Essay FNM221 – Applied Financial Techniques – Blue Rock Capital Case Study – Finance Assignment Help

Assignment Task

Question 1: Consider the following Scenario and Questions:
It is Monday morning at Blue Rock Capital and as Head of Trading you are debating the merits of different strategies as promoted by the Heads of various trading Desks, namely Commodities, Equities and Bonds all of whom have different approaches. As Head of Trading you are sceptical of activist trading strategies and prefer a buy-and-hold strategy.
The Head of Commodities favours Technical Trading Methods and has made the following argument: In the last two years his team have generated an average monthly return of 2% or 24% per year. According to the Head of Commodities this is proof that Technical Trading works and that there is information in historical prices from which future market directions may predicted.

a. Looking at the evidence provide by the Heads of Commodities, Equities and Corporate Bonds, to what extent do you believe they offer reliable proof for or against
the Efficient Market Hypothesis (EMH). What further information might be useful to support your judgements? Please use relevant readings and literature to support
your argument.
b. According to Desk Heads, the fact that Traders do make money using trading rules (Technical Trading, Algo Trading or Fundamentals) involving publicly available
information shows that financial markets are not Efficient. According to the Heads, what ever approach is used, it is better than “buy-and-hold” as supported by the Head of Trading. How do you view their argument and how does it compare with the argument made by the Head of Trading?
c. If the Algorithmic Trading Method were able to consistently earn a 3% profit, adjusted for risk and above normal returns, would this be evidence against the Efficient Market Hypothesis (EMH). Similarly, is the performance of the Bond Desk’s Fundamental Model performance represent evidence against EMH?
d. According to the Head of the Bond desk, using their Fundamental Analysis, they were able to predict the direction of prices (Yields) with a probability of 60% and that
this is proof against Market Efficiency. Do you agree and what level of predictive accuracy must they beat as evidence?
e. The Head of Equities has dismissed the Technical Approach used by the Commodities Team as “no better than astrology”; while the Head of Commodities argues that allowing a computer program to find and execute profitable trades eliminates the scope for discretion and human judgement. In your opinion, who is correct, if anyone? Your answer is expected to demonstrate knowledge and comprehension of relevant theory and the competing trading methods.

Question 2: Consider the following Scenario with Questions
You are a Financial Advisor and are putting together a Bond Portfolio for two different individuals:
A. Sharon is a thirty-two-year-old solicitor for large firm on a very good income. Apart from a reasonable mortgage on her flat in Saint Johns’ Wood London, she has few if
any financial responsibilities. She is wondering how to invest her annual bonuses and prefers bonds to equities.
B. Keith is a fifty-eight-year-old soon-to-be retired dentist. He has paid-off his mortgage and his children are independent. He is a widower. He is hoping to sell his dental
practise to the new junior colleague for approximately £300K. He is wondering how to invest the windfall and prefers bonds to equities.