FINM 7406 Individual Assignment
Due date: 11:59am on 22th October 2020 (Thursday)
Weight: this assignment is out of 20 marks and is worth 20% of your final grade
• There are 5 questions to this assignment.
a) For Qs (1) – (4): You will need to upload your assignment via the link on Blackboard. The file must be in PDF. You can submit your assignment multiple times until the due date. However, only the last submission will be marked. You would also need to submit this file through TurnItIn for plagiarism analysis (see more information below).
b) For Q1 and Q5, Please submit ONLY one Excel Spreadsheet that combines Q1 and Q5, via the Blackboard Assessment link.
1. For Q1, please use an Excel Spreadsheet to show your raw data and calculation.
2. For Q5: you need to design an Excel Spreadsheet to show all your calculations.
• Please make sure you have your full name and student number on every page of your assignment (i.e., insert a Header).
• Your PDF document should be typed in Times New Roman font, size 12. The assignment should be double spaced and have margins of 2.54 cm.
• Teaching staff will not answer any questions regarding the assignment as this gives students an unfair advantage over others. However, you may post any questions to the assignment discussion board on Blackboard and they will be answered there.
• Note that your assignment will be analysed for plagiarism using TurnItIn. Once you are satisfied with the TurnItIn similarity report for your PDF file, that copy becomes your final copy. See for instructions https://www.library.uq.edu.au/library-services/turnitinassignments (link on BB with assignment)
• Late submissions will lose marks as per the ECP.
• Please ensure you reference appropriately and correctly in each question. For example, your references for Q1 should be at the end of Q1, NOT at the end of the document.
• Please start each question on a separate page.
• In terms of word count, please use a maximum of 150 words per mark as a guide. For example, 2 marks = 300 words max)
Questions 1 to 4: International Monetary System/Balance of
Payments [14 marks in total]
In this part of the assignment, you will be investigating the cryptocurrency market and globalisation.
- Using daily close data, please plot the following two exchange rates on the same chart:
- exchange rate between VEF (Venezuelan Bolivar) and USD from 1 July 2013 to 30 June 2020; and
- exchange rate between Bitcoin (BTC) and USD from 1 July 2013 to 30 June 2020;
Indicate one specific point on each of these two lines where the trend changes, and provide some reason(s) why this is the case.
(Hint: Please clearly mark the legend and the relevant information on the axes, and provide data sources. You can use the left axis for the VEF/USD exchange rate, while using the right axis for the BTC/USD exchange rate. Please note that you should create a chart on your own rather than copying from other sources.)
- Do you agree with the statement below? Why or why not? (2 marks)
“Given the inflation in Venezuela was well above 80,000% in 2018, Venezuela should adopt a cryptocurrency such as Bitcoin as a national currency?”
- What would be the impact of the COVID-19 on the balance of payments of a country?
Please can pick ONE specific country of your choice to discuss.
- If you are hired as an advisor for the government in the country of your choice in Q3, what advice would you give to the government to deal with the positive/negative impact of the COVID-19 on the balance of payments of the country? Your advice/solutions should be tailored to the impact you discussed in Question 3. (3 marks)
Note: 2 marks will be allocated for correct grammar and clear and logical writing.
Q5 International Portfolio Theories [Total: 6 marks]
For Part 2, you only need to submit your designed spreadsheet (no other files, i.e., PDF) via Blackboard.
Using the monthly return data for Australia (A), China (C) and the France (F) between Jan 2000 and June 2020, calculate the following three items for Countries A, C and F:
- Yearly mean returns
- Yearly standard deviation of returns
- Covariance between these three countries
Please present the following table with answers in your excel spreadsheet. Please include the raw data and the formula you used in your excel spreadsheet.
- Provide an efficient frontier for these three assets (A, C and F). (3 marks)
For part (d), you are required to provide a figure showing the efficient frontier for
Countries A, C and F. [Hint: Below is an “illustrative” example of an efficient frontier
To come up with an efficient frontier, you will need to design your Excel spreadsheet to calculate the optimal portfolio weight for each of these three countries (A, C and F) to maximise the portfolio returns while achieving a range of target sigma.
[Hint: You may try any target sigma ranges from 0.13 to 0.30, and plot an incremental interval of 0.01 (i.e., 0.13, 0.14, 0.15, …, 0.29, 0.30) in your figure.]
To calculate the optimal portfolio weight, you can try to use the “solver” function in Excel. Please note that portfolio weights are not restricted to positive values only.
You must save the answer for target sigma = 0.15 as a scenario in your Excel spreadsheet for marking. For example, please save your answer for (Q5d) as “Q5d”.