Financial Markets calculations

COURSE NAME: FINANCIAL MARKETS Task brief & rubrics

Task

This is Timed Assignment 3

· Individual task

· You should prepare an executive memo and submit a document in Word format..

· You should submit an Excel file used to perform your calculations.

Formalities:

· Cover, Table of Contents, References and Appendix are excluded of the total wordcount.

· Font: Arial 12,5 pts.

· Text alignment: Justified.

Submission: Week (13) – Via Moodle (Turnitin). Sunday 9th May.

Weight: This task is a 40% of your total grade for this subject.

It assesses the following learning outcomes:

· Demonstrate understanding of foreign exchange rates and its effects on businesses.

Assignment:

Problems:

a.- Suppose the spot exchange rate for the Hungarian forint is HUF 150. The inflation rate in the United States is 2.8 percent per year and is 3.5 percent in Hungary. What do you predict the exchange rate will be in one year? In two years? In five years? What relationship are you using?

b.- You observe that the inflation rate in the United States is 1.8 percent per year and that T-bills currently yield 2.3 percent annually. What do you estimate the inflation rate to be in:

Australia if short-term Australian government securities yield 4 percent per year?

Canada if short-term Canadian government securities yield 6 percent per year?

Taiwan if short-term Taiwanese government securities yield 9 percent per year?

c.- Tomolomo International has operations in Spain. The balance sheet for this division shows assets of 50,000 euros, debt in the amount of 30,000 euros, and equity of 20,000 euros.

1-If the current exchange ratio is 1.20 euros per dollar, what does the balance sheet look like in dollars?

2-Assume that one year from now the balance sheet in Tomolomo is exactly the same as at the beginning of the year. If the exchange rate is 1.30 euros per dollar, what does the balance sheet look like in dollars now?

3-Rework part (2) assuming the exchange rate is 1.12 euros per dollar.

d.- You observe that the inflation rate in the United States is 2 percent per year and that T-bills currently yield 2.4 percent annually. What do you estimate the inflation rate to be in:

Brazil if short-term Brazilian government securities yield 8 percent per year?

Kenia if short-term Canadian government securities yield 10 percent per year?

Andorra if short-term Andorra´s government securities yield 3 percent per year?

Rubrics

	Descriptor
9-10	The student demonstrates an excellent understanding of the concepts.
8-8.9	The student demonstrates a good understanding of the concepts.
7-7.9	The student demonstrates a fair understanding of the concepts.
6-6.9	The student demonstrates some, but insufficient understanding of the concepts.
3-5.9	The student demonstrates insufficient understanding of the concepts. They may mention some relevant ideas or concepts, although it is clear that the relationship between them is not understood by the student.
1-2.9	The student demonstrates insufficient understanding of the concepts and does not mention any relevant ideas or concepts.
0	The student leaves the question blank or cheats.