Trimester 1, 2016<\/p>\n
This is a group assignment with four members. You can organise your groups on
\nCloudDeakin (CD). Group sign up is on CD. It is important to register your group; otherwise
\nyou will not be able to upload the assignment.
\nImportantly, you need to work as a group, not just do one question each. Each member of
\nthe group needs to understand the group responses. This group assignment meets the
\nDeakin Graduate Learning Outcome 7. In my experience the groups that work well together
\nget the best results.
\nReport Format: Acknowledge your work in the appropriate manner.
\nWords: A guide is provided but in some cases a diagram with explanations
\nand analysis is more appropriate than just words.
\nThere is no need for an executive summary.
\nStyle: Times Roman 12-pt size, single spaced, double space between
\nparagraphs, 4 cm left margin. Include your names and student numbers in the header.
\nReference your work in the appropriate manner. Remember direct quotes in quotation
\nmarks. If unsure how to reference correctly please ask. In addition, there are guidelines on
\nthe University website.
\nSubmission: All assignments will be marked online. It is important that you keep a
\ncopy. Presentation is important. Write as a business report.
\nKnowledge, Skills and Attributes
\nThis assignment seeks to:
\nAdvance your knowledge in the key area of hedging.
\nChallenge you to organise, plan and think.
\nEnhance your ability to synthesise and analyse information and data.
\nConsolidate your skills in identifying, retrieving and working with textual, graphical and
\nnumerical information.
\nImprove your ability to collaborate with others in a shared pursuit of knowledge.
\nImprove your problem solving skills.
\n2
\nQuestion 1:
\nWorking for GLB Ltd. Treasury Division, an Australian exporter of airport surveillance
\nsystems, one day you are asked to find an avenue to invest your company\u2019s surplus funds
\nover one year. Based on the in-house research, your company anticipates a 1% increase in
\nthe curve in six months. The 6-month and 1-year zero-coupon rates are respectively 3% and
\n3.2%. After doing some research yourself, you find two different opportunities:
\n? your company can buy the 1-year zero-coupon T-bond and hold it until maturity;
\n? or your company can choose a rollover strategy by buying the 6-month T-bill, holding
\nit until maturity, and buying a new 6-month T-bill in six months, and holding it until
\nmaturity.
\n1. Calculate the annualized total return rate of these two strategies assuming that your
\ncompany\u2019s anticipation is correct.
\n2. Same question when interest rates decrease by 1% after six months.
\n(5 + 4 = 9 marks) (Guide 500 words))
\nQuestion 2:
\nAs an analyst for Vandelay Bank Treasury Department, your supervisor has handed you a
\nchart (Figure 1) showing a recent spike of the Euro against the US dollar. You are asked to
\nwrite a report:
\n(a) to examine and investigate the background and reasons (the risk factors) behind this
\ndramatic forex rate spike. What are the reasons, if any, resulting in the exchange rate spike
\non April 3, 2015?
\n(b) to assess the forex rate spike within the context of fundamental analysis of forex rate.
\n(c) to discuss the likely fundamental impacts on the most traded currency pair in the world,
\nEUR\/USD over the next six months. Include a screenshot of the EUR\/USD over the last six
\nmonths and comment on the movements. (Hint: if you have no other sources for data, you
\ncan download a forex trading platform that will give you real live data. The platform is
\nknown as MT4. There are many brokers however, I recommend you download from Alpari \u2013
\nwww.alpari.com or FXDD, www.fxdd.com. Only a DEMO account (it is free) is needed. Use
\nthe demo platform to take a screenshot.)
\n(3 + 3 + 4 = 10 marks) (Guide 700 words))
\n3
\nFigure 1. EURUSD on Apr 3, 2015
\nQuestion 3:
\n(a) In recent years there has been an increase in the use of technical analysis techniques to trade
\nforeign currencies as distinct from manage foreign currency risk. Explain how traders use technical
\nanalysis, use an example to illustrate, and distinguish between \u201ctrading currencies\u201d and \u201cmanaging
\nforeign currency risk\u201d.
\n(b) It is incredibly difficult to arbitrage exchange rates as liquidity on the major currencies is
\nso large and relevant information is impounded into the exchange rate instantaneously.
\nHowever, there is a strategy known as the \u201cCarry Trade\u201d \u2013 this trade was very popular in the
\nlast ten years between the Japanese yen and the USD, and recently between the euro and
\nthe AUD.
\n(i) What are the principles of the carry trade?
\n(ii) Construct an example using past data to show a \u201ccarry trade\u201d and clearly show the risks.
\n(4 + 2 +3 = 9 marks) (Guide 600 words)
\nQuestion 4:
\nUsing the following quotation method, i.e. indirect AUD 1 = USD 0.8000 as the spot.
\n(a) Source the cash rates for the AUD and USD to calculate the one year forward rate. Use todays
\nspot rate. Why do you think a forward exchange contract is the most popular hedging instrument?
\n(Assume a 360-day year.)
\n4
\n(b) Is this rate at a discount or a premium to the AUD? Explain the theory and practice of the
\nrelationship.
\n(c) \u201cThe spot rate in one year will probably be entirely different to the one year forward rate\u201d. Is this
\nstatement true? Explain and source data to support your analysis.
\n(d) Assume the AUDUSD spot is 0.7748 at present. Evaluate the factors that will likely lead to a
\nstrengthening of the spot rate to 0.7808, and alternatively a weakening to 0.6758 over the next
\ntwelve months.
\n(3 + 2 + 3 + 4 = 12 marks) (Guide 700 words)
\nQuestion 5:
\nThis is a team based assignment and in a work environment a team would be involved in
\ncompleting these tasks. Therefore, you need to demonstrate that you have worked as a
\nteam.
\nEach member of the group is required to submit a reflective report describing the
\noperations of the group. In the report you are required to evaluate the performance of the
\noverall group – how the group was organised, planning, distribution of tasks, how initial
\nanswers were reviewed, the problems encountered, solutions, overall effectiveness and
\nwhat you learned from the group assignment that is relevant in the work environment.
\n(10 marks) (Guide 400 words\/Group)
\n(Total = 50 marks)<\/p>\n","protected":false},"excerpt":{"rendered":"
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