The African Dance Exhibition 2009
August 23, 2009 | Leave a Comment
PRESS RELEASE - AUGUST 23, 2009: Have you ever heard of an African Dance-Off ?? Want to Experience something Exciting and Eventful ?!!! You’ve heard of So You Think You Can Dance, America’s Best Dance Crew and other dance shows but have you ever heard of a Fierce African dance competition in the nation’s capital? If you missed it last year, well we are BACK based on popular demand!
Last year, we stormed the nation’s capital with an explosive African Dance show and this year ForceAfrik is calling on all the lovers of Africa to come and experience the 2nd annual African Dance Exhibition that is a one-of-a kind competition taking place on Saturday, September 26th at George Washington University’s (GWU) Lisner Auditorium. This event will be without a doubt one of the BEST African cultural shows ever hosted at GWU. The show’s format is very simple: African dance teams from all over North America will be battling to be crowned America’s Best African Dance Crew. The teams will face off in 2 main dance categories: Traditional and Contemporary, during which they will show their best choreographed African dance moves to an accredited panel of judges and audience.
The African Dance Exhibition was designed for an audience that enjoys Africa and seeks to experience some of its cultural beauty. This show will give you a beautiful taste of Africa as not only dance will be of the essence but African fashion and music will be highlighted as well. We guarantee you will be leaving wanting to discover more about what the African Diaspora has to offer.
To be a part of this UNIQUE experience, go to www.ticketmaster.com (keywords: Lisner Auditorium or African Dance Exhibition) and purchase your ticket to Africa.
Event: African Dance Exhibition 2009
Where: Lisner Auditorium (George Washington University) 730 21st St NW, Washington, DC 20052
Time: Doors open at 6pm
Admission: $20 (General) $40 (VIP)
Contacts: Call (240) 605 4206 or email us at forceafrik@gmail.com
On behalf of Azocha Nkobena, ForceAfrik Co-Founder
FAS 133 - Accounting For Equity Swap
August 21, 2009 | Leave a Comment
“Until lions have their historians, tales of the hunt shall always glorify the hunter” - African Proverb
See FAS 133 for Dummies - Accounting for Equity Swaps Part 2 is now available.
WILDHORSES PENSION FUND holds an equity portfolio of $350,000,000 that mirrors the Dow Jones Industrial Index. Concerned that interest rate may rise in the near future, causing a reduction in money supply and consequent movement of capital out the equity market (adverse price movement in the equity market), the Chief Risk Officer (CRO) of WILDHORSES PENSION FUND, TFLASH entered into an equity swap to receive LIBOR minus 15 basis point spread. The following key information are pertinent to the contract.
- The length of the swap agreement is 6 months.
- Date Convention is Actual/360 and a six month period is assumed to be 180 days.
- The swap contract was entered into on January 1, 2008
- Dividend Yield is 3%.
- Six month LIBOR is 6% per annum (Constant Rate)
- Transaction Cost is Zero
- On June 30th 2008, Dow Jone Index dropped by 8.8%.
VALUATION & CASH FLOW CALCULATION:
- The buyer of an equity swap pays the appreciation in the value of the index plus any dividend.
- The seller of an equity swap pays the depreciation in the value of the index plus LIBOR minus spread.
- The actual valuation of the underlying portfolio is very easy and its just a multiplication of the portfolio value (notional) by (1 - Percentage (%)) drop in the Index.
- Note that an equity swap is worth zero immediately after each reset date. However, what if your reporting period is between reset dates. How will you value an equity swap between payment dates ? Basically, if you pay some interest rate to recieve the equity then the interim value between resets is the difference between the relative equity price and the discounted interest payment. This will be discussed in a future series. This example assumes that the reporting period coincides with the payment dates.
So on June 30th, 2008 (six months later) our numbers are calculated as follows:
From the perspective of Wildhorses Pension Fund -
INFLOW:
Notional = $350,000,000.00
Depreciation Percentage = 8.8%
LIBOR - Spread = 6% - (15/100)% = 5.85%
Inflow = (Notional * Depreciation) + Notional * LIBOR -Spread * (180/360) =
($350,000,000 * 0.088) + $350,000,000 *5.85%*(180/360) =
30,800,000.00 + 10,237,500.00 = $41,037,500.00
OUTFLOW:
Outflow = Notional* Price Appreciation + Notional*Dividends
$350,000,000* 0 + $350,000,000 * 0.03 * (180/360) = $5,250,000.00
NET INFLOW = $41,037,500.00 - $5,250,000.00 = $35,787,500.00
EQUITY PORTFOLIO:
Value as of June 30, 2008 = $350,000,000 * (1-0.088) = $319,200,000.00
Decrease in Fair Value = $350,000,000.00 - $319,200,000.00 = $30,800,000.00
ACCOUNTING:
FAS 133 states that:
For a derivative designated as hedging the exposure to changes in the fair value of a recognized asset or liability or a firm commitment (referred to as a fair value hedge), the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. The effect of that accounting is to reflect in earnings the extent to which the hedge is not effective in achieving offsetting changes in fair value.
*This is a fair value hedge and as you can tell, we are hedging the risk of adverse movement in price of the portfolio.
Day 1: No accounting entries required just memorandum entries. Swap value is zero at inception.
This contract has expired or reached maturity after six months hence entries are posted as follows to reflect this transaction on June 30, 2008:
Dr Unrealized Holding Gain/Loss (Income Statement) $30,800,000.00
Cr Equity Portfolio $30,800,00.00
(To record decrease in fair value of equity - mark to market)
Dr Cash (Net Cash Inflow) $35,787,500.00
Cr Income Statement (Swap Pay-Off) $35,787,500.00
(To record net swap income as of June 30, 2008)
INCOME STATEMENT PRESENTATION:
Unrealized Holding Loss: ($30,800,000.00)
Swap Payment Received $35,787,500.00
Net Income Impact $4,987,500.00
BALANCE SHEET:
Equity Portfolio $319,200,000.00
Bibliography:
- Options, Futures and Other Derivatives “Fifth Edition” John C. Hull 2003
- Financial Accounting Standard 133 - AICPA
- Professional Risk Managers Handbook - Financial Instruments & Financial Markets (www.prmia.org)
- Pricing, Hedging & Trading Financial Instruments - Carol Alexander
- Quantitative Methods in Finance - Carol Alexander
NOTE: Thanks to our partners at Blackinsey & Company for providing the solution. Blackinsey & Company is a top tier strategy & management consulting outfit based in Washington, DC. This was created under creative commons and is copyleft. The interpretations and analysis presented in this article are purely for pedagogical exercise and Black Herald cannot be held responsible for any error of commission or omission. Thanks for visiting our website. You are always welcome . In the coming series, we will focus on cash flow and foreign currency hedges. We will also examine other types of derivatives namely forwards, futures, swaption, equity index and other exotic and examine different valuation tools including binomial theorem and Black-Scholes. Other third-party valuation tools will also be discussed.
If you like this article check out:
- FAS 91 for Dummies and stay tuned for the following:
- FAS 133 for Dummies
- FAS 91 for Dummies (Sample with Prepayments)
- FIN 46 for Dummies
- FAS 115 for Dummies
- FAS 123(R) For Dummies
MBA Essay - Six Substantial Accomplishments (Part 2 of 6)
August 9, 2009 | 1 Comment
“Because I think in a broader way, I feel like I am able to make better decisions” - Takafumi Horie.
One of my most substantial professional accomplishments occurred when I was deployed by a top tier professional services firm, Blackinsey & Company, to evaluate the adequacy of a Vendor Management Framework developed by SYNERGY (a Fortune 100 company) to manage outsourcing risks.
In order to test the adequacy of the framework, I researched knowledgebases and benchmarked the framework against best practices; though SYNERGY’s framework contained many elements of a standard vendor management procedure, two critical components were missing. Firstly, while the framework required SYNERGY’s employees to perform risk assessments in order to identify the key controls within the processes been outsourced, the framework did not provide the step-by-step instruction to accomplish this objective. Secondly and much to my chagrin, deviations or exceptions (management override) to the vendor management framework were required to be reviewed and approved by an employee at the staff level.
To address these gaps, I recommended that before a business process is outsourced, the departments initiating the purchase requisitions should first and foremost review process documentations such as SOX* narratives, flowcharts (system and process), policies and procedures to identify the key controls within the process in question. After identifying the key controls, these controls should be categorized into two buckets namely (a) controls that will be outsourced to the external service providers and (b) controls that will be managed internally. Once the controls been outsourced are identified, SYNERGY should get assurance from the vendors that they have adequate infrastructures in place to safeguard the outsourced controls from been compromised. This objective can be achieved by obtaining and reviewing professionally certified documents such as SAS 70 report from the vendors.
I also recommended that exceptions or deviations from the third-party framework should be reviewed and approved by an employee at the Executive Vice President level rather than by an employee at the staff level because exceptions to the framework constitute management overrides and should be handled by employees who understand the risk-return dynamics of their decisions (e.g. an Executive Vice President).
I consider this a great accomplishment because I completed the project in two days although the review was initially scheduled to last for two months. The management of SYNERGY was very impressed with the quality and timeliness of my review and awarded additional multi-million dollar contracts to my consulting firm. Once again, I moved the ball to the end zone and helped a client - a Fortune 100 company - find solutions to a critical business problem, winning new businesses for my company in the process.
* Sarbanes-Oxley.
NOTA BENE: The topic I chose in this essay is random and not a real accomplishment for me. It is just a rhetorical exercise. This is a draft and designed to help you with your MBA applications. Created under the Creative Commons rule and it is copyleft. Use as a guide for your essays. I plan to collate and refine the essays I have posted on Black Herald and publish a book of MBA essays in the future.
Cultural challenges and the woman CEO: An interview with Nigeria’s Cecilia Ibru
August 5, 2009 | Leave a Comment
“What is good for the goose, is also good for the gander”
The CEO of Oceanic Bank discusses the challenge of navigating gender norms as a woman leader.
AUGUST 2009 - Women in every country meet obstacles to achieving top leadership roles, but Africa’s developing economies and transforming social architectures present unique challenges. Cecilia Ibru, managing director and CEO of Nigeria’s Oceanic Bank International, speaks candidly about how her own development and success have been shaped by her country’s cultural environment. In this video, she discusses gender norms in Nigeria and the balancing act involved in alternately defying and accepting them in order to achieve success as a woman in business. Her observations and experiences raise interesting questions for women navigating the entrenched business environments of any country. She spoke with McKinsey Quarterly editor Thomas Fleming in April 2009 during a visit to her daughter’s residence near Washington, DC.
This video and interview was culled from McKinsey Quarterly.
FAS 133 for Dummies - Accounting for Cash Flow Hedges
August 2, 2009 | Leave a Comment
“We are limited, not by our abilities, but by our vision.” - Anonymous.
GoldPeckers Incorporated is a manufacturer of golden jewelries based in the US of A. To meet its production needs, GoldPeckers regularly source its raw materials (mostly Gold) from Ashanti Gold in Ghana West Africa. Because of the increasing popularity of Gold as an alternative source of investment, the CFO of GoldPeckers, TFLASH is worried that the price of gold may shoot through the roof in the coming years. Consequently, to hedge the anticipated adverse price movement, TFLASH entered into a forward contract as follows:
- Spot Price of Gold = $954.50/Troy Ounce
- Gold is measured in Troy Ounce and 1 Troy Ounce is 31.1034768 grams
- Storage Cost/Troy Ounce is $28.00 (Storage Cost includes Insurance, Security etc)
- Notional Unit is 10,000,000 ounces.
- Risk Free rate is 3.88% (Assume that the risk free rate is constant throughout the life of the forward contract)
- This is a three (3) year forward contract.
- Use Discrete Compounding (We will solve another example using continous compounding in a future lesson).
- For the purpose of illustration, assume that the hedge is fully effective in hedging the cashflow variability exposure.
- Note that hedge accounting is not automatic, however, assume that GoldPeckers is eligible to use hedge accounting.
- Spot Price of Gold in 1 year is $1,100.33
- Spot Price of Gold in 2 years is $1,180.97
- Spot Price of Gold in 3 years is $1,270.00
- Forward contract was entered into on January 1, 2000
VALUATION & ACCOUNTING:
VALUATION:
To value a forward contract, we are going to use the Cost of Carry Method.
Under the Cost of Carry method:
VALUE OF A FORWARD CONTRACT PRIOR TO MATURITY:
The price of a forward is determined as follows:
The Net Present Value of the Storage Cost is Calculated as follows:
The Fair Value of the Forward Contract is calculated as follows:
VALUE OF A FORWARD CONTRACT AT MATURITY:
Where:
- F = Price of the forward
- S = Spot Price
- C = Cost of Carry
- r = Risk Free Rate
- V = Value of the forward
- T = Maturity
- t = A point in time before time T
Value of forward contract at initiation i.e. January 1, 2000:
On day zero (i.e. now) the PV of the cost of carry is calculated as follows:
On day zero (i.e. now) the price of the forward contract is calculated as follows:
On day zero, that is now, the value of the forward contract is zero (0).
Value of the forward contract after 1 year i.e. 12/31/2000:
Value of the forward contract after 2 years i.e. 12/31/2001:
Value of the forward contract after 3 years i.e. 12/31/2002:
ACCOUNTING ENTRIES:
FAS 133 states that for a derivative designated as hedging the exposure to variable cash flows of a forecasted transaction (referred to as a cash flow hedge), the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income (outside earnings) and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately.
January 1, 2000.
No entry required - just memorandum entry.
December 31, 2000 ( 1 year later)
The value of the forward contract is positive, therefore its a gain or better yet an asset and it is recorded as follows:
Dr. Forward Contract Asset (10M ounces * 80.78) = $807,800,000
(To record the increase in the fair value of forward contract as of 12/31/2000)
December 31, 2001 ( 2 years later)
Dr. Forward Contract Asset (10M ounces * (93.86 - 80.78))** = $130,800,000
(To record the increase in the fair value of forward contract as of 12/31/2001)
**Note that you only record the increase in fair value.
December 31, 2002 ( 3 years later)
Dr. Forward Contract Asset (10M ounces * (112.71 - 93.86))** = $188,500,000
(To record the increase in the fair value of forward contract as of 12/31/2002)
**Note that you only record the increase in fair value.
At 12/31/2002 10m ounces are purchased at $1,270 (Spot Price) for $12,700,000,000
Dr Gold Inventory $12,700,000,000
(To record the actual purchase of inventory - 12/31/2002)
In the same vein, forward contract is settled as follows:
Dr Cash ($1,270.00 - $1,157.29 = $112.71 * 10M) $1,127,100,000
(To record final settlement of forward contract - 12/31/2002)
NOTA BENE:
Please note that the Unrealized Holding Gain/Loss posted to OCI will not be taken into income until the hedged items affect earnings i.e. the Gold Inventory purchased are converted to finished goods and sold. This will be illustrated in a future series.
Bibliography:
- Options, Futures and Other Derivatives “Fifth Edition” John C. Hull 2003
- Financial Accounting Standard 133 - AICPA
- Professional Risk Managers Handbook - Financial Instruments & Financial Markets (www.prmia.org)
NOTE: Thanks to our partners at Blackinsey & Company for providing the solution. Blackinsey & Company is a top tier strategy & management consulting outfit based in Washington, DC. This was created under creative commons and is copyleft. The interpretations and analysis presented in this article are purely for pedagogical exercise and Black Herald cannot be held responsible for any error of commission or omission. Thanks for visiting our website 
. In the coming series, we will focus on cash flow and foreign currency hedges. We will also examine other types of derivatives namely forwards, futures, swaption, equity index and other exotic and examine different valuation tools including binomial theorem and Black-Scholes. Other third-party valuation tools will also be discussed.
If you like this article check out:
FAS 91 for Dummies and stay tuned for the following:
- FAS 133 for Dummies
- FAS 91 for Dummies (Sample with Prepayments)
- FIN 46 for Dummies
- FAS 115 for Dummies
- FAS 123(R) For Dummies
