DFIN402 TREASURY MANAGEMENT

Description

SESSION	FEB-MARCH 2025
PROGRAM	MASTER OF BUSINESS ADMINISTRATION (MBA)
SEMESTER	4
COURSE CODE & NAME	DFIN402 TREASURY MANAGEMENT

 

 

Assignment Set – 1

 

 

Q1. Due to new trade restrictions, a mid-sized pharmaceutical company suddenly loses 60% of its export orders. Its cash reserves will dry up in three months, but it has ₹8 crore stuck in unpaid invoices from distributors.

• Propose two aggressive but legal tactics to recover the stuck payments  within  45  days,  considering  these distributors are long-term partners.”
• The CFO wants to take a high-interest short-term loan as ‘quick fix.’  Present  an  alternative  3-step  survival  plan without borrowing that buys them 6 more months.

Ans 1.

Aggressive but Legal Recovery Tactics from Distributors

In the wake of unexpected trade restrictions, the pharmaceutical company faces a grave liquidity crisis due to losing 60% of its export orders. With ₹8 crore locked in receivables and only three months of runway left, aggressive yet lawful strategies must be initiated. The first tactic involves initiating a legally-binding invoice discounting agreement, wherein the company threatens legal action for breach of credit terms if payment is not made within 15 days, while offering a small discount (2–5%) as an incentive for faster clearance. This puts financial pressure on distributors

 

 

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Q2. Your family-owned steel plant receives an unexpected ₹25 crore insurance payout after a minor fire. The board is split: some want to invest in cryptocurrency, others in plant upgrades, and the finance head suggests playing it safe 5+5

• Create a  risk  spectrum  (from  reckless  to  ultra- conservative) showing where each proposed option falls, and add one unconventional middle-ground idea nobody considered.
• The youngest board member argues, ‘We should gamble 10% in  crypto—what’s the  worst  that  could  happen?’ Draft a 5-line shutdown of this idea using real corporate treasury principles.

Ans 2.

Managing Sudden Insurance Windfall: Risk Allocation in Treasury Decisions

Constructing a Risk Spectrum

The ₹25 crore insurance payout presents a rare opportunity for strategic capital allocation. To assess options, a risk spectrum can be constructed to categorize each decision based on its potential volatility and alignment with treasury best practices. On the reckless end, investing in cryptocurrency falls under high risk due to its extreme price volatility, regulatory uncertainty, and lack of

 

 

Q3. A Dubai-based supplier offers your electronics firm a 12% discount on components—but only if you pay upfront in cash, bypassing normal banking channels. The deal would save ₹4.2 crore annually.

• List three ‘too good to be true’ red flags in this offer, and how you’d discreetly verify the supplier’s legitimacy without offending them.
• The CEO whispers, ‘Maybe we bend a few rules— everyone does.’ How do you respond using one historical example of a company ruined by such shortcuts? 5+5

Ans 3.

High Discount from Dubai Supplier: Risk vs. Temptation in Treasury

Red Flags in the Supplier’s Offer

The offer from a Dubai-based supplier—12% upfront cash discount, saving ₹4.2 crore annually—seems attractive but raises multiple concerns. First, bypassing normal banking channels is a major red flag. Any payment outside formal banking systems can signal tax evasion, money

 

Assignment Set – 2

 

Q4. A viral social media scandal hits your company (a retail chain). Overnight, 3 major banks freeze your credit lines, suppliers demand cash-in-advance, and customers initiate mass refunds. You have 72 hours to avoid insolvency.       5+5     

• “Identify the #1 immediate action to buy time (e.g., asset sale, emergency negotiation tactic) and the hidden cost no one’s considering.”
• “The board demands ‘any solution that keeps us alive.’ Present a controversial 3-step survival plan—and the ethical/ legal line it might cross.”

Ans 4.

Immediate Action to Buy Time and Its Hidden Cost

When a social media scandal strikes a retail chain, causing banks to freeze credit lines and customers to initiate mass refunds, time becomes the biggest enemy. The number one immediate action is emergency asset liquidation—specifically, selling off easily disposable, high-value assets such

 

Q5. Your CFO locked in a 5-year loan at 9% interest last year. Now, rates are plummeting. The bank offers an ‘escape clause’: Pay a ₹2 crore penalty to refinance at 6.5%—but only if you decide in 48 hours. 5+5     

• Calculate the break-even point (in months) for accepting the penalty. Then, argue why the math alone shouldn’t decide this.”
• “The sales team says, ‘Just take the loss—we’ll earn it back!’ Play devil’s advocate: What unpredictable market shift could make this the worst possible move?

Ans 5.

Break-even Point Calculation and Its Implications

The company is locked into a 5-year loan at 9% interest. The bank now offers refinancing at 6.5% with a ₹2 crore penalty, if exercised within 48 hours. To calculate the break-even point, let’s assume the loan

 

 

Q6. Your auto parts firm has a €20 million contract with a German buyer. Profits rely on EUR/INR staying above 88. Suddenly, Europe announces a recession. Your forex “expert” admits the hedging strategy was never finalized.

• Draft a 3-option crisis memo (e.g., renegotiate contract, panic-buy options, absorb the loss) with a gut-wrenching downside for each.”
• “The German client ominously says, ‘Maybe we cancel and find a local supplier.’ What unconventional term could you offer to keep the deal alive?

Ans 6.

Forex Hedging Failure: Crisis Management with a German Buyer

Crisis Memo with Three Risky Options

In the face of a sudden European recession and EUR/INR rate dropping below 88, your auto parts firm stands exposed on a €20 million contract. With no hedging strategy finalized, profits are in jeopardy. Here are three crisis options, each with a significant downside:

Option 1: Renegotiate the Contract
You may request the German buyer to revise the pricing or payment terms citing unforeseen forex volatility. This