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Shipping Exam Question

This document contains an exam for a shipping market analysis and risk management course consisting of multiple choice and long-form questions. Part A contains a compulsory question asking students to advise an inexperienced shipowner on shipping risks and factors that will impact freight rates and profitability. Part B contains optional questions on topics like financial risk management, metrics for ship capacity, volatility analysis, and supply/demand fundamentals. The exam is worth a total of 400 marks and allocates time for students to answer three of the five questions.

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Gerhard Fernanto
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880 views5 pages

Shipping Exam Question

This document contains an exam for a shipping market analysis and risk management course consisting of multiple choice and long-form questions. Part A contains a compulsory question asking students to advise an inexperienced shipowner on shipping risks and factors that will impact freight rates and profitability. Part B contains optional questions on topics like financial risk management, metrics for ship capacity, volatility analysis, and supply/demand fundamentals. The exam is worth a total of 400 marks and allocates time for students to answer three of the five questions.

Uploaded by

Gerhard Fernanto
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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[MAR8074]

NEWCASTLE UNIVERSITY

_____________________

SEMESTER 2 2014/2015
_____________________

SHIPPING MARKET ANALYSIS AND RISK MANAGEMENT

Time allowed – 2 hours

Instructions to candidates:

a) Answer THREE questions in total: question 1 in Part A and


any TWO questions from Part B
b) Question 1 in part A is compulsory for all students
c) There are 400 marks available in this paper – Part A is
worth 200 marks and each question in Part B is worth 100
marks. You should use this information in planning your
time for this exam

[Turn over]

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[MAR8074]

PART A – Question 1 is compulsory

1. Consider that you are a consultant and that you have been
asked by an inexperienced shipowner to advise on:

a) the shipping risks they are facing in their business and


b) what factors will determine when freight rates and
profitability in shipping may improve?

You may choose the sector to consider from one of: dry bulk,
wet bulk, gas or liner. With reference to the principles and
issues that we have discussed during seminars and lectures,
including what you have learned from visiting lecturers, how
would you advise this ship owner? You must include
reference to the underlying principles and issues relating to
the sector and shipping in general in developing your advice
and include sketch graphs of relevant factors.
[200 marks]

PART B – Answer any TWO questions


2. a) Discuss the most important financial risk exposures for a
shipping company. Subsequently explain what a Forward
Freight Agreement (FFA) contract is and how it can
contribute to risk management in shipping business.
[50 marks]
b) Explain what a freight rate call option is and provide your
own numerical example with either an ‘in-the-money’ or an
‘out-of-the money’ case. [50 marks]

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[MAR8074]

3. a) List three metrics for the measurement of a ship’s carrying


capacity. Give a definition for each of these measures and
indicate the correct units in which they should be stated. For
each metric that you have chosen list the main fleet sectors
(by ship type) for which you think it is most applicable and
indicate whether you consider there are any sectors for which
the metric may be inappropriate. [30marks]
b) An owner of a VLCC trading in the spot market has
estimated the probability of market conditions occurring over
the next month to be as follows:
Market conditions Expected Expected Probability
average number of
earnings, $ per of days occurrence
day trading
Weak 6,000 26 80%
Average 20,500 28 15%
Strong 55,000 30 5%

Calculate the owner’s expected earnings over the month.


Show your working. [30 marks]

c) Analysis of variance in Baltic Exchange indices for


Capesize and Supramax vessels over the year 2014
revealed the following statistics:
Capesize Supramax
Mean Value 2124 989
Variance 875,319 60,594
Standard Deviation 936 246

Estimate two measures of volatility for each shipping sector


and identify using these measures which sector is the most
volatile. Provide a rational explanation as to why you would
expect the level of volatility between these two sectors to
vary as it does. [40 marks]
[Turn over]

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[MAR8074]

4. a) Define what is meant by ‘credit risk’ in the context of a


loan. Discuss the three most important factors a financier
would review to judge the level of risk when reviewing an
application for a loan (the ‘three Cs’) and indicate what other
measures a financier may take to assess the level of risk on
a loan (in particular to address the potential for ‘asymmetric
information’ and ‘moral hazard’)
[30 marks]
b) Describe why a schedule of payment terms is necessary
in a shipbuilding contract. Give an example of a scheme for
‘neutral payment terms’ and discuss how and why this may
vary and how this may shift the balance of risk in the contract
in favour of buyer or seller.
[50 marks]
c) A ship owner purchases a new VLCC for $100 million, to
be delivered in 18 months time. The payment terms are
20% with order, 20% after 6 months, 20% after 12 months
and 40% on delivery. Calculate the cost of this schedule for
the buyer in the pre-delivery period, assuming an interest
rate of 3% per annum and that 100% of down payments are
borrowed. [20 marks]

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[MAR8074]

5. a) Sketch typical supply and demand functions for a shipping


sector, indicating on the diagram how freight rate is
determined. Describe the parameters that determine the
maximum and minimum points on each curve and discuss
the implications of the shape of the demand function.
[50 marks]
b) Regression analysis of ship size in TEU (x axis) plotted
against new ship price in $ per TEU (y axis) for container
ships in January 2015, in the range 2,750 to 8,800 TEU,
reveals the following relationship: y = -0.2401x + 12038: R² =
0.8735. Use this relationship to predict the price of a 13,000
TEU container ship.
[20 marks]
c) Comment on the validity of using the relationship stated in
part b) of this question to predict the expected price of a
20,000 TEU container ship. Discuss whether your answer
on validity would be altered if you were to receive the
information that the actual price of a new 13,000 TEU ship at
this time was $116 million.
[30 marks]

END

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