Develop two (2) strategies for Simon, one involving only forward exchange contracts, another involving foreign exchange options, taking into account that Simon has agreed, if necessary, to spend up to 10% of his net exposure in option premiums. (
What zero premium cost strategy could you recommend to Simon in order to minimise his exposure to exchange rate movements? Under what circumstances would this strategy be appropriate?
There are many ways that you can gather information about the products and services you recommend to your clients. Describe two (2) research processes you could use to make sure that the recommendations you make to your clients are based on the most current and appropriate information.
Give two (2) reasons why conducting research is so important and how it assists you in your role.
Develop two (2) strategies for Simon, one involving only forward exchange contracts, another involving foreign exchange options, taking into account that Simon has agreed, if necessary, to spend up to
The case study Background A telephone call has just been transferred to you from reception. The caller is Simon Barker, single and aged 32, whom you have never met. In your conversation with Simon, he gives you the following information. Simon moved to Australia three years ago to take on a role as an environmental scientist with a large Australian mining company. He has recently been offered a senior management role with the firm, which he has accepted. Simon is now seeking permanent residency in Australia. He is currently considered an Australian resident for tax purposes only. He owns an investment property in London which he intends to sell at some stage in the next 12 months. Simon is currently earning an excellent yield on his property and has good tenants with a year remaining on their lease. As he does not want to sell the property untenanted, Simon is keen to have the transaction finalised within 12 months. When he sells it, Simon wants to repatriate the funds to Australia and invest them in an income- earning portfolio of Australian shares, an investment property or both. A real estate agent in London has informed him that the property will easily fetch GBP550,000 upon sale. Once the mortgage of GBP300,000 has been discharged, he wishes to repatriate the balance (after costs and taxes) to Australia. He would then have no other debt, assets or investments remaining in the UK. Simon is seeking your advice on how best to manage the potential exposure to foreign exchange rate movements, given his intention to sell his property in the UK and repatriate the funds to Australia. The fact finder has been completed with Simon, however he has limited the scope of advice (subject matter of the advice) to just the foreign exposure strategy in relation to the sale of his property in the UK. He has provided risk profile information and cash flow, as well as asset and liability information but he did not provide a full superannuation statement, nor did he wish to have a review of his insurances. Simon is happy to have a full financial plan completed at a later date once he has sold his investment in the UK and brought the money out to Australia. Fact finder and risk profile — Simon Barker Important notice to customers Your planner must act in your best interest and provide appropriate advice when making an investment or insurance recommendation. Before making a recommendation, the planner needs to ask you about your investment objectives, financial situation and your particular needs. The information requested in this form will be used strictly for that purpose. Warning The planner could make inappropriate recommendations or give inappropriate advice if you fail to fully and accurately complete this form. Personal and employment details Personal details Client 1 Client 2 Title Simon Surname Barker Given & preferred names Home address 207/21 Hickson Road, Walsh Bay NSW 2000 Business address Contact phone 0432250789 Date of birth Age 32 Sex Male Female Male Female Smoker Yes No Yes No Expected retirement age 65 Dependants (children or other) Name Date of birth Sex School Occupation N/A Employment details Occupation Environmental scientist Employment status Self-employed Employee Self-employed Employee Not employed Pensioner Not employed Pensioner Permanent Part-time Permanent Part-time Casual Contractor Casual Contractor Other Government Other Government Business status Sole proprietor Partnership Sole proprietor Partnership Private company Trust Private company Trust Notes Any other person to be contacted? e.g. accountant, banker, solicitor, etc. Income, tax and cash flow Tax calculation Client 1 Client 2 Combined Comments Income from employment Salary $150,000 Salary sacrifice $0 Salary after salary sacrifice $150,000 Rental income $0 Income from UK investment is kept in the UK and not included. Unfranked dividends $0 Franked dividends $0 Franking (imputation) credits $0 Interest $1,250 $50k in online saver Other income (e.g. taxable benefits, trust income, investment income) $0 Capital gains < 1 yr $0 Capital gains > 1 yr $0 Tax-free component of capital gains $0 Assessable income $151,250 Deductible expenses $0 Donations $0 Other $0 Taxable income $151,250 Tax on taxable income $43,910 Non-refundable tax offsets (e.g. LITO/SAPTO) $0 Medicare levy $3,025 Medicare levy surcharge $0 Has health insurance Franking rebate $0 Refundable rebates and offsets $0 Total tax $46,935 Cash flow Client 1 Client 2 Combined Comment Salary less any salary sacrificed amount $150,000 Non-taxable income $0 Rental income $0 Unfranked dividends received $0 Franked dividends received $0 Interest $1,250 Other income (e.g. taxable benefits, trust income, investment income, social security benefits, etc.) $0 Total income received before tax $151,250 Investment expenses $0 Mortgage $0 School fees $0 Utilities $2,500 Personal insurance $0 Car insurance $1,200 Home contents Insurance $2,000 Health insurance $1,500 Living expenses $34,750 Holidays $15,000 House maintenance $2,000 Motor vehicle $1,200 Other: Rent on apartment in Walsh Bay $26,000 His share of rent. Total expenses $86,150 Total income received before tax less total expenses $65,100 Total tax payable from tax table above $46,935 Total net cash flow $18,166 Assets and liabilities Asset Owner Value Liabilities Net value Notes Personal assets Family home Simon $0 $0 $0 Rents Home contents Simon $50,000 $0 $50,000 Car Simon $30,000 $0 $30,000 No loan Total $80,000 $0 $80,000 Superannuation Employer superannuation Simon $49,875 $0 $49,875 Balanced Fund Total $49,875 $0 $49,875 Investment assets Investment property Simon £550,000 £300,000 £250,000 UK property Savings account Simon $50,000 $0 $50,000 Term deposit Simon $0 $0 $0 Shares Simon $0 $0 $0 Total Australian investment assets $50,000 $0 $50,000 Net worth $179,875 $0 $179,875 + UK assets of £250000 Liabilities Loan Current debt Percentage tax deductible Interest only Repayment Home loan No Liabilities Investment property Investment loan Personal loan Other Total $0 Needs and objectives Details Comments Simon wants advice on how best to manage the potential exposure to foreign exchange rate movements, given his intention to sell his property in the UK and repatriate the funds to Australia. As he does not want to sell the property untenanted, Simon is keen to have the transaction finalised within 12 months. He owns an investment property in London which he intends to sell at some stage in the next 12 months. He is earning an excellent yield on his property and has good tenants with a year remaining on their lease. Income is kept in UK bank account. Simon does not wish to discuss any other financial planning needs at the moment. This is his only concern. He is happy to meet again and have a more comprehensive plan once he has sold the house in the UK. No other Assets in UK. Other Estate planning Do you have a will? Yes No When was it last updated: 01/ 01/2013 Do you have powers of attorney? Yes No Current superannuation, rollovers, insurances and investments Superannuation Member Simon Fund name ABC Super Date of joining fund 1/12/2011 Type of fund Accumulation Defined benefit Accumulation Defined benefit Pension Pensioner Pension Pensioner Contribution (e.g. 5% of salary) By employer By yourself By employer By yourself Current value of your superannuation fund $49,875 Amount of death and disability cover $181,685 Is there provision for you to top up or salary sacrifice? Yes No Yes No Superannuation taxation details Current value Tax-free component Taxable component: Details not provided as they are not relevant to the client’s required area of advice. Taxed element Untaxed element Preservation: Preserved Unrestricted non-preserved Restricted non-preserved Contributions: Non-concessional contributions: Year 1 Year 2 Year 3 Year 4 Concessional contributions: Year 1 SG only Year 2 SG only Year 3 SG only Year 4 SG only Nominated beneficiaries Name Binding Non-binding (Yes/No) Trustee discretion (Yes/No) Yes/No Amount No beneficiaries nominated Yes Is there any current flags or splits on a superannuation benefit of yours following a marriage breakdown? Yes/No Details Are you a beneficiary of any current flags or splits of a superannuation benefit following a marriage breakdown? Yes/No Details Life insurance details Life insured Owner Policy type Company Policy number Death benefit Comments Annual premium Simon ABC Super Life ABC Super Not provided $181,685 Not provided Disability insurance details Life insured Owner Policy type Company Policy number Benefit Comments Annual premium Simon ABC Super TPD ABC Super Not provided $181,685 Not provided Income protection insurance details Life insured Owner Policy type Company Policy number Benefit amount Waiting period Benefit payment period Annual premium Simon ABC Super Agreed Value ABC Super Not provided $9,375 30 days 2 years Not provided General insurance details Item covered Owner Policy type Company Combined policy number Cover amount Other benefit Total annual premium Contents Simon Not provided ABC Insurance Not provided $50,000 NA $2,000 Car Simon Indemnity ABC Insurance Not provided $30,000 NA $1,200 Investment details Investment type Company Purchase date Units held/fixed rate Current value Owner Cash Online Savings Online Savings Bank NA 2.5% per annum interest $50,000 Simon Investment Property in UK NA: 3-bedroom semi-detached house. Southborough Lane, Bromley 1/7/2001 NA £550,000 Simon Note: An insurance needs analysis is not required for this assignment. These risk needs tables have been included to provide a realistic example of the fact-finder process. Furthermore an analysis of his superannuation and retirement planning is not required either.