Foreign Exchange Rates And Hedging Options

Foreign Exchange Rates And Hedging Options
Foreign Exchange Rates and Hedging Options
There are three hedging options that are commonly used. Hedge is to reduce losses due to volatility of foreign exchange rates. Hedging instruments use
options and futures which are derivative instruments.
One type of hedging is using a forward contract. This method is to lock in a FX position that would provide stability and not succumb to the
fluctuations of FX rates. By locking in an FX rate, it gives the company the right to the currency exchange rate specified for a future time. This means
that if FX is to adverse or benefit of FX will be minimized for the future.
Another technique to minimize FX risk is to purchase options. The purchaser of an option sets an exchange rate at a future date that the purchaser may
exchange at. If the FX is beneficial, the purchaser may execute reaping the gains, however if the FX is unfavorable, the purchaser will not exercise.
A third instrument is to hedge using currency exchange traded fund (ETF). Purchasing currency ETFs on the stock market allows the purchaser to
either buy or short sell the stock to mitigate FX risk. As the ETF is correlated to the fluctuations of FX, if rates are favorable the stock price will
appreciate, whereas rates are unfavorable the stock price will depreciate.
To improve internal controls in reconciliation, GWL should provide proper foreign exchange training to existing staff. This will ensure the accounting
staff team understands where to book, and are up to
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Exchange Rate Is The Price Of A Nation 's Currency
Exchange Rate
The exchange rate is the price of a nation's currency in terms of another currency. The domestic currency and the foreign currency are the two
components of an exchange rate. In a direct quotation, the price of the foreign currency is expressed in terms of the domestic currency and the vise
versa is the indirect currency. Most exchange rates use the US dollar as their base currency and other currencies as the counter currency. There a few
exceptions, the Euro and commonwealth currencies such as the Australian dollar, the British pound and the New Zealand dollar (Investopedia, LLC.,
2014).
The current rate; Yen
US$1 = JPY 105
US$1 = C$1.1050
Making C$1.1050 = JPY 105 or C$1 – JPY 95.02 (Investopedia, LLC., 2014)
Selling ... Show more content on Helpwriting.net ...
Company A builds automobiles in Japan, then exports to the US and Company B builds automobile in the US and sells those automobiles in the US.
Company A cost are 1.2 million yen ($10,000 US) to make standard automobiles in Japan and it cost company B $10,000 to produce similar
automobiles in the US. The cost for both manufacturing companies are about the same, both companies sell the similar automobiles for $15,000. This
means both manufactures profit $5,000 on each automobile which become 600,000 yen.
Exchange Is At 120 Yen/Dollar In a different scenario where the yen is 100 yen/dollar. Company A still has cost of 1.2 million yen, because the yen
is stronger it will cost company A $12,000 in terms of dollar to produce automobiles. Company B still produces automobiles for $10,000 per
automobile, company B is not impacted by the exchange rate. If automobiles still sell at $15,000, Company A profits $3,000 per automobile , 300,000
yen and company B still profits $5,000 per automobile, 500,000 yen. Both manufactures will make less money in terms of yen. This decline will be
much more severe for company A.
Exchange Is At 100 Yen/Dollar Exchange Is At 140 Yen/Dollar Company A has a mismatch between its currency at production and its currency at sale,
profits are

Exchange Rate Volatility Measure And Relative Price
3.2 Exchange Rate Volatility measure and relative price An important issue in this topic is how to choose the appropriate technique to estimate the
exchange rate volatility. However, wide variety of measures have been discussing in the literature, but there is no right or wrong measure of exchange
rate volatility. Mckenzie (1999) provides a brief over–view of different methods to measure exchange rate volatility, such average absolute difference
between the previous forward and current spot rate, variance of the spot exchange rate around its trend, absolute percentage change of the exchange
rate and the moving average of the standard deviation of the exchange rate. A moving standard deviation of nominal or real exchange rate seems to be
the most commonly used method in the empirical literature. Hence, we will construct the moving average standard deviation of the monthly real
exchange rate volatility with the same spirit as Serenis and Tsounis (2014) and a moving standard deviation of real exchange rate can be expressed as:
Where R_t is logarithm of nominal or real exchange rate and m is the number of periods which can be range from 4 to 12.In this paper, we will use
the moving average of the standard deviation of exchange rate as the measure of exchange rate volatility by using the real exchange rate and the order
m is set to be 12. Koray and Lastrepes (1989) have shown that the moving average of the standard deviation of the exchange rate captures the variation
in the

Essay about The Canadian Exchange Rate
The Canadian Exchange Rate
The Canadian Dollar has undergone a significant depreciation over the past 10 years. The drop in relative value of our currency has caused a great
deal of consternation not only among economists but also in the media and consequently the general public has well. Ordinary citizens experience first
hand the effects of such depreciation every time they go to our most frequented vacation spot, the United States. While economic variables are not
usually the subject of casual debate, the exchange rate trend has even permeated our most beloved conversation topic, professional hockey. Despite the
popularity of the subject, consensus and clarity are rarities. What has happened to the value of the Canadian ... Show more content on Helpwriting.net ...
The value of our currency is most reflected in the price of the US dollar. This paper will therefore use the price of a US dollar in terms of Canadian
dollars as the value of the Canadian dollar.
In the previous section I assumed that the currency is flexible, that is to say that the price is based on foreign exchange market activity. It is however
possible to fix the price of a currency at a particular level. In order to accomplish this, the central bank must be willing to buy or sell the perceived
excesses of the market; i.e. the bank must buy or sell enough Canadian dollars so that the price remains stable. If such a practice becomes
unsustainable the central must change the fixed price or move the peg. Such a system, known as the Breton Woods system was predominant in
post–world war II industrialized economies. However by the Nineteen sixties Canada, Canada like many other nations, moved to a flexible exchange
rate system. It is important not to assume that because the currency is not officially fixed at some level, that the central bank does not play a role in
determining its price. The central bank still intervenes in the market but not to hold the price at a certain level, but rather to prevent to price from
fluctuating rapidly up or down. This type of exchange rate regime is known as a dirty float.
Over this past decade, the value of a Canadian dollar has dropped nearly 25%. In 1990, a US dollar could be

Summary of Currency Translation and the Behavior of...
SUMMARY OF CURRENCY TRANSLATION AND THE BEHAVIOR OF EXCHANGE RATE Journal written by Robert G.Rulland from
Northeastern University and Timothy S.Dauprik from Univesity of South Carolina discussed about the foreign currency translation and behaviour of
exchange rate. Consequently, the first controversy is which translation method provides the most meaningful translation gains and losses, for example
which method provides the most reasonable measure of the foreign entity's exposure to movements in exchange rates. The second controversy is
whether translation gains and losses should be reported in the income statement or whether they should be deferred and shown in the stockholders'
equity section of the balance sheet. Two major controversies exist in the translation of foreign currency financial statements is first which translation
method should be used, and the second is how should the resulting translation gains and losses be reported. When items translated at current exchange
rates, translation gains and losses result. Translation methods vary as, to which balance sheet items translated at current and which at historical
exchange rates. This paper proposes two criteria for settling these questions which are based upon the actual pattern of exchange rates existing between
the U.S. dollar and other currencies .It is argued that application of these criteria would result in a more objective and economically meaningful
translation process than exists under current rules.

Foreign Exchange Rate Sensitivity and Stock Price
FOREIGN EXCHANGE RATE SENSITIVITY AND STOCK PRICE : ESTIMATING ECONOMIC EXPOSURE OF TURKISH COMPANIES
INTRODUCTION
Variability in exchange rate is a major source of macroeconomic uncertainity affecting firms. After the 1970 's, the rapid expansion in international trade
and adoption of floating exchange rate regimes by many countries led to increase exchange rate volatility. The firm 's exposure to exchange rate risk
increased.
In the literature three types of exposure under floating exchange rate regimes are identified; economic, translation and transaction. Translation and
transaction exposures are accounting based and defined in terms of the book values of assets and liabilities denominated in foreign currency. Economic
exposure is ... Show more content on Helpwriting.net ...
His finding did not support that hypothesis. Firms did not benefit from a depreciation of the home country. On the contrary a significant decline in their
market share of industry was found in a depreciation of the home currency.
Bodner and Gentry (1993) examined industry level exposures for three countries, Canada, Japan and USA. They revealed that some industries in all
three countries had significant exposure.
Choi and Prasad 1995 developed a model and examined the exchange rate sensitivity of 409 US multinational firms. Their findings indicated that
change in exchange rate affected firm value. They found that 60 percent of firms had significant exchange rate exposure.
Domely and Sheehy (1996) found contemporaneous relation between the foreign exchange rate and the market value of large exporters in their study.
Miller & Reuer (1998) conducted a study on the implications of differences in strategy and industry structure for firms ' economic exposures to foreign
exchange rate movements. According to their results, 13–17 % of US manufacturing firms exposed for foreign exchange rate movements. Also they
indicated that foreign direct investment reduces economic exposure to foreign exhange rate movements.
Glaum, Brunner and Himmet (2000) examined the economic exposure of German corporations to change in DM/US dolar exchange rate. They found
that German firms are significantly exposed to changes in

The Aspects Of Modelling The Exchange Rate Volatility And...
3. Modelling In this section, we will discuss the aspects of modelling the exchange rate volatility and trade. In particular, we briefly sketch the Gravity
approach in the same spirit as Awokuse and Yuan (2003) for modelling trade relationships between Thailand and twenty
–one trading partners, then we
go on to outline our choice of exchange rate uncertainty measure and econometric methodology.
3.1 Theoretical model
We take Gravity approach to the estimation of trade relations. According to Reinert et al. (2010),in physic world the Newton's law for the gravitational
force( гЂ–GFгЂ—_ij) between two objects i and j can be expressed as: гЂ–GFгЂ—_(ij )= M_i M_(j )/ D_ij (1)
In the above equation, the gravitational force is proportional to masses of objectives M_(i )and M_j and proportional to distance between them (
D_ij). Reinert et al. (2010, 567) report that "gravity model can be considered as the volume of trade between two countries increases accorded with
their gross domestic product(GDP) and decreases accorded with their distance between countries". However, we can replace M_(i )and M_j by Y_i
andгЂ– YгЂ—_j. Indeed, Y_i and Y_j represent gross domestic product(GDP) of Thailand and importing countries. Hence, the equation one can be
expressed as: гЂ–GFгЂ—_ij= Y_i Y_j/D_ij (2)

Exchange Rate Systems
Chapter 5
Exchange Rate Systems
questions
1. How can you quantify currency risk in a floating exchange rate system?
Answer: To characterize the risk of a currency position, you must try to characterize the conditional distribution of the future exchange rate changes.
With floating exchange rates, historical information provides useful information about this distribution. For example, you can use data to measure the
average historical dispersion (standard deviation or volatility) of the distribution. The higher this volatility, the riskier are positions in this currency. It
is also possible to rely on more forward–looking information using the options markets (see Chapter 20). Finally, we should point out that volatility ...
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How can a central bank offset this effect and still hope to influence the exchange rate?
Answer: When a central bank buys (sells) foreign currency, its international reserves increase (decrease), and the money supply increases (decreases)
simultaneously. To offset the effect on the money supply, the foreign exchange intervention can be sterilized; that is, the central bank can perform an
open market operation that counteracts the effect on the money supply of the original foreign exchange intervention. The direct effects of a sterilized
intervention are two–fold. First, it forces a portfolio shift on private investors, by replacing foreign bonds with domestic bonds (or vice versa). This may
affect expectations and prices. Second, the actions of the central bank in the foreign exchange markets, while very small relative to the nominal trading
volumes, may still manage to squeeze foreign exchange inventories at dealer banks and generate pricing effects. Indirectly, the central bank can signal
its opinion on the fundamental value of the exchange rate through an intervention that consequently affects market expectations. There is no consensus
on how effective sterilized interventions are in affecting the level and volatility of exchange rates.
8. How can a central bank peg the value of its currency relative to another currency?
Answer: To peg the value of its currency to another currency, the government must make a market in the two

Essay about Integrative Problem-Exchange Rate Behavior
Assignment:Integrative Problem – Exchange Rate Behavior
Data: Beginning of year
Spot rate of ВЈ = $1.596
Spot rate of Australian dollar (A$) = $.70 Cross exchange rate: ВЈ1=A$2.28 One–year forward rate of ВЈ1= A$.71 One–year U.S. interest rate = 8.00%
One year British interest rate = 9.09% One–year Australian interest rate = 7.00%
Question 1
Determining whether triangular arbitrage is feasible and, if so how it should be conducted to make a profit.
Background: Triangular arbitrage is used to capitalize on a discrepancy that might exist in the exchange rates between two currencies whose
transactions are conducted in the spot market. i) Developing the cross exchange rate that should exist between the British Pound (ВЈ) ... Show more
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To illustrate the feasibility of covered interest arbitrage we assume we have an amount of US $500,000 to invest.
Investing in a domestic bank deposit at 8% interest ($500,000 x 1.08) would yield $540,000.
Covered interest arbitrage using the British bank: i) Day 1 we convert the $500,000 to pounds using the current spot rate of the pound, i.e. $1.596
$500,000 Г· 1.596 = ВЈ313,283.21 ii) Sell the ВЈ313,283.21 one year forward using the one year British interest rate of 9.09%: (313,283.21 x 1.0909)
= ВЈ 341,760.65 . This is the amount to be received on maturity including interest. iii) In one year when the deposit matures we fulfill the forward
contract obligation by converting the ВЈ341,760.65 to US$ based on the forward contract rate of the pound – $1.58004: (341,760.65 x 1.58004) =
$539,995.50
Covered interest arbitrage is not feasible in this case as investing in a domestic bank deposit is slightly more beneficial.
Covered interest arbitrage using the Australian bank: i) Day 1 we convert the$500,000 to A$ using the current spot rate of the A$ i.e. $.70
$500,000Г·0.70 = A$714,285.71 ii) Sell the A$714,285.71 one year forward using the one year Australian interest rate of 7%: (A$714,285.71 x 1.07) =
A$ 764,285.71. This is the maturity amount including interest. iii) In one year when deposit matures fulfill the forward contract obligation by
converting A$764,285.71 to

Exchange Rate Determination
exchange rate determination
"Having endeavored to forecast exchange rates for more than half a century, I have understandably developed significant humility about my ability in
this area..."[1] – Alan Greenspan
Figure 1: Exchange Rate Determination
[pic]
Source: Exchange Rate Determination
I. Short–Run Forecasting Tools
Short–term changes in exchange rates are the most difficult to predict and are often determined based on bandwagon effects, overreaction to news,
speculation, and technical analysis.[2]
Trend–Following Behavior is the tendency for the market to follow a trend. In other words an increase in the exchange rate is more likely to be followed
by another increase.
Investor Sentiment is based on the ... Show more content on Helpwriting.net ...
Figure 2: International Parity Conditions
[pic]
Source: Exchange Rate Determination
1) Purchasing power parity – states that since the prices should be the same across countries, the exchange rate between two countries should be the
ratio of the prices in each country.
[pic]

Example: If a hamburger is $2.54 in the United States and 3.60 real (R$) in Brazil, then the PPP spot rate should be:
[pic] If the actual exchange rate is[pic], then according to the PPP theory the Brazilian real is undervalued by 35%. [pic] FYI McDonalds' Big Mac is
produced locally in almost 120 countries![7]
2) Covered interest–rate parity –the idea that an imbalance in parity conditions can create a "risk less" opportunity for an arbitrager.
Exhibit 6.7 Covered Interest Arbitrage (CIA)[8] [pic]
Example: Step 1: Convert $1,000,000 at the spot rate of ВҐ106.00/$ to ВҐ106,000,000 Step 2: Invest the proceeds, (ВҐ106,000,000), in a euroyen
account for six months, earning 4% per annum, or 2% for 180 days. Step 3: Simultaneously sell the future yen proceeds (ВҐ108,120,000) forward for
dollars at the 180–day forward rate of ВҐ103.50/$. Note: at this point you have

Business World and Exchange Rate Problems
Today's business world is becoming more difficult and complex because of the important numbers of factors to take into accounts. Then, with the
globalisation, more and more firms tends to go global. This trend means that the risks are increasing, and have to be monitoring in order to run well. All
the transaction are made with money like investment...
But, the main problem is that almost all countries have currencies different from each others. It means that their values are not the same, and they
change every time. So, firms have to take into account this problem, because it could no be easy at all.
The aim of this essay is to understand the problem of exchange rate. In order to answer to this problematic, various topics will be ... Show more content
on Helpwriting.net ...
Evolution of Dollar.
[pic]
It's now the Dollar which is studied. On this first graph showing the exchange rate movement between Euro and Dollar, it is clear that from November
to June the increase was very important, and decreases very fast too until the end of the year. The lowest level is reached in november/december 2009
and the highest in June 2010.
[pic] On this graph, Dollar is compared with the GBP. From the beginning of the year until May, the curves is increasing and reaches its highest point
in May/June. After that, it decreases until the end of the year, and looks like to become stable. To make trade in UK, the most profitable period was in
May/June for American's investors.
[pic]
Instead of the two previous graphs, which were first increasing and then decreasing. This curve is only decreasing all over the year. Its highest point
is reached in May 2010, and the lowest in October 2010. This year wasn't good for American investors who wanted to make to make trade in Japan.
Evolution of Japanese Yen.
[pic]
Let's continue with the Yen. Here is the movement between Euro and Yen, from October to May, the curve is increasing with a very fast growth at
the end of April/beginning of May. Then, generally, the curve stays stable. The lowest point is in October 2009 and the highest is in September 2010.
For Japanese buyers who want to order European product, this year should have been profitable, because if they have

Impact of Exchange Rate on Imports and Exports
Impact of exchange rate on Imports and Exports of Pakistan. (2005–2010)
Abdullah Hashmi (18016)
Wednesday 9–12
Table of Contents 1.Introduction:3 1.1What is exchange rate?3 1.2 Floating exchange rate function.3 1.3 How exchange rate effect imports and
exports?3 3.Methodology:5 4.Data Collection:6 5.Data Analysis:8 6.Research Findings:8 7.References:9
1. Introduction:
1.1What is exchange rate?
Exchange rate is the currency rate between two countries that is the price of one country currency is expressed in terms of another countries currency.
For instance the rate of USD against PKR is, $1=97.7PKR. We have expressed exchange rate against USD because it is globally used for ... Show more
One explanation found for larger trade affect between US–China was composition of goods traded by each geographical area. One good which is less
price elastic in china might be more price elastic in US, trade impacts of exchange rate changes in euro will be less. An example of this would be
Euro–Area's major export nuclear reactors which is gridding 30% of its exports value to China in 2008. In most cases, nuclear reactors are mastered
by long–term contracts which account large financing projects which undoubtedly include exchange hedging mechanisms. Changes in exchange rate of
this specific product will not significant impact on their exchange rate.
This study finds that exports are more sensitive than imports as regards to changes in exchange rate level. The effect of exchange rate level of
agricultural products is greater than the manufacturing products. The reasons behind it might be greater homogeneity of agricultural products than the
manufacturing goods, more easily allowing the opportunity to change suppliers and moreover, price transmission mechanisms maybe different in
agriculture as compare to manufacturing. In many of the relationships evaluated in the study the basic factors have often been clashing and often
conflicting effects. In the case of the agricultural sector, one particularity is that tariffs are often expressed as specific, as opposed to ad valorem rates.
European Union and USA use an import tariff structure for agricultural

Explain How the International Trade Flows Should Initially...
Assignment #1: The International Financial Environment.
Explain how the international trade flows should initially adjust in response to the changes in inflation (holding exchange rates constant). Explain how
the international capital flows should adjust in response to the changes in interest rates (holding exchange rates constant).
International trade flows are the exchange of goods and services for money between different countries. It is referred to as sales which cross juridical
borders. Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the price levels rises, each unit
of currency buys fewer goods and services. Exchange rates between two currencies specify how ... Show more content on Helpwriting.net ...
Because the interest rates are expected to decline, I would assume the capital flows will decrease to the UK. Since the US interest rates are expected
to rise, capital flows to the US will increase. However, the inflation rates implies that the US purchase more British goods and will sells less goods to
the UK due to the changes in prices in the two countries. Since Mesa believes that capital flows are more important, they believe the pound will
depreciate in the future. Mesa believes international capital flows shift in response to changing interest rate differentials. Is there any reason why the
changing interest rate differentials in this example will not necessarily cause international capital flows to change significantly? Explain.
Because there is upward pressure on the pound some investors may anticipate an appreciation. This may discourage British investors from attempting to
capitalize on US higher interest rates. If the uncertainty about future exchange rates discourages British capital flows to US, there would be no reason
to anticipate the pound to depreciate.
Based on your answer to question 2, how would Mesa's cash flows be affected by the expected exchange rate movements? Explain.
Mesa's cash flows would be negatively affected because the pounds received by Mesa would convert to a smaller amount of dollars if the pound
weakened.
Based on your answer to question 4, should Mesa consider hedging its

Basics of Exchange Rates
BACK TO
BASICS
Why Exchange Rates?
Luis A.V. CatГЈo
OW does one determine whether a currency is fundamentally undervalued or overvalued? this question lies at the core of international economics,
many trade disputes, and the new IMF surveillance effort. George Soros had the answer once–in 1992–when he successfully bet $1 billion against the
pound sterling, in what turned out to be the beginning of a new era in large–scale currency speculation. Under assault by Soros and other speculators,
who believed that the pound was overvalued, the British currency crashed, in turn forcing the United Kingdom's dramatic exit from the european
exchange Rate Mechanism (eRM), the precursor to the common european currency, the euro, to which it never ... Show more content on Helpwriting.net
...
to do this, economists usually measure the real exchange rate in terms of a broad basket of goods. Because the price of such a basket normally takes
the form of an index number–such as the consumer price index (CPI), which includes both goods and services–the ReR is also typically expressed as
an index that can be bench–
marked to any chosen time period. Going back to the dollareuro example, if an ReR index is 1.2, the average consumer prices in europe are 20
percent higher than in the United States, relative to the chosen benchmark. Indexes don't measure absolute prices (such as the price of the Big
Mac), but changes in overall prices relative to a base year (if, say, the index is 100 in the year 2000 and 120 in 2007, average prices are 20 percent
higher than in 2000). In this case, if ReR indexes between countries don't change over time, we say that relative PPP holds. ReR indexes between
two countries can be important. the massive U.S. trade deficit with China has become a political and economic issue, and whether its roots are in a
fundamentally misaligned exchange rate is a point of contention. But, for the most part, economists and policymakers are more interested in the real
effective exchange rate (ReeR) when measuring a currency's overall alignment. the ReeR is an average of the bilateral ReRs between the country and
each of its trading partners, weighted by the respective trade shares of each partner. Being an average, a country's ReeR may be in

How Exchange Rates Cause For Your Business?
Exchange rates are very important policy that a government must decide on how to implement them. The exchange rate can effect on the economy and
the actors who participant in them, thus each actor wants a policy that will benefit themselves. If a government is not too care, with could enter a
currency crisis as witnessed in Mexico. To understand what exchange rate policy, thegovernment should enact, it should understand how the actors'
attitudes. In this paper for instance, three different actors all responded differently to the question "How many problems do exchange rates cause for
your business?" The results are, in a country that experienced appreciation tradable producers were much unhappier with the exchange rate than
non–tradable producers, exporting firms were unhappier about the exchange rate if they were located in a country with a floating exchange rate
compared to non–exporting firms, and lastly government owned firms were less likely to show unhappiness with exchange rate no matter their
industry, export–status, or country. Economic actors will want the exchange rate regime to benefit them and make them prosper, thus they will support
any policy that will favor their interest. In these cases, those policies are not appreciation for tradeable producers and not floating exchange rates for
exporting firms. To understand why each actor reacted the way it did, theories about the exchange rate can be applied. To understand the behavior of
the tradable producers

The Exchange Rate And The Balance Of Payments
Part A. The Exchange Rate and the Balance of Payments
1.Plot the dollar exchange rate since 1995. Use an appropriate benchmark to determine if the exchange rate has depreciated or appreciated since
1995. Explain why you chose such benchmark. Has the dollar depreciated or appreciated (break it up into time periods to answer this)? In Forex
Trading these four major currency pairs are the most popular ones.
1.Euro/USD –The Euro and the US dollar
2.USD/JPY – The US dollar and the Japanese Yen
3.GBP/USD– The British Pound and the US dollar
4.USD/CHF – The US dollar and the Swiss Franc.
We are using the third currency pair i.e. GBP/USD for the conduct of the study and the appreciation / Depreciation of these currencies over the ... Show
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GBP/USD: Appreciation/Depreciation over the years:
The Appreciation / Depreciation of US dollar against Britain Pound over the years from 1995 – 2014 yearly wise is presented here, the maximum
appreciation of Dollar against Pound is seen during the year 2001 i.e. GBP/USD rate was 1.4406, the dollar appreciated 6.24 % against Pound and the
dollar depreciated to the lowest value during the year 2007 i.e. GBP/USD rate was 2.0013 and the dollar depreciated by 23.50% against pound.
The Appreciation / Depreciation of US dollar against Britain Pound over the years from 1995 – 2014 is depicted below by the following Graphs:
The above Graphs shows the Year on Year appreciation / Depreciation of US dollar over British Pound, and if we divide the entire Year on Year data
into four different time Periods i.e. 1995 –2000, 2001–2005, 2006–2010, 2010–2014 we can easily analyze the Exchange Rate fluctuation of Dollar
against Pound over a period of 5 years of time by considering the closing Exchange rates of the respective currencies during the starting and the ending
of the 5 year time horizon.
From the year 1995–2000 the dollar has appreciated by 4.26% and the dollar has appreciated to a larger extent of about 20.76% during the period
2001–2005. From the year 2006–2010 dollar has witnessed an appreciation against Pound by 19.12%. By comparing it with the previous period the
dollar has depreciated by 2.61% and from the

The Australian Exchange Rate
The Australian Exchange Rate By: Dontae Smith Introduction: What factors affect the demand and supply of Australian dollars in the foreign
exchange markets? Distinguish between the possible causes and effects of currency depreciation and a currency appreciation on the Australian
economy. What forces have come into play, if any, in the past four months that have affected the value of the Australian dollar? Exchange Rate: "The
rate at which one unit of domestic currency is exchanged for a given amount of foreign currency" A BRIEF HISTORY OF THE AUSTRALIAN
DOLLAR Until 1971, the Australian dollar (AUD) was "pegged" to the British pound. This meant that the AUD rose or fell in line with the pound. In
1971, the AUD became pegged to the... Show more content on Helpwriting.net ...
The Demand for Australian Exports The demand for Australian exports varies for a variety of reasons. One reason is changes in commodity prices.
Another is the terms of trade. These two variations tend to have an immediate impact on the AUD. A rise in commodity prices and an improvement
in the terms of trade are generally expected to improve the Current Account Deficit (CAD). This will often result in an increase in the value of the
AUD because of the expectation that the CAD will improve over the short to medium term. The level of international competition and the Australian
inflation rate relative to other countries also influences the demand for Australian exports. If Australian firms are competitive in the world market
and Australia 's inflation rate remains low, it means that Australia 's exports will be cheaper to foreigners, making them more attractive to buy.
Changes in world income levels will also influence the overseas demand for Australian exports. The demand for Australia 's commodity exports in
particular is highly dependent on the levels of income of Australia 's trading partners. When the world economy is in a period of upturn, demand and
prices for Australian exports will rise. Also affecting world demand for Australian exports are simply the tastes and preferences of overseas consumers
for Australian exports. An increase in demand for Australian dollars generally causes the value of the currency to appreciate. SUPPLY The supply of

Understanding And Forecasting The Foreign Exchange Rate
In today's global economy, accuracy in forecasting the foreign exchange rate or some predic– tions of its trend is very important for any future
investment. Moreover, continuing volatility in currency values and increasing international transactions require to study and forecast cur– rency
movement and exchange rates. Forecasting the exchange rate provides opportunities for exporters and importers to make better decisions considering
costs and revenues from interna– tional operations.
Understanding and forecasting the foreign exchange rate are specially important for multi– national companies because they make important decisions
based on forecasting information. I mention some of these decisions.
1. Pricing decision: forecasting the ... Show more content on Helpwriting.net ...
In this paper, I explain some previous works that have developed fundamental models to analyze the mechanism of financial markets, especially
exchange markets. Each model has been structured base on some specifics assumptions.
The first model that I look at is the rational–expectation–efficient–market (REEM) model. This model has been used for decades to explain and study
the exchange markets. One main assumption is the rational representative which has been used in macroeconomic study and financial market analysis.
There are specific elements in this model: a) an agent uses all in– formation to forecast; b) the agent maximizes his utility in an intertemporal
framework; c) markets are efficient (De Grauwe and Grimaldi, 2006). In an efficient market, prices fully re– flect all available information and no
profit opportunities are left unexploited. Fama (1970) is one of the economist who have established the efficient market theory (hypothesis). He re–
viewed the theoretical and empirical literature on the efficient market model. He considered the empirical work concerned with adjustment of security
prices to three relevant information sets. First, he discussed weak form tests, in which the information set is historical prices. Second, he discussed
semi–strong form tests, in which the concern is whether prices efficiently adjust to the information that is publicly

Inflation Effects On Exchange Rates Essay
Chapter 4 2.Inflation Effects on Exchange Rates. Assume that the U.S. inflation rate becomes high relative to Canadian inflation. Other things being
equal, how should this affect the (a) U.S. demand for Canadian dollars, (b) supply of Canadian dollars for sale, and (c) equilibrium value of the
Canadian dollar? ANSWER: Demand for Canadian dollars should increase, supply of Canadian dollars for sale should decrease, and the Canadian
dollar's value should increase. 3.Interest Rate Effects on Exchange Rates. Assume U.S. interest rates fall relative to British interest rates. Other things
being equal, how should this affect the (a) U.S. demand for British pounds, (b) supply of pounds for sale, and (c) equilibrium value of the pound?...
Show more content on Helpwriting.net ...
A wider bid/ask spread adversely affects the U.S. firm that does business in Mexico because it increases the transactions costs associated with
conversion of dollars to pesos, or pesos to dollars. 21. Speculation. Diamond Bank expects that the Singapore dollar will depreciate against the
dollar from its spot rate of $.43 to $.42 in 60 days. The following interbank lending and borrowing rates exist: Lending RateBorrowing Rate U.S.
dollar7.0%7.2% Singapore dollar22.0%24.0% Diamond Bank considers borrowing 10 million Singapore dollars in the interbank market and investing
the funds in dollars for 60 days. Estimate the profits (or losses) that could be earned from this strategy. Should Diamond Bank pursue this strategy?
ANSWER: Borrow S$10,000,000 and convert to U.S. $: S$10,000,000 Г— $.43 = $4,300,000 Invest funds for 60 days. The rate earned in the U.S. for
60 days is: 7% Г— (60/360) = 1.17% Total amount accumulated in 60 days: $4,300,000 Г— (1 + .0117) = $4,350,310 Convert U.S. $ back to S$ in 60
days: $4,350,310/$.42 = S$10,357,881 The rate to be paid on loan is: .24 Г— (60/360) = .04 Amount owed on S$ loan is: S$10,000,000 Г— (1 + .04)
= S$10,400,000 This strategy results in a loss: S$10,357,881 – S$10,400,000 = –S$42,119 Diamond Bank should not pursue this strategy. Chapter 5
10.Speculating

The Impact of Exchange Rate Fluctuation on Macroeconomic...
THE IMPACT OF EXCHANGE RATE FLUCTUATION ON MACROECONOMIC PERFORMANCE IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
This study is designed to examine the causes of exchange rate fluctuations and their impact on the Nigerian economy since there is scarcely any
country that lives in absolute autarky in this globalised world. The economies of all the countries of the world are linked directly or indirectly through
asset or/and goods markets. This linkage is made possible through trade and facilitated by foreign exchange. The price of foreign currencies in terms of
a local currency (i.e. foreign exchange) is therefore important to the understanding of the growth trajectory of all countries of the world.
According to ... Show more content on Helpwriting.net ...
1.2STATEMENT OF THE PROBLEM
In every country of the world, exchange rate level is the paramount target of economic policy targeting. In other words, exchange rate policy should be
geared towards the attainment of long–term equilibrium rate, so as to achieve certain macro–economic objectives e.g. balance of payments equilibrium,
through proper management of the Nigerian exchange rate policy. The country started operating the floating exchange rate system in 1986 after the
introduction of SAP. It was expected that the country experience development but the reverse was the case because the country suffered consistent
hopeless development situation as her naira depreciates often against other foreign currencies, especially the dollars which was universally accepted
as the global medium of exchange. Before the floating system was introduced, $1=NO.89 but after that in 1966 we have $1=N22.05 and even today
we have $1=N150.7 .This is quite disheartening, regardless of the effort of the government of Nigeria through the activities of the regulatory body such
as the establishment of second tier foreign exchange market (SFEM) in 1986 and interbank foreign exchange market (IFEM) in 1989 and currently the
foreign exchange market (AFEM) in 1995.
The depreciation of naira over the years has caused many firms especially the import dependent firms to suffer many loses as a result of exchange rate
fluctuations. This has further led to difficulty in

Exchange Rate Essay
Introduction
Finance plays and important role in our day–to–day routine. Considering the value of money, countries and people have started investing them into
other countries and shares. Investing money in other countries is principally dependent on currency exchange rates.
Due to fluctuating nature of Foreign Exchange Rate, forecasting of currency exchange rate has become an important factor in financial sector. By
anticipating currency exchange rate investors can gain more profit into their business
The main aim behind this assignment is to forecast exchange rate of USD with the help of Data Mining which will be more reliable and process
efficient.
Problem Definition
1.1 What is the background of the research?
Many ... Show more content on Helpwriting.net ...
As it is very difficult to predict foreign exchange market several models are used to get the result accurately. Data from 2000 to 2017 are only
considered in this assignment due to large volume of data are present in real time. Dataset in this assignment consists of (Interest rate, Inflation rate
(Consumer price index), Gross domestic value, Shares etc.) which mainly influences forex rates. This process involves several process of
implementation from requirements gathering, Data collection, and development of the architecture, pre–processing of data, data analysis and evaluation.
Data Collection
Foremost step in order to start with this assignment is collection of the dataset. Forex datasets of United States Dollars–USD are used and data
assembling are explained in detail below.
The historical data of foreign currencies exchange rate of New Zealand Dollars – NZD against United State Dollars – USD are collected from http:/
/www.rbnz.govt.nz/statistics/key–graphs/key–graph–mortgage–rates.The factor that influenced the Forex rate are considered and their respective
dataset are collected individually.
Interest rate, Gross Domestic Product, Inflation rate / Consumer price index, Debt of the country, Producer price index, Share Prize and Gold prize are
the important determinants influencing Forex rate.
The rate of interest charged by the country for any financial transaction is the major factor which influences the

Essay on Currency: What is Exchange Rate?
Exchange rate represents the external value of a currency. Changes in exchange rates may affect the relative position of a country in the international
trade. Politicians and economists concern about exchange rate variability for lots of reasons, among which that the exchange rate variability
discourages trade comes first. However, a large empirical literature on this issue does not confirm a significant effect of exchange rate on the volume of
trade [1]. Instead other variables such as employment should be much more important from a practical point of view, for it is closely related to
people's livelihood.
With China's deepening Opening Up and economic restructure adjustment and the continuous appreciation of RMB in recent years, the ... Show more
The second channel points to the influence of the real effective exchange rate on the economic growth rate and on the rate of job creation in the long
run. Through the last channel, the real effective exchange rate affects employment by influencing the labor intensity of industries.
Li Tiandong and Jiang Boke (2006) point out that the relationship between exchange rate and employment depends on the coaction of three
mechanisms: (1) the effect of exchange rate changes on aggregate demand; (2) the effect of exchange rate changes on prices of capital goods; (3) the
substitution effect of exchange rate changes on the relationship between physical and human capital.[4]
1.2.2Review of empirical researches
Many other academics have attempted to do empirical studies to confirm that there is really a force that exchange rate has driving the (un–)
employment level to correspond to the changes.
Starting from the "option value of waiting" to create a job and taking the bargaining position of workers, reservation wage into account, Belk and Gros
(2002) find the link between exchange variability and employment stronger in most European countries than in the US. [4]From the industry point of
view, the impact of exchange rate movements on

The Role Of Exchange Rate Policy Essay
Title: The Role of Exchange Rate Policy
Economists use models that illustrates the relationships between economic variables to understand real world problems. Macroeconomics and
international economics can be messy if we do not think through a model. On the other hand, as stated by George Box, all models are wrong but some
of them are useful. As I understand, there are two important points in the question:
1)What forces determine the movements in the exchange rate?
2)What kind of exchange rate policy can help the U.S. to recover from the recession?
I first describe the forces behind the movements in the exchange rate through macroeconomic model. I, then, use these models to suggest an exchange
rate policy for the US economy that can help its transition from the Great Recession.
Section title: Exchange Rate and Open Economy
Exchange rate is the price of a nation's currency in terms of another currency. Basically, it is the price of some foreign currency in terms of a home
currency. Economist define the long–run as the period in which prices are flexible, and the short–run as the period in which prices are sticky. Therefore,
the forces behind the exchange rate movements should be examined both in the long run and short run. Following a standard text–book description, I
start with the long–run period.
Section title: Exchange rate in the long run
Purchasing Power Parity (PPP) Theorem to Determine Exchange Rates
Purchasing power parity theorem argues that since the law of one

Exchange Rates For Your Clients Case Study
Introduction
Exchange Rates for Your Clients
As the business consultant for this industry of promoting guidance. The following explanation of is anxiety, as to why the goods are twice as
expensive as compared the United States. First, is to explain the exchange rates and the supply and demand. Consequently, the reason, exchange rates
will increase, the need for good and services for the reducing the buying power of that nation's currency. Correspondingly, in the event, the supply of a
country's currency exchange increases, the worth of that currency will decrease in comparison to its other types of money.
International Trade
Degrees of inflation
Accelerated Rate of Financial Growth ... Show more content on Helpwriting.net ...
The loss of revenue within the nation, possible exchange modifications influence the individual and the business sectors. The buying power of the
consumer is downgraded(Oanda, 2017).
For the reason that of, if people are trying to buy and sell through the foreign exchange marketplace, preparing for the next family holiday getaway,
purchasing goods from the local market, and other products and services. Meanwhile, all levels of pricing are affected by the exporting earnings of the
country and selected branding. Therefore, capital inflows and outflow is reduced, when a nation's economy weakens, the employment position is not as
bright (Agarwal, 2009).Therefore, with the shortage of job prospects indicators and a downturn in the economy. Nevertheless, it's likely to decline of
the nation's currency exchange as the results of deteriorating hope and reduced demand from customers. If unemployment the is constantly on the rise,
the FOREX devaluation is likely of the nation's currency(Oanda, 2017).
Small Business
The recommendation of the small manufacturing business of the raw material is hedging.
Hedging is a form of the method of dealing with the exchange rate to reduce the inevitable loss of profits, in simple terms, it is an insurance policy
strategy (Shackman, 2015). Therefore, the leadership of the firm must account for the risk management hazards and develop its overall business

Factors That Determine the Currency Exchange Rates
Factors that Determine the Currency Exchange Rates
Exchange rate is often referred to as the nominal exchange rate. It is defined as the rate at which one currency can be converted, or 'exchanged ', into
another currency. For example, the pound is currently worth about 1.824 US dollars. One pound can be converted into 1.824 dollars. This is the
exchange rate between the pound and the dollar. There are four types of currencies can be operated, which are a floating, managed and fixed exchange
rate.
Lots of developed industrial nations like US ($), UK (???) and Japan (??пїҐ) operate floating exchange rates. A floating exchange rate is known as
freely floating and should be self–regulating. It is often determined by the market ... Show more content on Helpwriting.net ...
With a fixed exchange system, a country may face a persistent surplus or deficit. To deal with a persistent surplus, government can increase home
demand in order to encourage import, or raise home price to make export less competitive. To deal with a persistent deficit, government can reduce the
home demand or decrease home price to make export more competitive. If both of measures inefficient, the only way of influence the exchange rate is
to change the exchange rate. If countries with surpluses move their value of exchange rates higher, it will be revalue, if countries with deficit decrease
their value of exchange rate, it will be devaluation. And usually, exports are dearer in the condition of devaluation.
If a government is confident that a floating exchange rate system can keep a balance of payments in balance. Then it will not hold reserves of foreign
currency.
The market demand and supply for currency are the most significant determinant for influencing the exchange rate in a floated exchange rate system.
If there is an increase in demanding pounds, the equilibrium price is likely to change. For example, as it illustrated in figure 1.4(A) (B), if an
American buys a British Rover, there will be an increase in the

A Note On Chinas Fixed Exchange Rate
The topic of Chinas fixed exchange rate has remained as one of the fiercest subject in global macroeconomics for an extensive period of time. A
fixed exchange rate or pegged exchange rate is where a currency value is fixed against the value of another currency, in the example of China, the
Yuan or Renminbi it is currently pegged to the US dollar, it has been fixed to the US since 1994 however within the past decade it has been allowed
to appreciate a little at a time. But in times of economical difficulties such as 2008 'China halted the Yuan's appreciation as worldwide demand for
Chinese products slumped due to the global financial crisis' (Picardo, 2009), this shows the given Chinas recent economic difficulties government may
keep the... Show more content on Helpwriting.net ...
China is able to persuade foreign manufacturing to their coasts as the cost is so low. For example, as the dollar is stronger than the Yuan this would
means that a T–shirt can cost a company five times more to produce and manufacture in the US as compared to China. This has led international
companies to seek the cheap labour costs moving their manufacturing process to China, well known brands such as: Harley Davison. Apple, Ikea and
The Body Shop all own or have contract factories within China. These huge global companies were obviously provoked to move manufacturing to
China because of the the low costs, therefore more profit for them, this was all caused by China having in place the fixed exchange rate. Consequently,
it would seem that having the fixed exchange rate massively benefitted China.
Throughout the past decade, China has become a 'Manufacturing Powerhouse' (Eloot, 2013), low salaries plus a strong supply base, makes an
equation for ideal platform for exports, which china defiantly benefited from. In 2011 China became the worlds largest producer of manufactured
goods and still remains to be, 'Factory Asia now makes almost half the world's goods' (The Economist, 2015). This has had a positive domino effect
upon the wider economy in China, living standards have doubled and the countries GDP per captia has doubled in the last 10 years 'an achievement
that took the UK 150 years to do' (Eloot, 2013) This

Relationship Between Macroeconomic Variables And Exchange...
Introduction
Globalization and liberalization have been promoting the integration of the global economy over the past decades. While the most significant change
under this process is the increasing number of cross–border trades over the world, and it is obvious that exchange rates, as the quintessential
international financial variable, plays a vital important role in the multinational transactions. For the last 25 years, worldwide economists have been
studying the relationship between macroeconomic variables and exchange rates. One of the aims of the research is to make predictions based on the
models (or links) they have found. However, many of them failed to uncover the link and tend to think that exchange rates movements may follow a
random walk, but some of them still found some evidence that support the existence of such a link effective in the short–term and to a greater extent in
the long–term. They, therefore, constructed their exchange rate determination models and made a calendar of expected macroeconomic announcements,
and it has become a regular part of many financial Medias, such as The Economists and Financial Times. One of the most frequently discussed models
is the flexible–price monetary model, and which is also the main discussion topic of this essay.
In the following content, we will mainly focus on four aspects of the flexible–price monetary model of exchange rate determination. To begin with, we
are going to talk about the logic behind the

Exchange Rate Movements
FIN340 304
Tutorial week 3 Questions
1.How can a central bank use direct intervention to change the value of a currency? Explain why a central bank may desire to smooth exchange rate
movements of its currency.. 2. Should the governments of Asian countries allow their currencies to float freely? What would be the advantages of
letting their currencies float freely? What would be the disadvantages? 3.What is the impact of a weak home currency on the home economy, other
things being equal? What is the impact of a strong home currency on the home economy, other things being equal? 4. Assume the Hong Kong dollar
(HK$) value is tied to the U.S. dollar and will remain tied to the U.S. dollar. Last month, a HK$ = ... Show more content on Helpwriting.net ...
By minimizing the exchange rate uncertainty, foreign business of the home country is enhanced and can attract more funds as investments.
Smoothening currency movements tends to reduce fears in the financial markets and speculative activity that might lead to heavy decline in value of
the currency. However, speculation can only be expected to smooth exchange rate movements if underlying economic processes are relatively stable. If
there is a great deal of uncertainty over future government actions and their economic impact, expectations will not be strongly held. Thus expectations
can change dramatically from day– to–day, leading to rapidly fluctuating exchange rates.
2. The government of Asian country should not allow their currencies to float freely as it may leads to critical problems to the country. Free
floating currency policy may trigger speculation on currency that can bring about financial crisis. For example, the financial crisis of Asia countries
in 1997, the most famous speculator George Soros had benefited billions of money by going short of the Asian countries currency which result
collapse of the country economy. Furthermore, we take China as another example. The growth rate of China GDP is 9.30% in 2011, the main force
of the high growth GDP in China is export of good and services which mainly due to the low price or the low exchange rate of currency. Free floating
currency will bring RMB

Global Financing and Exchange Rate
Global Financing and Exchange Rate Mechanisms
March 07, 2009
Global Financing and Exchange Rate Mechanisms
Hard currencies are a currency, usually from a highly industrialized country, that is widely accepted around the world as a form of payment for
goods and services. A hard currency is expected to remain relatively stable through a short period of time, and to be highly liquid in the forex market
(Investopedia, 2009). The forex market is the largest, most liquid market in the world with an average traded value that exceeds $1.9 trillion per day
and includes all of the currencies in the world. There is no central marketplace for currency exchange; trade is conducted over the counter. The forex
market is open 24 hours a day, ... Show more content on Helpwriting.net ...
Hard pegs are defined as "In economics, a policy in which the authorities insist on some permanent, precise guarantee of the value of the local
currency to some other thing: a unit measure of gold, the US dollar, the euro, or the pound. Historically, the US dollar had a hard peg to gold from
1946 to 1971, while other currencies in the developed world had a hard peg to the US dollar. Since 1971, most of the world 's money is in floating
currency (whose relative value is set by the free market)" (Urban Dictionary). A floating currency is "A currency whose value is set by the currency
markets; money whose exchange rate relative to other currencies is determined mainly or entirely by unrestricted trading in the currency. Most
currencies are dirty float |dirty floats, which means that the government issuing them attempts to manage their traded value in some way; or else hard
peg |hard pegs, in which the value is tied to something specific. When a currency is floating, then its value may rise because the county is running a
trade surplus, or it is running a capital account surplus. Floating currencies are not fiat money, although they are often confused for each other" (Urban
Dictionary). In some cases the US dollar is considered fiat money because it is deemed "money that (a) derives its value entirely from the mandate of
the government, and (b) cannot be freely traded. Fiat money is not the same

Future Exchange Rate of South Korean Won
| South Korean Won | |
Rochester Institute of Technology Mohamed Waheed–
2/8/2013
|
Table of Contents Overview2 History of Korean Won2 Macroeconomic Conditions3
Gross Domestic Production3
Major Trading Partners4 Foreign Exchange Reserve and Current Account Surplus4
Budget deficit4
Inflation and Unemployment5
Interest Rate5
Type of Currency Regime5
Current Exchange Rate6
Purchasing Power Parity and Law of One Price6
Relative Purchasing Power Parity7
Interest Rate Parity and Fisher Effects7
Forward Exchange Rates7 Balance of Payment Approach8
Current Account Balance8
Financial Account8
Basic Balance8
Official Reserve Account8 Assets Approach9
Real Interest Rate9
Prospects ... Show more content on Helpwriting.net ...
South Korea is one of the strongest economies in the Asia. Economic growth is mainly driven by manufacturing and exports. Exports include
automobile, semiconductors, computers, steel and petrochemicals. Imports include heavy machinery, steel and oil. According to Economy Watch,
South Korea is the world 's 5th largest importer of oil, with 3 million barrels per day (4).

Major Trading Partners
Korea has very strong trade relations with major world economic powers. David, a contributor to Top Foreign Stocks reported that the biggest trading
partners of South Korea are China, followed by the European Union, United States and Japan (3). Major export markets are the European Union, United
States, China, and Japan. Foreign Exchange Reserve and Current Account Surplus
Korea is one of the few countries that has been enjoying a balance of payment surplus for a long period. The following graph based on the World
Bank data, shows current account surpluses from 2005 to 2012. According to the Bank of Korea, current account surplus for 2013 is estimated to be
around $32 billion (5). This would have a strong effect on the Korean Won. Similarly, foreign exchange reserve continued to grow, except for a
notable decline in 2008. As reported by Reuters, by the end of 2012, South Korea's total foreign exchange reserve was more than $326 billion,

Estimating Exchange Rate Volatility With Garch Models Essay
Student Number: 159006900
Estimating Exchange Rate Volatility with GARCH Models
Master of Business Analysis and Finance
2016
Department of Economics, University of Leicester
159006900
1 Introduction
?The increased importance being attached to exchange rates is a result of the globalisation of modern business, the continuing growth in world trade
relative to national economies, the trend towards economic integration and the rapid pace of change in the technology of money transfer.? (Copeland,
Laurence S. 2014). In 21th July 2005, Chinese authority announced that the exchange rate system changed, from the dollar peg to the floating basket
peg system. Recently, since the volatility in the forex market is growing, which makes there is increase concern about forecasting of exchange rate
movements. (Schnabl, 2008).
It is well–known that currencies exchange rates is difficult to forecast accurately. There are a lot of models can be used to get relatively accurate
estimating result of volatility. Using those models to research currency exchange rate volatility is necessary. A timely and accurate exchange rate
estimating can provide valuable information in various fields, such as, economy, finance and polity, which is helpful to get more effective portfolio
allocation, better foreign exchange rate investment result, more accurate assets pricing and more efficient politics administration.
In international finance filed, there are many studies focus on modelling the exchanged

Relationship Between Exchange Rate Volatility And Trade
DISSERTATION TOPIC: THE RELATIONSHIP BETWEEN EXCHANGE RATE VOLATILITY AND TRADE (US TRADE IN GOODS, TRADE IN
SERVICES AND TRADE IN GOODS AND SERVICES (1970
–2014) This research will consist of five sections as follows: SECTION 1 –
INTRODUCTION SECTION 2–THEORETICAL FRAMEWORK AND LITERATURE REVIEW 2.1 THEORETICAL BACKGROUND 2.2
EMPIRICAL EVIDENCE 2.3 CONCLUSION SECTION 3– METHODOLOGY 3.1 MODEL SPECIFICATION 3.2 DATA 3.3 EMPIRICAL
TECHNIQUES AND METHODOLOGICAL ISSUES SECTION 4– RESULTS 4.1 PRESENTATIONS AND INTERPRETATION OF EMPIRICAL
RESULTS 4.2 DISCUSSIONS SECTION 5– CONCLUSION 5.1 SUMMARY 5.2 CONCLUSIONS AND RECOMMENDATIONS CHAPTER
ONE INTRODUCTION As an American you wake up in the morning and make your self an orange juice with an orange which is grown in
Canada and watch a television program on BBC channel from the United Kingdom on a television made in Japan. You get dressed in clothes made
of cotton grown in Africa and sewn by a factory in china. You drive around the town with a BMW car that was made in Germany using a gasoline
imported from the Middle East. Everyday, Americans rely on many other countries to provide them with the goods and services they need for their
daily living. However, other countries around the world also depend on America and Americans to supply them with the goods and services they need
for their day–to–day living. This interdependence between countries and the movement of goods and service across national boundaries is referred to as

Exchange Rate Mechanisms
Exchange Rate Mechanisms Paper – Currency Hedging Exchange Rate Mechanisms Paper – Currency Hedging
Currency hedging involves deliberately taking on a new risk that offsets an existing one, thereby reducing a businesses' exposure to negative change in
exchange rates, interest rates, or commodity pricing (Economists.com, n.d.). "Currency hedging allows a business owner to greatly reduce or eliminate
the uncertainties attached to any foreign–currency transaction" (Fraser, 2001). It is impossible to predict the how much a currency will be worth on the
exact day that a company will be converting it. With hedging, the uncertainly is gone. Many companies that have international operations are constantly
juggling multiple transactions, with ... Show more content on Helpwriting.net ...
"Options are contracts that guarantee, for a fee, a worst–case exchange rate for the future purchase of one currency for another" (Wachovia). Options
are different from foreign contracts in that the buyer is not obligated to deliver the currency on the settlement date unless the option is exercised.
Currency swaps are a way for companies with recurring cash flows in a foreign currency, or a company that is seeking financial backing in a foreign
country. Lastly, in a market where forward market does not exist or is restricted, although like a forward transaction, a non–deliverable forward makes
it possible to hedge future currency exposure (Wachovia). It should be noted that this type of hedge is settled in U.S. dollars.
The text cites the case of Japan Airlines (JAL), which is one of the world's largest airlines and a huge customer of Boeing (Hill, 2003, p. 307).
Boeing aircraft are priced in U.S. dollars, and those ordering normally pay a 10% deposit. When JAL purchases aircraft from Boeing, it must
change its yen into dollars. The length of time between ordering the aircraft and taking delivery can be up to five years, and the value of the yen can
change in that time period. When placing the order, JAL has no way of knowing what the value of the yen will be against the U.S. dollar in five
years, therefore, one way of mitigating this risk was to enter into a forward exchange contract (Hill). JAL entered into

What Is The Nominal Effective Exchange Rate
2005: Using the Nominal Effective Exchange Rate (NEER), unadjusted weighted average rate or currency index at which one country's exchanges
for multiple foreign currencies. NEER is an indicator of a country's international aggressiveness in the forex market. The countries used for the
calculations of NEER are Brazil, Canada, China, France, Germany, India, Japan, Mexico, Russia, Singapore, South Africa, South Korea, Taiwan and
UK against U.S. Dollar. For 2005, relative value of NEER is 0.972903 which indicates that the index for the Dollar depreciated to its major foreign
trading countries. Furthermore, foreign export will increase because of depreciation of the Dollar while the Dollar is weak, it will increase the
demand for U.S goods.... Show more content on Helpwriting.net ...
Furthermore, foreign export will increase because of depreciation of the Dollar while the Dollar is weak, it will increase the demand for U.S
goods in foreign countries. Similarly, exports in U.S will increase whereas imports will decrease. The value of foreign currencies in basket foreign
currencies are weighted according to the value of trade with the domestic country, in this case, it is U.S. Dollar. The home currency, U.S. Dollar
means that the home currency is usually worth less than the imported currency. The purchasing power of South Korea and Japan is still strong
compared to the U.S., even though, it decreased from previous year. However, the weight percentage as well as the U.S. exports including goods
only of Canada and Mexico are higher for 2006. In 2006, we can see that the REER remained above 1 indicating a strong U.S dollar relative to its
major trading partners. The REER is calculated to be 1.09521, showing a slight increase in U.S economy and Dollar strength when compared to
the previous year. While the REER is above 1, this would make the U.S currency strong in relation to other currencies. This slight increase makes sense
because If we look at the data provided, from year 2005 to 2006, FC/$ has decreased across the board. 2007: NEER index for 2007, relative value is
0.98913, which indicates that for the Dollar depreciated, similarly to 2005 and 2006 index rate for Dollar against basket

Advantages And Disadvantages Of Mauritius Exchange Rate
Chapter 4: Research Methodology
4.0 Introduction
4.1 Model Specification
In order to determine the determinants of foreign exchange rate in Mauritius, a regression model is used using time series data. The Mauritius
Exchange Rate Index 2 (MERI2) is used as the dependent variable while inflation rate, interest rate, government debt to GDP, terms of trade and GDP
growth rate are used as independent variables in this study.
The regression model used in this study is as follows:
MERI2 пЂЅ пЃў0 пЂ« пЃў1INF пЂ« пЃў2INT пЂ« пЃў3GDTGDP пЂ« пЃў4TOT пЂ« пЃў5GDP пЂ« Ut
Where,
MERI2 is the Mauritius Exchange Rate Index 2;
INF is inflation rate;
INT is interest rate;
GDTGDP is government debt to GDP;
TOT is terms of trade;
GDP is gross domestic product; and
Ut is the error term. ... Show more content on Helpwriting.net ...
Wong (2009) found that there exists a long–run relationship between real exchange rate and terms of trade in Malaysia and Thailand and also
variation in real exchange rate is mostly explained by the movements in terms of trade. Bashir and Luqman (2014), however, concluded that terms of
trade depreciates real exchange rate of Pakistan in the long run.
4.2.6 Economic performance
The economic performance of a country has an impact on its currency exchange rate. A country with political and economic stability will attract
foreign investors and foreign capital which will lead to an appreciation of its currency while a country with political turmoil and poor economic
performance will result in a depreciation of its currency. The GDP growth rate is used as a proxy to economic performance in the regression model.
The GDP growth rate measures the rate at which an economy is growing. Chowdhury and Hossain (2014) used the GDP growth rate as an independent
variable to examine the determinants of exchange rate in Bangladesh. They found that the GDP growth rate has a positive relationship

Relationship Between Exchange Rate and Stock Market
Pir Mehr Ali Shah
University of Arid Agriculture Rawalpindi
The Relationship between Stock Prices and Exchange Rate,
Evidence from Pakistan
Usman Azhar08–arid–1606
Abid Hussain08–arid–1608
Faisal Shahzad 08–arid–1620
Usman Fazal 08–arid–1634
MBA Finance
University Institute of Management Sciences
Dedication
We would like to dedicate this accomplishment to our beloved and caring parents, and to our teachers with the support of whom we are standing at this
step of our life stairs.
Acknowledgement
All gratitude and thanks to almighty "ALLAH" the Gracious, the most Merciful and Beneficent Who gave us courage to undertake and ... Show more

The relationship between these two macroeconomic variables i.e. stock prices and exchange rates has attracted the minds of economists since they both
are very important determinants of the development of a country's economy. Volatility inexchange rate is a major cause of macroeconomic ambiguity
that affects firms. After the 1970's, the High rise in international trade and implementation of floating exchange rate establishment by many countries
led to increase exchange rate volatility. Pakistani currency Rupee was linked with the British Pound Sterling before 1970s. In 1971, Pakistan linked its
currency to the U.S. Dollar due to apparent economic development of USA. During the past ten years, Pakistan's foreign exchange system has been
moving towards a floated and market–oriented direction. Now, Pakistan is maintaining a floating exchange rate with government–managed to some
extent. Firm's exposure to exchange rate risk increased due to under these circumstances.
In the literature we identify three types of exposure under floating exchange rate system; economic, translation and transaction. Translation and
transaction exposure are accounting based and explained in terms of the book values of assets and liabilities denominate in foreign currency value.
Economic exposure is the sensitivity of company value to exchange rate fluctuation. At the corporate level, changes in

What Are The Advantages And Disadvantages Of Exchange Rate...
Definition:
Exchange rates: Price of one currency, in terms of another currency.
Example: 1.23 SGD/USD
This means that 1 USD is worth 1.23 SGD.
This can also be written as 0.813 USD/SGD.
Exchange rate regimes:
Exchange rates can have a fixed rate regime, floating regime, or managed floating regime.
Fixed Exchange rate regimes:
In this, government agrees to buy and sell unlimited amount of the currency at a fixed price. Example: Thai bhat before 1998.
This effectively fixes the price of the currency.
You cannot buy for cheaper because the seller would rather sell to government at higher price.
You cannot buy at a higher price because you can always purchase cheaper from government.
Advantages:
Certainty in pricing so promotes ... Show more content on Helpwriting.net ...
Wider the width, more free the exchange rate. Narrower the width, more fixed the exchange rate.
Effects of high exchange

Impact of Foreign Exchange Rate on Stock Market
Exchange Rate Volatility: Impact on Industry Portfolios in Indian Stock Market
K N Badhani*, Rajani Chhimwal** and Janki Suyal***
This study examines the interaction between changes in the exchange rate of Indian Rupee and returns on different BSE–based indices representing the
firms of different sizes and industries. In absolute sense, the returns on all the stock portfolios are found to be positively correlated with the external
value of Indian Rupee. However, the analysis with an extended market model of asset pricing shows that the indices of export–oriented industries are
negatively associated with change in exchange rate, after making the adjustment for market trend. Among them, IT, technology and knowledge–based
sectors show high ... Show more content on Helpwriting.net ...
Therefore, the academicians as well as the investment managers have started taking great interest in studying the interaction between stock and foreign
exchange markets, as the stock market serves as a composite indicator of the value of investments in an economy. This interaction can be examined at
different levels–at firm–level, at industry–level and at aggregate market level. The 'flow–oriented' model of Dornbusch and Fischer (1980) postulates
that a change in exchange rate affects a firm's operational exposure, its competitiveness in the international market and, consequently, its share prices.
At macro level, the impact of exchange rate fluctuations on stock market depends on the relative importance of international trade in the economy and
the nature of trade imbalances of the country. Ma and Kao (1990) find that the currency appreciation negatively affects the domestic stock market for
an export–dominant country and positively affects the domestic stock market for an import–dominant country. The portfolio balancing model
(Branson, 1983; Frankel, 1983; and Smith, 1992), on the other hand, suggests that the excessive foreign investment flow induced by booming capital
market increases the demand for local currency, which leads to appreciation of the currency. Since the pay–off of foreign investors depends on changes
in exchange rate as well as

Understanding Exchange Rates
Understanding Exchange Rates
Section I – Introduction
Section II – Definitions and Examples
Section III – Systems and History
Section IV – Government Interventions and their Effects
Section V – Effects of the Exchange Rate on International Trade Relationships
Section VI – Other Related International Trade Considerations
Section VII – Conclusion
Section I – Introduction
Understanding the relationships among world currencies is vital to successful operations in a global economy. There is money to be made by
managers who can effectively manage exchange rates in the course of their business dealings. There is money to be lost by managers who fail to
recognize the significance of these rate relationships.
In an effort to better ... Show more content on Helpwriting.net ...
If the 3–month expected rate is accurate, I can return to the exchange in three months with only 1.2 Canadian dollars and get my 1 U.S. dollar back.
That leaves me with 10 Canadian cents profit. It may not seem worthwhile to wait three months to gain 10 cents profit. Consider however, if I had 1
million U.S. dollars to invest. I could return in three months, make my trade and gain 100,000 Canadian dollars.

These rates also offer corporations opportunities for profit as they can order items expecting to pay when the exchange rate has changed in their favor.
Let's consider an American company operating in France. The company's accounting statements are kept in U.S. dollars. The company orders
equipment from a French supplier that is expected to cost 85,000 French francs. If the company pays for the equipment now, the books will indicate a
cost of 100,000 U.S. dollars. If the company waits for the equipment to arrive and pays for the equipment in three months, the cost will be over
106,000 U.S. dollars. This is known as hedging – using the expected exchange rate to increase profits or reduce losses by timing monetary exchanges.
Section II – Systems and History
This sounds a little like guesswork and gambling, but there is more to it than what appears on the surface. The exchange rates are set by government
agencies in each country. In the United States, most of us have become accustomed to waiting for word from Alan Greenspan about changes in

Foreign Exchange Rates And Hedging Options

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