[Protection] Travel Insurance II

I've just quitted my job and I am now planning for several vacation trips (good excuse to take a break after 4 years of hard work & studies). So it's time to check insurance again...

The following comparison would assume a trip to (1) Asia for 4 days (2) China for 5 days:

                              4 Days 5 Days
Insurer                        Asia  China
----------------------------- ------ ------
HSBC                           75.00 112.50
Fubon Bank                     80.00  80.00
Dah Sing Bank                  82.60  89.60
Citibank                       90.40  90.40
Bank of China                 105.00 132.00
Hang Seng Bank *              112.00  80.00
DBS                           112.00 112.00
Blue Cross/Bank of East Asia  124.00  82.00
Prudential                    127.00 135.00
Standard Chartered Bank       138.00 138.00
Wing Lung Bank                141.00 159.00
AIG                           145.00 178.00
* For Hang Seng, can use cash dollar

Reference
Zurich / Citic Ka Wah Bank 蘇黎世 / 中信嘉華銀行
DBS 星展銀行
Citibank 花旗銀行
Dah Sing Bank 大新銀行
Bank of China 中國銀行
Standard Chartered Bank 渣打銀行
Fubon Bank 富邦銀行
Blue Cross / Bank of East Asia 藍十字 / 東亞銀行
Wing Lung Bank 永隆銀行
Hang Seng Bank 恆生銀行
HSBC 匯豐銀行
Prudential 保誠
AIG 美亞

[Protection] Travel Insurance

As my parents are travelling to South Africa (Oops ... life after retirement is so good!), I have to sort out which company I should buy travel insurance from. Thus, I sort out information from banks & insurance companies' web and summarize the quotation.

Before listing the figures, I would like to make some remarks in terms of comparison strategy:

1. It depends on the duration of your trip. Some insurer would quote premium as a per day basis, while some others would use a day range. So it really depends whether you are at the lower bound (expensive) or upper bound (cheap) of the range.

2. It depends on the location of your trip. Some insurer would quote different premium for different class of location, e.g. (1) Asia (2) Worldwide ex. US (3) Worldwide.

3. Finally it depends on the coverage. Again, some insurers would offer packages at different levels. For my scenario here I would just take the cheapest package.

I also notice that banks are more eager to sell travel insurance - they promote by discount like 20-30% off. For insurers who do not update their websites as frequently as others, their offers are worse off.

The following comparison would assume a trip to Worldwide ex. US for 8-11 days (since my parents have not yet decided the actual number of days):

Insurer                       8 Days 9 Days 10 Days 11 Days
----------------------------- ------ ------ ------- -------
Zurich/Citic Ka Wah Bank      128.00 135.20  141.60  148.80
DBS                           140.00 212.00  212.00  212.00
Citibank                      144.00 144.00  176.00  176.00
Dah Sing Bank                 144.20 149.80  155.40  161.00
Bank of China                 156.00 206.00  206.00  206.00
Standard Chartered Bank       178.00 270.00  270.00  270.00
Fubon Bank                    180.00 180.00  191.25  202.50
Blue Cross/Bank of East Asia  185.00 190.00  195.00  204.00
Wing Lung Bank                198.00 209.00  213.00  219.00
Hang Seng Bank                200.00 200.00  272.00  272.00
HSBC                          204.00 220.00  229.60  236.80
Prudential                    244.00 254.00  265.00  276.00
AIG                           251.00 268.00  295.00  322.00

Reference
Zurich / Citic Ka Wah Bank 蘇黎世 / 中信嘉華銀行
DBS 星展銀行
Citibank 花旗銀行
Dah Sing Bank 大新銀行
Bank of China 中國銀行
Standard Chartered Bank 渣打銀行
Fubon Bank 富邦銀行
Blue Cross / Bank of East Asia 藍十字 / 東亞銀行
Wing Lung Bank 永隆銀行
Hang Seng Bank 恆生銀行
HSBC 匯豐銀行
Prudential 保誠
AIG 美亞

[Credit] Tax Loan 2005

The purpose of this article is to summarize the tax loan offered by major banks in Hong Kong.

Before listing the figures, it is critical to understand the various tricks used by banks to "make their offer attractive":

1. Most banks would impose a handling fee as a percentage on loan amount on a yearly basis. The calculation of the repayment amount would then be based on the principal plus the handling fee. However, some banks (like Bank of China and Bank of Communication) would assume an upfront payment of handling fee and thus the subsequent repayment would exclude the handling fee from the principal. This makes the monthly repayment amount relatively lower. Our calculation would thus have to include both handling fee and interest as the total finance cost.

2. Although all banks would quote annualized percentage rates (APRs), due to the tricks as mentioned above or others such as deferred repayment (as in Bank of China's case the repayment can be delayed for 3 months), the APRs can also be manipulated. Thus the APRs are still a reference figure only.

The following comparison would assume an application of $50,000 tax loan in January 2006:

Bank                  Upfront  Monthly   Total    Annualized
                      Handling Repayment Finance  Percentage
                      Fee                Cost     Rate
--------------------- -------- --------- -------- ----------
Bank of East Asia              4,297.50  1,570.00   5.90%
Fubon Bank                     4,304.50  1,654.00   6.21%
DBS                            4,310.00  1,720.00   6.48%
Bank of Communication   750    4,256.50  1,828.00   7.00%
Dah Sing Bank                  4,320.00  1,840.00   6.94%
Hang Seng Bank                 4,331.00  1,972.00   6.40%
Bank of China           500    4,296.50  2,058.00   5.98%
HSBC                           4,355.00  2,260.00   8.36%
Wing Lung Bank                 4,365.00  2,380.00   9.10%
Standard Chartered Bank        4,460.00  3,520.00  13.52%

Reference
Bank of East Asia 東亞銀行
Fubon Bank 富邦銀行
DBS 星展銀行
Bank of Communication 交通銀行
Dah Sing Bank 大新銀行
Hang Seng Bank 恆生銀行
Bank of China 中國銀行
HSBC 匯豐銀行
Wing Lung Bank 永隆銀行
Standard Chartered Bank 渣打銀行

[Structured Product] KODA ELI

The comparison of KODA ELI vs. actual stock purchase illustrates that:

1. The cost of buying stock via a KODA ELI would be lower than that via actual stock purchase for a range of stock prices as long as the Closing Price is below the Knock-out Price
2. Beyond the Reference Price, the KODA ELI investor would be worse off - buying at a level higher than the actual Closing Price.

Calculation e.g. Macquarie KODA ELI Term Sheet dated Nov 23, 2005
Series Number                           58382 (365 Days)
Issue Date                              23-Nov-05
Minimum Application Amount              Not applicable
Protected Period                        24-Nov-05 until 21-Dec-05
Last Accumulation Date (Maturity Date)  21-Nov-06
Final Settlement Date (Payment Date)    23-Nov-06
Settlement Currency                     HKD
=====================================================================
Share             SEHK    Board Ref.   Knock No. of Total  Indicative
                  Code    Lot   Price  Out   Shares No. of Purchase
                                %      Price Per    Shares Price
                                       %  Day           
----------------- ------- ----- ------ ----- ------ ------ ----------
HUTCHISON WHAMPOA 0013.HK 1,000 95.40% 105%  30     7,380  521,699.58
=====================================================================
Period  Accumulation    Accumulation  No. of    Settlement     No. of
        Period          Period        Business  Date           Shares
        Start Date      End Date      Days
------  ------------    ------------  --------  -----------    ------
1       24-Nov-05       21-Dec-05      20       23-Dec-05      600
2       22-Dec-05       23-Jan-06      20       25-Jan-06      600
3       24-Jan-06       22-Feb-06      20       24-Feb-06      600
4       23-Feb-06       22-Mar-06      20       24-Mar-06      600
5       23-Mar-06       24-Apr-06      20       26-Apr-06      600
6       25-Apr-06       24-May-06      20       26-May-06      600
7       25-May-06       22-Jun-06      20       26-Jun-06      600
8       23-Jun-06       20-Jul-06      20       24-Jul-06      600
9       21-Jul-06       17-Aug-06      20       21-Aug-06      600
10      18-Aug-06       14-Sep-06      20       18-Sep-06      600
11      15-Sep-06       13-Oct-06      20       17-Oct-06      600
12      16-Oct-06       21-Nov-06      26       23-Nov-06      780
=====================================================================

HUTCHISON WHAMPOA’s latest price = 75.80 (as of 2005/11/23 14:15)
Then
Purchase Price (Purchase Amount)
= Closing Price x Reference Price % x Total No. of Shares
= 75.80 x 95.40% x 7,380
= 533,671.42
Reference Price
= Closing Price x Reference Price %
= 75.80 x 95.40%
= 72.313
Knock-out Price = Closing Price x Knock-out Price %
= 75.80 x 105.00%
= 79.59
Best scenario for total accumulation
-Reference Price <= Daily Closing Price < Knock-out Price i.e. 72.313 (inclusive) to 79.59 (exclusive)
Min. Total Accumulation
= Accumulation for 1st period
= 600
Max. Total Accumulation
= Total No. of Shares
= 7,380
Max. Daily Savings
= Knock-out Price - Reference Price
= 79.59 - 72.313
= 7.277
Max. Total Savings
= Max. Total Accumulation x Max. Daily Savings
= 7,380 x 7.277
= 53,704.26

Reference
Macquarie KODA ELI

[Structured Product] Callable ELI

The comparison of Callable ELI vs. actual stock purchase illustrates that:

1. Return from Callable ELI is obtained by periodic distribution rather than difference between nominal value and purchase price as in traditional ELI.
2. The actual return from Callable ELI would vary - it depends whether the ELI would be called at Call Date if the closing price is greater than the Call Strike Price. The return should lie in the region between the best case (max distibution) and worst case (min distribution).

Calculation e.g. Macquarie Callable ELI Term Sheet dated Nov 23, 2005
Series Number                   58360 (731 Days)
Issue Date                      28-Nov-05
Minimum Application Amount
- HK $100,000 per Single Stock Callable ELI and thereafter
  in increments of 100,00
Fixing Date (Maturity Date)     27-Nov-07
Settlement Date (Payment Date)  29-Nov-07
Settlement Currency             HKD
Distribution Strike Price       5%
Reference Rate                  2.00%
=====================================================================
Share         SEHK    Board Call   Call  Reference Max       Purchase
              Code    Lot   Strike Value Price %   Potential Price %
                            %      %               Return
                                                   % PA
------------- ------- ----- ------ ----- --------- --------- --------
HSBC HOLDINGS 0005.HK 400   100%   100%  96.50%    8.00%     100.00%
=====================================================================
Distribution Call Date /    Distribution Distribution Distribution
Period       Distribution   Period       Period       Rate
             Valuation Date Start Date   End Date
                            (Inclusive)  (Inclusive)
------------ -------------- ------------ ------------ ------------
1            27/02/06       28/11/05     27/02/06     2.00%
2            26/05/06       28/02/06     26/05/06     X%
3            28/08/06       29/05/06     28/08/06     X%
4            28/11/06       29/08/06     28/11/06     X%
5            27/02/07       29/11/06     27/02/07     X%
6            25/05/07       28/02/07     25/05/07     X%
7            27/08/07       28/05/07     27/08/07     X%
8            27/11/07       28/08/07     27/11/07     X%
=====================================================================
X% = Reference Rate % x (Days In / Total Days)

HSBC's latest price = 125.50 (as of 2005/11/23 14:15)
If Nominal Value (Target Amount) = 200,000
Then
Part I – Traditional ELI performance
Purchase Price (Purchase Amount)
= Nominal Value x Purchase Price %
= 200,000 x 100.00%
= 200,000
Maximum Gain (Max Return Earning)
= Nominal Value - Purchase Price
= 200,000 - 200,000
= 0
Reference Price (Strike Price)
= Closing Price x Reference Price %
= 125.50 x 96.50% #Use latest price as expected closing price
= 121.108
Max. no. of shares (Receivable shares)
= Nominal Value / Reference Price
= 200,000 / 121.108
= 1,651.42
Break Even Price
= Purchase Price / Max. no. of shares
= 200,000 / 1651.42
= 121.108 i.e. Reference Price since Maximum Gain = 0
Part II – Distribution Performance
Min. Total Distribution Rate
= Distribution Rate for 1st period
= 2.00%
Best scenario per distribution period
i. Reference Price <= Daily Closing Price i.e. 121.108 (inclusive) to 125.000 (exclusive)
ii. Days In = Total Days
iii. Daily Closing Price < Call Strike Price (on Call Date)
Max. Distribution Rate per period
= 2.00%
Max. Total Distribution Rate
= No. of periods x Max. Distribution Rate per period
= 8 x 2.00%
= 16.00%
Maximum Gain (Max Return Earning)
= Nominal Value x Max. Total Distribution Rate
= 200,000 x 16.00%
= 32,000
Part I and Part II
Total Max. Gain
= Maximum Gain (Part I) + Maximum Gain (Part II)
= 0 + 32,000
= 32,000
Potential Return (Equivalent Interest)
= (Total Max. Gain / Purchase Price) x (365 / Duration in Days)
= (32,000 / 200,000) x (365 / 731)
= 8.00%
If buying stock directly at Purchase Price (Purchase Amount),
Then
No. of shares
= Purchase Price / Closing Price
= 200,000 / 125.50
= 1,593.625 #Assume odd lots can be purchased
Target Price for same earning
= Closing Price + (Total Maximum Gain / No. of shares)
= 125.50 + (32,000 / 1,593.625)
= 145.580 #Assume no dividend has been paid out
Max Deficit beyond Reference Price
= (Reference Price - Closing Price) x No. of shares - Maximum Gain
= (121.108 - 125.50) x 1,593.625 - 32,000
= -38,999.20

Reference
Macquarie Callable ELI

[Structured Product] Bull ELI

The comparison of Bull ELI vs. actual stock purchase illustrates that:

1. Return from ELI has been capped at a certain level; if stock price is expected to increase aggressively then ELI investor cannot enjoy such capital gain.
2. However, ELI yields better return than actual stock purchase for slightly bull market due to the relatively low reference price.
3. For severe drop of stock price, ELI would protect loss by the discount offered upon purchase.

Calculation e.g. Macquarie Bull ELI Term Sheet dated Nov 23, 2005
Series Number                   58376 (30 Days)
Issue Date                      23-Nov-05
Minimum Application Amount  
- HK $100,000 per Bull ELI and thereafter in increments of 100,000
Fixing Date (Maturity Date)     21-Dec-05
Settlement Date (Payment Date)  23-Dec-05
Settlement Currency             HKD
===================================================================
Share        SEHK Code  Reference  Potential    Purchase  Board Lot
                        Price %    Return % PA  Price %
-----------  ---------  ---------  -----------  --------  ---------
CHEUNG KONG  0001.HK    95.00%     4.03%        99.67%    1000
===================================================================

CHEUNG KONG's latest price = 81.45 (as of 2005/11/23 14:15)
If Nominal Value (Target Amount) = 200,000
Then
Purchase Price (Purchase Amount)
= Nominal Value x Purchase Price %
= 200,000 x 99.67%
= 199,340
Maximum Gain (Max Return Earning)
= Nominal Value - Purchase Price
= 200,000 - 199,340
= 660
Potential Return (Equivalent Interest)
= (Maximum Gain / Purchase Price) x (365 / Duration in Days)
= (660 / 199,340) x (365 / 30)
= 4.03%
Reference Price (Strike Price)
= Closing Price x Reference Price %
= 81.450 x 95.00% #Use latest price as expected closing price
= 77.378
Max. no. of shares (Receivable shares)
= Nominal Value / Reference Price
= 200,000 / 77.378
= 2,584.71
Break Even Price
= Purchase Price / Max. no. of shares
= 199,340 / 2,584.71
= 77.123
If buying stock directly at Purchase Price (Purchase Amount),
Then
No. of shares
= Purchase Price / Closing Price
= 199,340 / 81.45
= 2,447.391 #Assume odd lots can be purchased
Target Price for same earning
= Closing Price + (Maximum Gain / No. of shares)
= 81.45 + (660 / 2,447.391)
= 81.720 #Assume no dividend has been paid out
Max Deficit beyond Reference Price
= (Reference Price - Closing Price) x No. of shares - Maximum Gain
= (77.378 - 81.45) x 2,447.391 – 660
= -10,625.78

Reference
Macquarie Bull ELI

[MBA] 7-Eleven Japan’s supply chain

I have been working in Japan for a few months in year 1997 – yet it has been one of the greatest experiences in my life. The pace of life, the cleanliness of streets, the politeness of Japanese people, and the availability of shopping places from large shopping malls to small yet round-the-corner convenience stores, were still in my memory as fresh as if it were yesterday. I enjoy wandering around in 7-Eleven in Japan – it was just like a mini-supermarket with a large variety of goods inside. This year (oops it has been 7 years then) I visited Tokyo again and found that 7-Eleven is now even more “interesting” – I could find vendoring machine for tickets and coupons. Unfortunately my Japanese is not good enough to make benefit from that.

From the supply chain management class, there are more interesting stories about 7-Eleven. While point-of-sales (POS) system is not a rare thing nowadays, not many companies can actually make good use of it. 7-Eleven, however, is able to truly capture useful data, analyze them and make good decision such as customer demand and items to replenish. One of the examples that interest me most is the shelving of ladies’ stockings near to beer – for it has been recorded by staff via POS that most ladies’ stockings were purchased by men on their way back to home. 7-Eleven’s POS is able to capture information additional to sales such as age and gender of the customers – these demographic information is useful to “know your customer better” and hence implement marketing (and operation) tactics.

This data-driven decision making mechanism is supported by the agile logistics to achieve replenishment in multiple times within a day. In addition, the efficiency and cost-saving is achieved via cross-docking in a few centralized distribution center by temperature range.

7-Eleven’s success relies not only on her own effort, but also the partnership among suppliers who commit to 7-Eleven’s strategy on agile logistics. Suppliers would be penalized if they fail to deliver their products on time. In doing so, 7-Eleven is able to control the lead time and hence reduce safety inventory during lead time.

Reference
"Seven-Eleven Japan Co." Harvard Business School Case, January 1, 2005.

[MBA] Zara's supply chain

My friends always visit Zara for their "up-to-date" fashion. It seems that Zara is able to roll out multiple cycles of fashion within a season. In fact, Zara's special design of her supply chain operations enable Zara to be the fashion apparel manufacturer and retailer (full-control) whose lead time can be as short as 15 days - the industry practice is about months!

Zara has an efficient team of designers who collaborate with marketing (know about customer demand), procurement (know about supply issue) to come up rapid design. The prototype is then developed quickly for feedback and refinement. Small quantity would be shipped to a few store to test the market. If the design is well accepted by customer, Zara would then produce in a larger scale and ship to retail stores regardless of the cost incurred - even on plane!

Even if a product is selling good, it does not mean to Zara that she should produce more. Zara is able to educate her customers that "a sold out item would not be replenished and that customers should buy the item when it is available at the store". My friends buy this idea - they in fact are happy that their purchased items are some how regarded as "limited edition". In operation's perspective, Zara does not worry about stockout and her inventory level tends to be low.

So does it mean Zara is doing everything by themselves? Not really. Zara is also able to enjoy the benefit of outsourcing for "less important" product via consignment of some items.

Reference
"Rapid-Fire Fulfillment," Harvard Business Review, Vol. 82, No.11, November 2004.

終生學習

想到今天要考ＭＢＡ的第十三科了．．．快三年的晚間進修確實是有點吃力，可是想到穫益良多又確是值得的。為此，學了的東西不要浪費，就利用此ＢＬＯＧ整理一下所學的東西罷！

除了ＭＢＡ，我也希望在此分享其他學習心得，畢竟人一生每天也是在學習。