Presentation at Mongol Bankers Association (March 19, 2016)

1. Mongolia:
Gold Standard
Statistical Analysis of Mongolia’s
Foreign Exchange

2. Overview
• Given that:
• Mongolia’s currency is fully convertible for a wide array of international currencies
and does fluctuate regularly in response to economic trends. (U.S. Department of
State: Embassy of the United States; Ulaanbaatar, Mongolia; Reports on Mongolia:
2015 Investment Climate Statement, May 2015
(http://mongolia.usembassy.gov/mobile//ics2015.html))
• “…the Bank of Mongolia has been persistent in pursuing a floating exchange rate
regime” (Bank of Mongolia Annual Report 2014e, p. 65.)
• Why has Mongolia suffered a four-year period of falling strength in
foreign exchange: 2012-2016?
• Is Mongolia’s ForEx strength based in GDP and Balance of Payments?
Suffering due to China’s economic woes? –Or is something else in play?

3. the Initial View: Historical Relationships
y = -0.0004x + 1.2404
R² = 0.1655
0.00
0.50
1.00
1.50
2.00
2.50
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000
1000₮Buys___$USSpotFXRate
$USD Gold/Oz
Chart 1A: March 29, 1996 - December 31, 2012
1000 ₮ Buys ___$US Spot ForEx (Y-Axis) Vs. Gold Price $US/Oz (X-Axis)
1000 ₮ Buys ___$US Spot FX Rate Linear (1000 ₮ Buys ___$US Spot FX Rate)

4. the Secondary View: Changing Correlations
0.874
0.866
0.816
-0.190
-0.605
-0.852
-0.692
-0.482
-0.805
-0.701
-0.728
-0.565
-0.019
0.558
0.351
0.736
0.910
0.848
0.719
0.432
-0.398
-0.235
-0.027
0.605
0.145
-0.595
-0.513
-0.548
-0.805
-0.629
-0.290
-0.167
0.210
0.738
0.610
0.881
0.912
0.874
0.843
0.548
-0.026
0.325
0.552
0.399
0.410
0.732
0.678
0.798
0.839
0.768
0.858
0.637
-1.00
-0.80
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
PearsonCorrelationR-Statistic
Chart 1B:
Correlation of 1000 ₮ MNT Buying ___ $USD to Spot Mineral Prices By interval
Au Ag Cu

5. the Tertiary View: Symmetry in Inflection
0.45
0.50
0.55
0.60
0.65
0.70
0.75
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
1000₮Buys___$USSpotFXRate
$USDGold/Oz
Chart 2: January 1, 2013 - March 01, 2016
Gold Price $US/Oz (Y1-Axis); 1000 ₮ Buys ___$US Spot ForEx (Y2-Axis)
Gold Price $US/Oz 1000 ₮ Buys ___$US Spot FX Rate

6. the Quaternary View: A Rough Correlation
y = 0.0004x + 0.0073
R² = 0.7196
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800
1000₮Buys___$USSpotFXRate
$USD Gold/Oz
Chart 3: January 1, 2013 - March 01, 2016
1000 ₮ Buys ___$US Spot ForEx (Y-Axis); Gold Price $US/Oz (X-Axis);
1000 ₮ Buys ___$US Spot FX Rate Linear (1000 ₮ Buys ___$US Spot FX Rate)

7. the Quinary View: Recalling the Timing Delay
y = 0.0004x + 0.0548
R² = 0.8853
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800 1,900
1000₮Buys___$USSpotFXRate
$USD Gold/Oz
Chart 4: January 1, 2013 - March 01, 2016
1000 ₮ Buys ___$US Spot ForEx (Y-Axis) (2013-01-01 - 2016-03-02)
90-Day Prior Spot Gold Price $US/Oz (X-Axis) (2012-10-03 - 2015-12-03);
1000 ₮ Buys ___$US Spot FX Rate Linear (1000 ₮ Buys ___$US Spot FX Rate)

8. the Senary View: Thinking Like a Minerals CFO
90-Days Forward Contracts on Past Average Prices
y = 0.0004x + 0.0398
R² = 0.9528
0.45
0.50
0.55
0.60
0.65
0.70
0.75
1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800
1000₮Buys___$USSpotFXRate
$USD Gold/Oz
Chart 5: January 1, 2013 - March 01, 2016
1000 ₮ Buys ___$US Spot ForEx (Y-Axis) (2013-01-01 - 2016-03-02)
90-Day Prior 90-Day MA Gold Price $US/Oz (X-Axis)
(2012-07-05 - 2012-10-03 through 2015-09-04 - 2015-12-03);
1000 ₮ Buys ___$US Spot FX Rate Linear (1000 ₮ Buys ___$US Spot FX Rate)

9. Confidence to Generate a Regression Analysis
0.45
0.50
0.55
0.60
0.65
0.70
0.75
1000₮MNTBuys___$USD
Chart 6A:
Forecasting Mongolia's 90-Day Forward Foreign Exchange Rates With Ag, Au, Cu
Spot FX Rate On Date 90-Day Forward Forecast (90-Day [MA: Au, Cu, Ag])
1000 MNT Buys ___USD =
+ (0.01599199) X [90-Day Avg of Silver Price from 180 days to 90 days Prior to FX rate]
+ (-0.00004116) X [90-Day Avg of Gold Price from 180 days to 90 days Prior to FX rate]
+ (-0.02347884) X [90-Day Avg of Copper Price from 180 days to 90 days Prior to FX rate]
+ 0.360038021
R2=0.96311

10. Confidence to Confidence Intervals
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
1000MNTBuys___USD
Chart 6B:
Forecasting Mongolia's 90-Day Forward Foreign Exchange Rates With Ag, Au, Cu
Spot ForEx Period: March 1, 2013 - March 1, 2016
Minerals Pricing Period: Aug 30, 2012-Nov 30, 2012 Through Sep 1, 2015-Dec 2, 2015
Spot FX Rate On Date 90-Day Forward Forecast (90-Day [MA: Au, Cu, Ag]) Upper Limit: μ +3.00σ Lower Limit: μ -3.00σ
1000 MNT Buys ___USD =
+ (0.01599199) X [90-Day Avg of Silver Price from 180 days to 90 days Prior to FX rate]
+ (-0.00004116) X [90-Day Avg of Gold Price from 180 days to 90 days Prior to FX rate]
+ (-0.02347884) X [90-Day Avg of Copper Price from 180 days to 90 days Prior to FX rate]
+ 0.360038021

11. Confident: How Confident?
• R2=0.96311
• The maximum divergence of the ₮MNT:$USD
forecasted 90-days prior to the Actual
₮MNT:$USD foreign exchange rate was
8.45%
• 97.5%; numerically 827 forecast instances
out of 848 total data points fell within 2.5
standard deviations of the 0.096% Mean
• During the period October 2, 2012 through
December 2, 2015, this model quite
accurately predicts the future exchange rate,
based on the prior 90-days average price of
the minerals: Silver, Gold, and Copper; and
the formula produces the prediction 90-days
before the ₮MNT:$USD actually manifests
itself in the international finance market
Raw Figures Table 3
Adjusted to Absolute
Values
8.452% Max 8.452%
-4.860% Min 0.021%
0.096% Mean 1.893%
2.496% StDev 1.628%
0.06336334
Expected Upper at ___
StDev
0.059643
-0.0614532
Expected Lower at ___
StDev
-0.02177
2.5 StDev
848 Count 848
827 Count If Between 820
97.524% PerCent in Interval 96.698%

12. Next Steps…
• Build a model to predict volatility in GDP according to different mixes of investment
among Mongolia’s economically productive sectors.
• The model will isolate the base volumes of mineral commodities sold and grow these
volumes within the bounds projected by GoM, and other entities reporting these
trends;
• The model will simulate fluctuations in commodities prices according to the
commodities’ historical statistical changes following Monte Carlo analysis;
• The model will calculate changes in GDP year over year and record percentage
changes (registering volatility as standard deviations around the mean simulation
growth rate);
• Versions of the model will simulate rapid growth in Primary Sector (non-minerals),
Secondary Sector (finished food, textiles, etc.), and Tertiary Sector (tourism) for
comparing against the current mix of GDP components.

13. Implications of the Model for Mongolia ForEx?
• This research is a pedagogical pursuit; not investigative journalism.
• This research aims to isolate the model for Mongol ForEx; the analysis
aims to present knowledge toward modeling Mongolia’s macro-
economic environment and its constraints.
• The Monte Carlo projections aim to assist government and banking to
invest wisely; and produce commonwealth for all residents in Mongolia.
• This study is an intellectual pursuit to assist Mongolia’s growth
strategies; and/or present queries to revise those growth strategies.

14. Thank You So
Much!
One potential Macro-Environment…