Assessment 2 Stage 2 Financial markets.docx - BAFI1002...

BAFI1002 Financial Markets – Group Assignment (Stage 2)
Semester 1, 2020
Due Date:
Friday Week 12, 11:59 PM (Melbourne Time)
Weighting: 20%
Overview
Your team works for a renowned FX trading company, Xhi-Trade. The company specializes in
trading major currencies such as Australian dollar (AUD), United States dollar (USD), Japanese
Yen (JPY), Euro (EUR) and Great British Pound (GBP). The company also trades various
foreign exchange related derivatives for its clients. In addition, it provides general advice to
other clients who trade for themselves. The firm’s chief trading executive, Bill Harrison, has
requested your team’s expertise in trading foreign currencies in order to improve firm's trading
strategy and profits. You have been asked to prepare a detailed report in this regard. In your
report you must address the following questions:
Question 1 [5 marks]
You have been asked to select one of the three market views developed by your group in stage
1. Using this market view, devise a speculation strategy that enables your organisation to take
advantage of your predicted changes in the exchange rates. You should specify which currencies
you will buy or sell. As part of your strategy you must create a portfolio as of 24 th of April,
2020. This portfolio will comprise of the currency pair analysed in your market view.
Comm / Terms Bid Ask
Mid
AUD/USD 0.5741 0.5743 0.5742
AUD/EUR 0.5378 0.5381 0.5380
EUR/AUD 1.8588 1.8591 1.8590
AUD/GBP 0.4956 0.4960 0.4958
GBP/AUD 2.0169 2.0174 2.0172
AUD/JPY 63.48 63.52 63.5
EUR/USD 1.0673 1.0675 1.0674
GBP/USD 1.1580 1.1584 1.1582
USD/JPY 110.62 110.64 110.63
EUR/GBP 0.9214 0.9218 0.9216
EUR/JPY 118.05 118.10 118.08
GBP/JPY 128.09 128.14 128.12
Table 1: Exchange rates for April 24, 2020. Mid rate = (bid rate + ask rate)/2
BAFI1002 Financial Markets – Group FX Assignment (Stage 2)

Currency
Opening Position
(current)
Position in AUD
(Current)
Net Trades
(using FX
rate for 24 th _)
Net
Position
(Expected
)
Net Position
in AUD
(Expected)
Change in
Position
(AUD)
AUD 696,742,727 696,742,727
-626,281,921
70,460,806 70,460,806 -651,465,798
USD - 400,000,000 -696, 621,386 +400,000,000 0 0 696, 621,386
GBP
EUR
JPY
Net Position
(AUD)
$121,341 70,460,806 45,155,588
The senior management has allocated you 400,000,000 as the initial balance for your speculation
strategy if you are speculating on AUD, USD, EUR or GBP and 25,000,000,000 if you are
speculating on JPY. For instance, if you are speculating on AUD/EUR and decided to short the
EUR then you have been allocated 400,000,000 EURs for this purpose. The corresponding long