRR 5 years: 3.65%.
• Minimum nominal amount to invest: USD 1 million or multiples

• Grafox corporate bonds (investment in EUR, different currency from the company, which is in USD).

• Rating: B.
• IRR 2 years: 3.95%.
• IRR 3 years: 4.40 %.
• IRR 5 years: 4.95 %.
• Minimum nominal amount to invest: USD 500,000 or multiples.

Equity instruments: There are many possibilities to invest in this market, but, as a risk identifier, taking the beta of the shares (correlation indicator between the evolution of the reference stock market index, Dow Jones, and the evolution of the company's share price), one can select among the following shares:

• Stocks with beta = 2 (high risk).
• Stocks with beta = 1 (risk equivalent to the stock market average or DJ index).
• Shares with beta = 0.50 (moderate risk).

It is not necessary to specify a specific type of stock, but in the case of choosing to invest in equities, what amount would be allocated and on what type according to its beta.

Maximum length and format

3 pages, Calibri 12 font and 1.5 line spacing. In case of a PowerPoint presentation, 6 slides. In both cases, the cover page is not counted.

Assessment criteria

Recommendations of the Board of Directors

According to the quotations obtained, a decision must be made on how to manage liquidity, which investment portfolio to make (in which instruments to invest, what nominal amount of the 30 million and at what maturity) and the reasoning behind the choice, knowing that the company's Board of Directors has established some criteria for liquidity management that are fundamental for the CFO's decision making.

1. The investment horizon must be consistent with the current situation of the company, the sector and the economic scenario, as well as with the needs for recovery of such investments according to the scenarios envisaged

2. Significant risks should be avoided when taking positions. Risks should not be taken at rating levels considered to be speculative or non-investment grade.

3. Profitability should be maximized over the considered term.

The following calculations are requested:

• In which of the financial instruments or assets should no investment be made according to the Board's assumptions? Give reasons for your answer.
• Define your investment portfolio: Amount you are going to invest in the selected financial assets and their maturities.
• Give reasons for the selection of financial instruments and maturities in the previous question.
• In case of carrying out short-term investment operations, in order to subsequently renew them, what type of instruments would you contract in order to avoid interest rate risks?