Your project for this course will be a comprehensive study of the international finance aspects of one country. You must select the country you will study from the list of countries shown daily in the Wall Street Journal in its Currency Trading section (A sample sheet is attached) or someone may chose France or Germany or another country in Europecurrently using the Euro. The reason I restrict you to these countries is that it is more likely you can find information on these countries than on smaller countries. (If you have a special interest in a country not on the list you can discuss it with me.) The list includes over 40 countriesplus France, Germany or other European countries.The United States will not be allowed as a subject to study. Students must work alone and I will only allow one report on each country (i.e. no duplicate studies of a country). Note: If you select a country with a fixed exchange rate to the US $ you will need to do assignments below that shows your country’s currency in relation to Germany and the euro.
The paper should be no longer than8-10 pages in length and should include a careful examination of topics listed below. You may add appendices, charts and graphs that do not need to count toward the total number of pages, but the text should not be more than 10 pages in length. In the study I want you to include a discussion of the following topics.Cover these topics in this orderand withsection headings.
1) Financial and Economic History: Give a short summary (several pages) of the recent financial and economic history of your country. This should be a general overview of how the country has been performing economically.
2) The Balance of Paymentsfor this country over the past 5 years. Use just the Current Account. Make note of any trends that have occurred and how the balance of payments may have affected the exchange rates over this time period. Balance of payments data is available at the library or on line.
3) Exchange rate trends versus the U.S. dollar and versus two other major trading partners of the country. Again examine changes over the past 5 years. The Wall Street Journal, The IMF book and other sources have this data. One really good web site is Oanda.com. At the bottom is a link for historical exch. rates.
4) Parity conditions. Just focus onrelative purchasing power parity. Discuss how differential inflation and interest rates have affected changes in exchange rates between your country and two other trading partners. Note: This is not the Big Mac topic which dealt with absolute purchasing power parity.
5) Make a prediction on what value your country’s currency will have in one year, on Jan 1, 2017. Use ideas from Ch. 9. Explain your reasoning and the basis of your prediction and what information you used for the prediction.I want a prediction of anexact exchange rate NUMBER for Jan 1, 2017.
6) Import Hedge:Create a numeric example: Imagine that you are in the U.S. and want to import a product from your selected country and you will pay X, a fixed amount of foreign currency in your country’s currency(not dollars) (A/P) for the product. (Select a product as an example, be specific. For example, rubber from Malaysia or oil from Norway.) What would you do to protect yourself against possible exchange rate changes? Give specific examples of various ways you would precede. From chapter 10 include all of the major forms of hedges we discussed (i.e. no hedge, forward hedge, money market hedge, options hedge). Find as much real data as you can and for data you cannot find make up reasonable data that could be true and thenuse it correctly in your example.That is, make some assumptions and then make sure your analysis follows correctly from those assumptions. What will be the final cost to import your product (in Dollars) using the various hedging strategies? Explain each of the four hedges. (If your country has a currency that is fixed to the US dollar,then import to Germany (not the US) from your country.)
Notes: a) The project will be due on Thursday, April 21,2016 in class. You must turn in a paper version of your project. Electronic submissions will not be accepted. b) Make the organization of your paper clear and use headings for each section following the six topics listed above. c) Include a bibliography that includes your sources. d) Include charts and graphs that help you explain your findings. For graphs, label each graph and label the axes of the graph.(Select graph scales that demonstrate what you are trying to show, i.e. not just straight lines. e) Use a cover page with your name and country.