Selects one foreign country/region (from American perspective) and its currency (note some countries have dollarized so do not have their own currencies) to work on the project.
(If you have interest to work on two countries and currencies, then ideally you please pick one key currency and one less popular currency. Less developed countries and regions have unique business and investment opportunities. It will be interesting and rewarding to gain knowledge of their currencies, economies, financial markets and business environment).
Please indicate information sources for each question of the project.
Short summary, bulletin points, table and chart together with brief description preferred. Do NOT copy and paste.
CurrencyRegime (16 points)
What is the currency regime of your country/region, referring to the 4 categories and 10 classifications of IMF?(6 points)
Please describe the definition and requirement of this regime, particularly what determines the rate and its change, and the responsibility of the country authorities. (10 points)
Balance of Payment (30points)
1)Find the most recent year BOP statistics: (22 points)
Current account: goods import, export and balance, service import, export, and balance, the total current account balance.
Capital account balance and financial account balance
The most recent 10-year BOP situation on current account and the combined current, capital account and financial account. (8 points)
Currency Rate and Change. (30 points)
Basic currency information – official name, abbreviation, symbol, and countries /regions using the currency. (6 points)
Exchange rate to US dollar at two time points – the beginning of last year and this year. Please provide and indicate both the direct quote and indirect rate. (8 points)
The direction and magnitude of change in exchange rate (which currency appreciated or depreciated from beginning to the end of last year, and by what percentage?) Please show formula and calculation. (10 points)
The exchange rate change in the past 10 years. (6 points)
Big Mac Index and PPP (25 points)
Use Big Mac or another identical product/service to deduce the Law of One Price exchange rate. (10 points)
What is the current actual market rate? Compare with the above implied PPP exchange rate and compute the degree to which the foreign currency is either undervalued (-%) or overvalued (+%) versus the U.S. dollar (refer to example in section 6-1). (15 points)
Relative PPP (27 points)
Find the inflation rates of US and the foreign country/region last year. (6 points)
Use information above and the information from question 3.3 to test relative purchase power parity – compare the direction and magnitude of the rate change with the inflation rate difference. (15 points)
Find the most recent real effective exchange rate index for your currency. (6 points)
Note: Relative PPP states that the rate of change in the exchange rate is equal to the differences in the rates of inflation.
Forward/Future Rate (22 points)
Find the most recent one-month or three-month forward rate (or future rate). (6 points)
Identify whether the forward/future rate is at a premium or discount to spot rate, and by how many basis points. (9 points)
What does the forward/future rate predict about the future spot rate? (7 points)
Globalization Indicator and Measurement (35 points)
Will be post separately at Discussion Board as an open forum topic on July 7th.