Final Assignment: This Assignment Is Worth 20% Of Your Grade

Final Assignmentthis Assignment Is Worth 20 Of Your Grade It Must Be

Final Assignment this assignment is worth 20% of your grade. It must be submitted, in hard copy, during our last class on May 4, Friday. It is a group assignment based on the group you currently have for the news analysis & presentation assignment. The assignment must be typed and accompanied by a signature page with the names and signatures of each member of the group. A group member without a signature will not earn any grade from that assignment. No late submissions will be accepted.

For this assignment, you need to use the Bloomberg Database. Refer to the document titled “Bloomberg_Workshop_Material” uploaded on the Blackboard for instructions.

Part 1: Exchange Rate Analysis

From Bloomberg, download the exchange rates of 6 foreign currencies, including the US dollar, with at least 2 from emerging markets. Calculate the one-year appreciation or depreciation against the dollar using the formula:

St( X /$) = Beginning Rate

St+1( X /$) = Ending Rate

Percentage change: [(Ending Rate – Beginning Rate) / Beginning Rate] x 100%

Explore recent exchange rate trends for these currency pairs over a chosen time window, preferably wider for more insight. Download the data into a spreadsheet to visualize the trends.

Plot examples of fixed and floating exchange rates. Based on your data, identify which countries have fixed or floating rates.

Look for signs of exchange rate crises within your data window by examining the plotted trends.

Part 2: Imaginary Carry Trade

Obtain one-month swap rates for major currencies: US dollar, pound, euro, Japanese yen, Swiss franc, Canadian dollar, and Australian dollar. Identify the currency with the lowest yield and label it X. Calculate how much interest you would pay after borrowing 1,000,000 units of X for one month, considering the annualized rate.

Compute exchange rates between X and each high-yield currency Y, and determine how much X would be worth in Y units now, and after a month with Y’s interest added. Reassess your calculations after one month by retrieving current spot rates and evaluating the profit (or loss) from each carry trade.

Analyze whether any of these simulated trades would have been profitable.

References

• WorldatWork. (2007). The worldatwork handbook of compensation, benefits & total rewards. Hoboken, NJ: John Wiley & Sons.
• Black, F., & Scholes, M. (1973). The pricing of options and corporate liabilities. Journal of Political Economy, 81(3), 637-654.
• Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. Journal of Finance, 25(2), 383-417.
• Obstfeld, M., & Rogoff, K. (1996). Foundations of international macroeconomics. MIT press.
• Harrison, J. M., & Kreps, D. M. (1978). Speculative investor behavior in a stock market with heterogeneous expectations. The Quarterly Journal of Economics, 92(2), 323-336.
• Froot, K. A., & Obstfeld, M. (1991). Exchange rate dynamics Redux: A look at some hidden evidence. The Review of Financial Studies, 4(2), 373-412.
• Hull, J. C. (2018). Options, futures, and other derivatives. Pearson Education.
• DeFusco, R. A., McLeavey, D. W., Pinto, J. E., & Runkle, D. E. (2020). Quantitative investment analysis. John Wiley & Sons.
• Madura, J. (2019). International financial management. Cengage Learning.
• Gruber, M. J., & Kamin, S. B. (2010). The effect of exchange rate policies on trade and economic growth. International Monetary Fund Working Paper, No. 10/189.