Plymouth Business School

Module Title: Financial Institutions and Markets

Module Code: ACF5002

Case Studies Coursework

Case 1: Raising capital

Dun-En Ltd. is a privately held engineering company established in 2009. The company is owned by three friends who are engineers by trade and own equal share in the company i.e. 33.33% each. Dun-En provides industrial process applications. However, the company specializes in manufacturing electrochemical cell, which is the smallest but the most important component of lithium-ion batteries that power electric vehicles. Since its inception in 2009, the company has supplied electrochemical cell devices to a broad range of companies who manufacture and supply batteries for the top electric vehicle companies based in America, Asia, and Europe.

While these business deals have helped Dun-En succeed and accumulate financial capital, they have raised company’s profile alike in the market as a reliable manufacturer and modern engineering solution provider. Furthermore, the company has developed reputation for “distinct disruptive innovator” by providing innovative and timely solutions to the healthcare industry, including clients such as the NHS UK, during the COVID-19 Pandemic, pertaining to energy efficiency across hospitals. Thereby, adding state, media and civic credentials to the company profile. Capitalising on their success and realizing the increasing demand for elective vehicles, the company is considering expanding its operations. Essentially, the company is considering starting manufacturing batteries and supplying directly to the electric car manufacturers with an intent to provide electric storage facilities at industrial level. The estimated expansion cost is £250 million.

The chief financial officer (CFO) of Dun-En has recently undertaken an intense internal review to establish the financial health of the company as well as evaluating the impact of potential growth on its value. These estimates suggest that the total value of Dun-En’s assets is around £1.3 bn. After initial consultations with the company CFO, the owners are willing to sell maximum of 20% equity stakes to raise the required financial capital, shall the company raise capital via the equity market. At the same time, the company is considering other options to raise capital. In effect, the company is looking to hire financial consultants who could provide the most suitable and competing strategy to rise the required capital, £250mil. Thus, the contract is available and is open for competing bids.


You have recently joined the Bluestone Inc. a world leading financial consultancy firm, as a junior finance and investment analysist. One of the seasoned hedge-fund manager and Investment Banker, Bill Adman who leads Bluestone is keen on bidding for the contract with Dun-En. You are part of a team at Bluestone, tasked to develop a strategy, best suited to raise the required £250 million. Specifically, you have been tasked to provide information on the latest trends in the financial markets i.e. equity/stock, debt market, private equity market, commercial lending and propose which market is most suitable to raise the required funds. In doing so, you are required to provide detailed analysis of the financial markets.

Consider the following information in building your argument: using Bloomberg dataset and Financial Times (and other reliable resources as advised) to analyse the current trends in financial markets.

(i) Provide an analysis on current trends in the equity market (8 Marks)

(ii) What route Dun-En shall take to the equity market to raise capital (consider traditional listing vs. the SPACs) (8 Marks)

(iii) Provide an analysis on current rates in the debt market i.e. bond yield (8 Marks)

(iv) Provide an analysis on current interest rates offered by the commercial banks (8 Marks)

(v) Consider private equity (PE) market and business angles (8 Marks)

Finally, conclude your argument by directly answering the following question: How Dun-En shall raise capital? Also, highlight the advantages and risks affiliated with the selected strategy.

(40 Marks)





Case 2: The Collapse of Barings Bank

In 1994, Leeson lost $296 million through his trading activities, but reported a profit of $46 million to management. His trading supposedly involved two main strategies: selling straddles on the Nikkei 225 and arbitraging price differential on Nikkei 225 futures contracts that were trading in different exchanges. A short straddle strategy involves selling calls and puts. It is profitable when the underlying index remains relatively unchanged over the life of the straddle, in which case, the calls and puts expire worthless, leaving the option write with the option premiums. The Nikkei 225 futures arbitrage involves taking a long futures position on one exchange where the price is relatively low and hedging with an offsetting position on another exchange where the price is relatively higher.

Leeson had previously incurred huge trading losses that would have cost him his job if they were revealed. In an effort to recover these losses, he abandoned the hedge posture in the long short futures arbitrage strategy and initiated a speculative long- long futures position in both exchange in the scope of profiting from an increase in the Nikkei 225. This move exposed the firm to enormous market risk and event risk, which stems from unexpected major events that, while not directly related to market, can affect markets.

On January 17, 1995, an earthquake hit Kobe, Japan. The Nikkei plunged, creating a huge loss on both the straddle and the double long futures position. The resulting margin calls were satisfied for a time because in 1994, Leeson had requested and received without question

$354 million from the London office because they believed his strategy was riskless. A few days later, he bought an additional 10,814 contracts, further increasing the risk exposure. This lack of oversight contributed to Barings’ failure as the Nikkei 225 continued to drop.

Task: Answer the following questions

1- Identify and discuss the factors that led to the bankruptcy of Barings (10 Marks) 2- Identify measures that may have prevented the collapse (10 Marks)

Note: do further reading i.e. articles, working papers, news items, covering the case. You may consider the film, The Rogue Trader (Available on YouTube:https://www.youtube.com/watch?v=MebaDb6HXyU&feature=player_detailpage). You are expected to provide a personalized critical view on the matter, informed by relevant academic literature (avoid using simple definitions available in the core text book, rather consult the afore-mentioned resources to articulate your argument).

(20 Marks)

Case 3: Trade orders

Margo Salan is a portfolio manager at ADIA Investment Company in Europe. Margo would like to buy 50,000 shares of alpha stock which is a new IPO that was previously offered at £30, but unfortunately she couldn’t get any shares of it. Now, she is still interested in these shares, but not at a price that is greater than £45. Matt Davidson works for The Global Brokerage House, which provides execution services for ADIA. In his conversation with Margo, Matt has suggested that a market order is most suitable for the trade.

Margo is also interested in using a market order to sell a large block of Gamma shares. However, she is worried that if she instructed a selling using a market order the price would decline and she loses on the value of the deal. Matt argued that this should not be a problem as automated order driven trading systems provide special arrangements for small trades (which are often market orders) as well as for block trades.

Margo is also interested in reducing the cost of selling of her Christian Dior shares, Matt suggested that she should use European electronic crossing network to sell some of her shares. He told Margo that these networks are cheap, preserve anonymity and allows for 6 crossing opportunities of trades per day. They also allow participants to place some restrictions such as price and minimum fill. All orders submitted to the network is good for a day which means that any unfulfilled part of an order is automatically resubmitted to subsequent crossing sessions during the day. Following Matt’s advice, Margo has submitted her 150,000 CD shares to be sold in the European crossing network with a minimum fill of 125,000. The following orders are on the network for the shares of CD at the time of the first crossing session of the day. The most recent trading price of CD at the Paris Bourse is € 37.

· A order: a market order to buy 100,000 shares

· B order: a market order to sell 50,000 shares

· C: an order to buy 20,000 shares at € 36

In the next crossing session new orders are submitted. The most recent trading price of CD at the Paris Bourse is € 38.

· D order: a market order to buy 150,000 shares

· E order: A market order to sell 50,000

In his speech to buy side clients Matt has made the following statements about electronic communication and crossing networks (ECNs):

Statement 1: Electronic communication networks are order driven systems, in which the limit order book plays the central role.

Statement 2: Electronic crossing networks anonymously match buy and sell orders by a pool of participants, generally institutional investors and broker dealers.

Statement 3: In an ECN, a trade takes place only during a crossing session time and only if there are offsetting orders entered by other participants.

Task: Answer the following questions

1. For buying alpha shares, should Margo place a market order or a limit order? What would be the advantage and disadvantage of each type of order, given her purpose? (4 Marks)

2. In selling a large block of Gamma shares explain Matt’s argument that automated order driven trading systems must provide special arrangements for small and large trades? (2 Mark)

3. In the first crossing session discuss what trades would take place on the crossing network and what orders remain unfilled? (4 Marks)

4. In the second crossing session discuss what trades would take place on the crossing network and what orders remain unfilled? (4 Marks)

5. Which of Matt’s statement about electronic communication and crossing networks (ECNs) is true? Justify your answers. (2 Marks)

6. Indicate how you would assess the quality of financial markets? (4 Marks)

(20 Marks)

Case 4: Mutual Funds

You have invested in a mutual fund; you are receiving statements summarizing the activity of your account. One critical term in the statement is the Net Asset Value (NAV). The NAV is the total value of mutual fund’s stocks, bonds, cash, and other assets minus liabilities divided by the number of shares outstanding. The fund you are analyzing is an open-end mutual fund consisting of several stocks only. You are assigned to calculate NAV and costs of funds under the following scenarios. In addition, in this case you will notice that due to capital appreciation and change in investment size, the NAV will be affected.

Suppose the mutual fund contains 390 shares of Stock A, currently trading at $48.39, 1000 shares of Stock B currently trading at $43.70, and 2690 shares of stock C, currently trading at $13.00. The mutual fund has 15,000 shares outstanding held by investors.

Tasks: Answer the following questions

1) Calculate the NAV for the fund. (3 Marks)

2) If the price of stock A increases to $68 and share price of B decreases to $36.75 and the stock C price increases to $23.91, how will the NAV be affected? (3 Marks)

3) Calculate the yield on this investment. (3 Marks)

4) Suppose that 1000 additional investors buy one share at the NAV calculated in question 1. Suppose the fund manager decides to use these funds to buy additional shares of Stock C at $23.91. Now, this portfolio will consist of different number of shares that can affect the new NAV. What would be the NAV now? (3 Marks)

5) Suppose an individual invests $20,000 in a load mutual fund. The load fund entails an up-front commission charge of 4 percent of the amount invested and is deducted upfront. In addition, annual fund operating expenses are 0.85 percent, which is charged on the average net asset value invested in the fund. The return on this fund is 5 percent each year paid on the last day of the year. What would be the investor’s return on this fund after one year? (4 Marks)

6) Go to the Investment Company Institute Web site at
Click on “Statistics & Research.” Click on “Quarterly Closed-End Assets.” How much have closed end funds changed since 2019 (consider funds since 2020, if you do not find data for 2019)? (4 Marks)

(20 Marks)