Week 3 Written Assignment on Foreign Exchange

Each student has been assigned a currency to analyze.  Assigned currencies can be found in this document - Week 3 Currency Assignments.docx

Compare the exchange rate changes of your assigned currency with 1 US Dollar over the past 1 year.  Go to this site -

https://www.bloomberg.com/markets/currencies

In the left box, select “United Stated Dollar (USD)” in the drop down menu. Enter 1 in that box. 

In the right box, select your assigned currency.  Do not enter a number in the right box.  The value will populate automatically.

Next, click on “2 Day” under the left USD box.  A 2-day graph will be created.  Above the graph, change the time frame to 1Y (1 year).

Do a screen shot of the graph and copy it into a PPT.

Slide the vertical bar back and forth and stop on dates where there are extreme highs and lows in the graph (appearing visually in the graph as peaks and valleys).  Make note of those dates and the exchange rates on those dates.  Analyze why your currency rose or fell relative to the US Dollar.

The US Dollar will always remain 1 in your graph and in your analysis.  The changing numbers in the graph and in your analysis should only be your assigned currency.

Alternatively, you may create your graph at this site -

http://www.x-rates.com/

On the left, where it says "Configure Converter," leave the 1 in the top box.  In the second box, select US Dollar.  In the third box, select your assigned currency.

Click on Graphs.  At the bottom of the graph, select 1Y (I year).  Move your cursor across the graph horizontally.  Make note of dates where there are extreme highs and lows in the graph (appearing visually in the graph as peaks and valleys).  Make note of the exchange rates on those dates.  Analyze why your currency rose or fell relative to the US Dollar.

If you have done the graph correctly, as explained above, the peaks in the graph will represent your currency's depreciation, and the valleys will represent your currency's appreciation, relative to the US Dollar.  Peaks (depreciation) mean a greater amount of your currency must be given away for 1 US Dollar.  Valleys (appreciation) mean a lesser amount of your currency has to be given for a US Dollar.

(In order for you to do the assignment correctly it is critical you understand the above concept. This means if, for example, yesterday your currency was 100 per 1 USD and today your currency is 105 per 1 USD, your currency has depreciated and the USD has appreciated. This is because today at 105 - versus yesterday at 100 - more of your currency is required to buy the same 1 USD than was required yesterday. Each individual unit of your currency is worth less [depreciated] so more of it is required to purchase the 1 USD.) 

To help in your analysis, refer to the presentation - Trepp Week 3 Real Exchange Rates and Nominal Exchange Rates.pdf

That presentation can be found in Canvas under “Files” if the link does not work.

Using information in that presentation, analyze reasons for changes in your assigned currency over the past year.  The graph you create will be based on nominal exchange rates.  Try to research inflation in your assigned country, to make educated guesses about possible real exchange rates during the year. In addition to inflation, research other factors in your country that, in your opinion, may have affected currency exchange rates, especially the extreme highs and lows. 

You may also research online opinions, reports and articles by analysts, currency traders, investment professionals, and economists. Consider and evaluate others' opinions.  Offer your opinion for reasons of your currency’s exchange rate changes over the past one year, especially on those days with extreme highs and lows.  In a PowerPoint presentation, make reference to others’ opinions, and explain the basis for your opinion.

Assignment:

Create and upload a PowerPoint presentation (about 5 or 6 slides or so), that illustrates and discusses the changes in your assigned currency relative to the US Dollar over the past year.  Do not upload a separate report or write a separtate text document.  Your PPT should contain words and text under the charts, and elsewhere in the PPT discussing depreciation and appreciation of your currency on certain dates and reasons . Each student will do a presentation of their PowerPoint to the class next Tuesday, Oct. 17, at the beginning of class.