The treasurer of Gaz de France is a forceful, proactive supervisor of his organization's obligation structure, running one of the biggest swap books of any non-money related company on the planet. Money prospects, interbank advances, and cash choices are likewise often used to control the organization's multi-coin obligation structure. This case prompts students to investigate the reasons and consequences of such forceful obligation administration, with specific consideration being paid to the regulatory difficulties made by such a huge swap position. A critical choice must be made in regards to the administration of the swap book even with the deteriorating dollar, the decay of the franc against the German imprint, and a conceivable realignment of the European Currency Unit. This is a far reaching case including swaps, obligation approach, and outside trade introduction that is best taught after students have been acquainted with these subjects.
1. Refer to Exhibit 5. Among the economic indicators provided, which do you think is the one of the most key parameter that would drive the exchange rate of French franc against dollar?
2. Based on the data of your chosen economic indicator, what is its trend over the period 1980 to 1985 and how would you expect the French Franc to move against the dollar over these years? Will it appreciate or depreciate against the dollar?
3. Now look at Exhibit 6 and comment whether the actual French Franc Rate reflect the trend that your answer in 2. Above would have suggested
4. Please explain the reasons what were the risks that Gaz de France was facing which forced it to enter into the swaps and forward transactions
5. Using you understanding of the Forward transactions, illustrate how Gaz de France could be using a forward contract to reduce some of the risks that you identified in 4 above
6. What gives rise to changes in fixed rate currency swap value which would explain the FF 1 billion of swap related gains of GDF between 1983-85?
7. What do you think are reasons behind the concerns being raised by some market participants with regards to Gaz de France’s liability management program using swaps and forwards.