Union Carbide Case

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EXECUTIVE SUMMARY As members of the finance and pension committee of Union Carbide Corporation's board of directors, we have questions that after being answered will aid in our basis for our final proposal decision. These questions will help the committee to dive deeper into our understanding of the proposal and will hopefully aid in some of our reservations to the proposal. Such questions involve the specific costs/benefit analysis of the proposal, how it will help with our business' cyclical nature, and overall how it will increase shareholder profitability. The objectives that UCC put in place are successful in that they focus on the goals of the company. These objectives include creating a normalized portfolio and a measurement system that can keep costs down. Duration is an important concept and commonly applied in asset and liability management. However, the value of debt depends on many variables apart from duration. When characterizing the portfolio, we should consider the environment and assess those factors simultaneously. Overall the analysis of duration of assets is appropriate. However there are still some small shortages that need to be improved. While the proposed program appears logical and well planned, we are weary of how the duration for the portfolio was determined and how untested the program is. Despite these criticisms, we would conditionally approve the program. For external purposes, hedge effectiveness and the fair market value of the swaps must be determined and reported. For internal purposes, the program’s effectiveness as well as future interest rates must be determined to make correct business decisions. QUESTIONS Follow your proposal for managing Union Carbide Corporation’s (UCC) interest rate risk, we, members of the finance and pension committee of UCC’s Board of Directions have questions that we believe will help
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