Sunday, May 18, 2014

International Banking and Finance Sample Assignment www.sampleassignment.com

Executive Summary
This objective of this Report is to detail the online trading and foreign exchange market. The website www.easy-forex.com.au is the platform virtual amount of AUD 20000 was used with the objective of increasing the capital. The closing balance at the end of 171 transactions conducted over a period of three weeks was 24,560.07 AUD.

The major focus of the transactions conducted was on the relationship between the Australian and the United States Dollar. It was speculated that the exchange rate of AUD/USD moved to and fro in the range of 1.02 to 1.08. Thus, a simple speculative strategy was adopted wherein Australian Dollar was bought and the United States Dollar was sold when the rate was falling close to 1.02 and Australian Dollar was sold and the United States was bought when the rate was rising and close to 1.08. This strategy helped and assisted in making profits repeatedly. This is also evident by the fact that out of the 171 transactions conducted, 157 made profit and only 15 made loss which is about 90% profit transactions. Though the duration of time covered in the report is less than 6 weeks, it has provided enough evidence for us which explains the depth of volatility of foreign exchange market. Apart from the technique explained above (which was a direct result of the experience), the website www.wasy-forex.com.au in itself is an institution and is a great source of learning the online trading.

Introduction
The main focus was given to the speculation technique where in the quick reaction upon the financial news was related to the expectations of a currency appreciating or depreciating. A major part of our total transactions dealt with AUD/USD relation which has given us the practical knowledge of stabilizing and destabilizing speculation. One could easily realize that this industry is a perfect example of a perfectly competitive market and is also one of the most dynamic as the rate fluctuates at great degrees throughout the day. The main purpose of trading on the stock exchange is to make a profit and it is all based on speculation. The trader has to be able to anticipate the reaction of the market to different factors in the environment such as political, economic and even social events. The risk is often considerable but can be greatly avoided if the trader is operating with foresight and with the correct information.
The report deals with forex trading performed on the Easy- Forex website. Foreign exchange trading takes place in two sets of dealing rates namely spot and forward exchange rates. The spot exchange rate is the quotation between two currencies for immediate delivery of funds. The forward exchange rate is the rate at which economic agents agree today to exchange currencies at a future date at a predetermined future exchange rate.

All the transactions were done on spot rates. For some transactions the settlement was done a few days later for which transaction costs were also applied. A rollover cost is the cost one pays or receives depending on his position. If one is long on a currency pair where the base currency has a higher interest rate than the counter currency then one receives interest. If one is short then one pays interest. Speculative trading was done using fundamental analysis based on economic data news. Speculators sell currencies if they feel they are overvalued and hence would depreciate or buy currencies if they fell they are undervalued and would appreciate. This technique was used fundamentally throughout the task and thus resulted in a positive outcome.

Tools Used for Online Transactions

Graphical Full Charts Station on www.wasy-forex.com.au


Fundamental Analysis
Fundamental analysis uses financial news as an important tool for covering and speculating the change in foreign exchange prevailing rates. The future price movements are anticipated by the virtue of the experience of the experts in the industry and the same is made public via the means of financial news. Individuals and organizations keep a steady record of financial news to keep themselves updated on the investment options in the foreign exchange market. Fundamental traders analyze key economic data and economic news to determine trading opportunities. The currency exchange rates are affected mainly by economic and political conditions, but sometimes the central bank intervention also affects the currency rates. Some of the key figures used are interest rates, unemployment rates, GDP growth.

AUD vs USD
All transactions were made wherein it was expected that the Australian Dollar would depreciate, hence we bought AUD and sold USD. The RBA was expected to announce the new interest rates and it was widely expected to be increased from the current 3 percent (Reuters 2011a)
However the RBA instead chose to keep the rates unchanged which resulted in a selloff for the Australian dollar, thereby indicating an increase in depreciation of its value against the US dollar (Bloomberg 2011b).A total profit of 4213.51 AUD was made on these transactions.
Also the exports had reduced by 19 percent and the current account deficit has increased compared to the previous month indicating that the AUD would depreciate further.

As per the above figure, the unchanged interest rates in Australia, coupled with a rising current account deficit due to decrease in exports, resulted in an increase in Supply of the Australian dollar in the market, causing a depreciation in its value against the US dollar.

Technical Analysis
The Technical analysis makes considerable use of the trends in the market. The speculation technique explained above is also an example of the trend in the AUD/USD exchange rate where in the current period; the exchange rate is under the bracket frame of 1.02 to 1.08. Similarly, the industry experts follow technical trends that vary over long duration of terms so as to understand and forecast the exchange rates. The experts also give recommendations to the other potential investors in the industry which is based upon their respective technical analysis.

Financial Calendar
The Financial Calendar Application was blended together with Demand Supply graphs (shown above) to forecast the change in the exchange rates and decide whether to sell Australian dollar or buy against the United States Dollar.

Trade Controller
The Trade Controller is used to control the take profit and stop loss rate. It is useful when the rats very at considerable levels and also when one cannot view the online rates due to inaccessibility to the website www.easy-forex.com.au. For example- the spectrum formed for making profits in the Australian vs United States Dollar was between 1.02 and 1.08, if the rate varied more, and then the automatic stop loss can be set so that the transaction does not close on its own and hence cause a loss.


Conclusion
The unpredictability of the foreign exchange market is evident by the transactions conducted. A lot of in hand information and access to knowledgeable tools is also required for the same. The sensitivity to the news and the speculations is high in the foreign exchange market due to this. The fundamental analysis which is the financial mews needs to be followed at any cost to stay up to the mark. Important economic data like the central bank interest rates, inflation rates, and GDP growth numbers have an immediate impact on the currency valuations. Moreover the market reactions to these data are so fast that if one were to enter a bit late in the market the effect of the news would already have taken place. The exercise was extremely using in helping us use fundamental concepts in doing Forex trading and the understanding led to the profitable figure of 24,560.07 AUD

References
Bloomberg 2011, ‘Euro Gains as European Economy Contracts Less Than Forecast’, Bloomberg, retrieved 13 May 2011, <http://www.bloomberg.com/apps/news?pid=20601083&sid=aMZhsafTnvOo >
Bloomberg 2011b, ‘Australia Keeps Key Interest Rate Unchanged to Gauge Recovery’, Bloomberg, retrieved 1 May 2011, < http://www.bloomberg.com/apps/news?pid=20601081&sid=aEVnhTCWxEvU >
Bloomberg 2011c, ‘Greenback’s Slide Against Euro May Resume: Technical Analysis’, Bloomberg, retrieved 10 May 2011,  < http://www.bloomberg.com.au/apps/news?pid=20602081&sid=ajMHkInKarGM# >
Daily MARKETS n.d., ‘Rollover:’, Daily MARKETS, retrieved 10 May 2011, < http://www.dailymarkets.com/forex/forex-basics/ >
Easy-Forex 2011, ‘Charts’, Easy-Forex, retrieved 10 May 2011, < https://secure.easy-forex.com/AU/en/EZFXCharts.aspx >
ForexRealm 2011, ‘Trend lines- forex trends’ , ForexRealm , retrieved 10 May 2011,  < http://www.forexrealm.com/technical-analysis/graphical-methods/trend-lines.html >
Pilbeam, K 2006, ‘International Finance’, Palgrave Macmillan, New York.
Reuters 2011a, ‘FOREX-Aussie steady before rate decision, yen holds ground’, Reuters, retrieved 30 April 2011, <http://www.reuters.com/article/usDollarRpt/idUST28553220090901 >
Reuters 2011b, ‘RPT-GLOBAL MARKETS-Stocks hit by Wall St, Australia GDP upbeat’, Reuters, retrieved 02 September 2009, <http://www.reuters.com/article/companyNewsAndPR/idUSSP53781120090902?pageNumber=1&virtualBrandChannel=0 >


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