Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

FNCE30003 International Finance

Group Assignment

2022 Semester 2

Details:

1. This assignment constitutes 15% of your final grade.

2. It includes two files, this document (pdf) and an excel data.

•   The pdf and excel files include ALL the information needed for this assignment.

•   All the answers must be on the answering booklet, which will be posted in the Module Assessment: You can copy and paste plots and tables to the booklet.  You may type all the answers EXCEPT those to the last question: You must   handwrite either on the hardcopy then scanning the whole file or using digital devices to create a PDF file.

3. It must be finished within a group of either 1 or 2 members.

4. Due date: Tuesday October 4th, 2022, 11:59pm through LMS.

Marking Guidelines:

1. The distribution of the marks are:

•   Part I.                      20 marks

•   Part II.                     40 marks

•   Part III                    40 marks

•   Total:                       100 marks

2. Penalties for late submission: In order to ensure equality for all students, the        assignment must be completed within specified time limits. Each additional day         beyond the due date incurs 10 marks deduction. Assignments submitted later than 10 days after the due date will not be marked and will receive no marks.

3. Your submission to the assignment include the answer booklet (PDF) and an     Excel spreadsheet. The booklet should answer all the questions or show all the        required results and plots.  The Excel spreadsheet should provide all the calculations for the results in the written report.

4. Plagiarism and Collusion:

Policy against plagiarism and collusion has been included in your course outline.        Please seehttps://academicintegrity.unimelb.edu.au/ for more information.

5. Policy against free-riders

Each group member will have the same marks as the mark of the assignment.           However, if one student contributes nothing and the other group member states such in a formal letter, then the non-contributor will get zero mark.

Part I. PPP Study Using Specific Commodities (20 marks) All the questions and requirements are underlined with bold fonts.

1.   We start with the Big Mac index. Sheet Part I” in the data excel file includes the raw data for big mac recorded on 1 July, 20221 . For this assignment, we    want to look at the following regions: USA, Australia, Brazil, Canada, Hong   Kong, India, New Zealand, Philippines, Singapore, UAE, UK. Use data from July 2022, write down the local price, market exchange rate vs. USD, PPP implied exchange rate vs. USD, and relative difference (in percentages)     between the two exchange rates.  (5 marks).

2.   For comparison, we will also look at the same results using the iPhone. You   can check 256G iPhone 13 outright prices across different regions from          Apple’s website:http://www.apple.com/choose-your-country/. For the same regions above, write down the local prices, PPP implied exchange rate vs. USD, and relative difference (in percentages) between the two exchange  rates. (5 mark) Note: You can use the same market exchange rate as above,

since Apples price do not change that often.

3.   Compare the results for Big Mac and iPhone and briefly discuss the differences. (10 marks)

 

Part II. Currency Carry Trade (40 marks)        All the questions and requirements are underlined with bold fonts.

In this exercise, we take a look at the currency carry trade. Sheet “Part IIA” includes  the end of month exchange rate USD/AUD and JPY/USD. Sheet “Part IIB” includes  the monthly interest rates for USA, Japan and Australia. The period is 31-Jan-2003 to 31-Dec-2021. Note: To be consistent, we will use the quote 1AUD = USD, 1USD =  JPY, and 1AUD = JPY, in answers to all of the questions in this part.

1.   Report the mean, standard deviation, skewness, kurtosis, and maximum and minimum of monthly percentage change of the BID exchange rates between USD and AUD, JPY and USD. (5 marks)

2.   Report the mean, standard deviation, skewness, kurtosis and maximum  and minimum of the interest rate differences between JPY and USD, and between USD and AUD. (5 marks)

3.    Plot the time-series of percentage changes of USD-JPY exchange rate and interest rate difference between JPY and USD, all in per annum terms.     Then in another graph do the same for AUD and USD. (10 marks) You     may find a similar graph in the lecture on AUD/JPY relation.

4.   To explore whether currency carry trade is profitable, we use the following      strategy acting as a Japanese investor to consider AUD-JPY carry trade. At the end of each month, we borrow the borrow 1 million JPY, convert to AUD and convert back to JPY in one month. Starting with the given data, describe      the steps and formula you use in the calculation (backed up by your excel spreadsheet). Report the average monthly profits or losses and the              standard deviation. (20 marks)


Part III. Exchange Rates during Brexit (40 marks)

All the questions and requirements are underlined with bold fonts.                         On Thursday, June 23, 2016, electorate in the United Kingdom and Gibraltar voted in the referendum on whether to Remain or Leave the European Union. Voting started at 0700 BST and finished at 2200 BST. The final result was announced at 0720 BST,      June 24, 2016. We will take a look at the exchange rate movements during this period. Sheet Part IIIA” includes daily data in 2016 (Jan 1 – Dec 30) covering the spot,         overnight (ON) and one-week forward rates for GBP-USD pair. Sheet Part IIB”        includes the daily LIBOR rates for GBP and USD in per annum terms (the day count  per year for GBP and USD are 365 and 360 days respectively)2 .

1.   Find the rate of change of the spot rate St : et+1 = ΔSt+1/St .  Plot the time-series of et+1. Report the mean, standard deviation, max and min of e. Find out

the dates for the max, min.   (15 marks)

2.   We are interested in the two-week period from Monday, June 20 to Friday,    July 1. This is the period of turmoil in the market. Our task here is to check if the CIRP holds. Calculate ON forward rates from the spot rates and two  interest rates. Compare it with the market forward rates by calculating   the differences. Describe the steps and the formula you used in your        calculation, starting with the given data. Report the resulting differences over the two-week period, its mean and standard deviation. (10 marks)

3.   You are a forex trader. In the evening of Jun 20 just before going home, you    had a long position in GBP and were very happy that your position just got the largest boost of the year so far. What did the market predict the GBP rate   (in USD) in the future at the time? Why? (5 marks)

4.   (Hand-written open Question) In the afternoon of June 22, 2016, you, as an analyst of a major investment bank, were asked to give your opinion on the status of the market and make trade suggestions to clients.

a.    Given the data provided, state the market’s opinion on the next day (Jun 23)’s GBP movements (e.g. likely up or down), provide one reason to back up your statement. (5 marks)

b.   You were tasked to make suggestions on a speculative strategy using  instruments we learned in the class. Suppose you form an opinion that is different from the market expectation, (either higher or lower than  the market expectation). First pick either opinion (arbitrary, no      mark attached). Then make your recommendation (long or short, instrument) and give one reason for such recommendation. (5       marks).

Note:

• This last question has to be handwritten, either on hardcopy then scan or on a digital device.

• This is an open question, meaning there is no right or wrong answer. Your marks depend on your analysis, not on your conclusions.

• The space provided should be a guidance on how much you can write. You  can add pages if you need additional space. However, there is an 100-word limit for this last question.

• You do NOT need to go outside to search for additional materials and data. Using the data provided and the knowledge you learned in the class is      enough.