International finance

RICHMOND THE AMERICAN INTERNATIONAL UNIVERSITY IN LONDON Richmond Business School

FNN 6410: International Finance

International Finance Group Assignment

Luca Brynecki, Jad Kamaleddine, Daniel Marinov

April 7, 2018

Word Count: 4987

Europe (Euro) – Daniel

Balance of payments approach

Over the last 10 years there have been different fluctuations in terms of the exchange rates between the Dollar and the Euro. It is understandable by the fact that there are many factors that may affect the fluctuations. The following is the average exchange rates of the Euro against the dollar fort the past 10 years (Gilles, 2005).

USD Million

EUR	Average
	bid	ask
2009	0.71101	0.71121
2010	0.75893	0.75917
2011	0.72291	0.72313
2012	0.77552	0.77569
2013	0.75039	0.75055
2014	0.77542	0.77560
2015	0.90774	0.90804
2016	0.90846	0.90876
2017	0.86680	0.86699
2018	0.81154	0.81173

It is clear that the higher the negative value of the United States balance of trade, the higher the exchange rate between the Euro against the Dollar. Generally, a sudden change in balance of payments can adversely affect the exchange rates and vice versa. Though, it is important to note that the fixed rate system, the balance of payment does not have an effect on the exchange rates. This can be explained in simple terms by the fact that when one wants to purchase a good in the United States yet he is in Europe it is obvious that the seller in the United States will want the goods to be paid in Dollars. This has created a demand in the US Dollar hence making the currency powerful day by day.

Oil prices are also a major factor on the effect of exchange rates between the Euro and the Dollar (Gilles, 2005). A good example can be explained by the fluctuation of the oil prices between the summer and mid January. This is because oil prices affect the terms of trade which brings about a negative terms of trade shock. There is also the issue of wealth effects, which can be explained by the fact that a negative oil price brings and gives wealth to exporters and minimizes for the importers.

Purchasing power parity

Purchasing power parity is a comparison between different countries or states through use of basket of goods approach. The theory is explained by the fact that goods are at equilibrium if the exchange rates of the two countries is exactly the same price of both countries. For example if an item is 6 Dollars in the United States it is 4.84 Euros in the United Kingdom which means that with the exchange rate of 1 Dollar for every 0.81 Euros, it is exactly the price that is being sold on both countries (Steven, 2003).

The calculation of purchasing power parity is done by:

S =P1/P2 whereby P1 represents the cost of the good in country one while P2 represents the cost of the same good in the other country. For a better comparison of the prices across all countries, it is always important that a variety of goods be used. This will be important in making sure that one comes up with global estimates of growth as well as economy.

Purchasing power parity is also the best alternative to market exchanges, because practically the Purchasing power parity of any currency is the real quantity of the currency that is needed to, but a certain product or service. Most of the times the purchasing power can be determined by the inflations rates of a certain rates as well as the cost of living in that country. These two are also the same effects that affect the exchange rates currencies of countries. Purchasing power parity also tries as much as possible to equalise and neutralise the two different currencies by making sure that it accounts for the inflation rates in that country as well as the cost of living. In relation to Big Mac, we find that the price of Big Mac in the United States is $3.54 while in the United Kingdom, is £2.91. Using the formula, we find that £2.91 = $3.61 

S =3.54/3.61

S = 0.61

This means that Purchase power parity between the United States and the United Kingdom is 0.61.

Interest rate approach

Interest rate parity is also one of the most accurate ways that determines the relationship between the interest rates and currency exchange rates. The most fundamental idea that comes with interest rate approach is the fact that the interest rate parity is the returns from the investment in the different currencies, in different countries or states should be all the same regardless of the amount and level of interest rates. There are two types of interest rates parity. First is the covered interest rate parity and second is the uncovered interest rate parity (Gilles, 2005).

Covered interest rate parity is done by first borrowing an amount in a currency with a very low interest rate. Then converting the same amount of money borrowed into a currency with a high interest rate, using an interest bearing instrument proceed to invest the high interest rate currency. Lastly, one should simultaneously hedge the exchange risks by buying a forward contract that can be used to convert the investments proceeds into the lower interest currency.

Looking at the uncovered interest rate parity (UIP), we find that it is the difference in interest rates between two countries with different currencies and the expected exchange rates of the two countries. A good example can be explained by theoretically thinking if the United States has a differential interest rate of 6% then the expected change in exchange rates will also be the same 6%.

Forward rate calculation

Forward rates also plays a very big role in the interest rate approach, because it enables predictions of future exchange rates at point in time. This is a perfect planning criterion to forecast and make present transactions if you predict that there may be a fluctuation in exchange rates (Gilles, 2005). Forward rates generally differentiate the most hard working investors and countries that focus on the future economic development. In addition, forward rates are used in the management of interest rates and as discussed interest rates have a fundamental effect on the exchange rates. The question is how does forward rate help in the management of interest rates? The main reason as to why forward rates are important in relation to interest rates is the fact that gives information to the treasurer on a fixed viewpoint in future for a specified time period. This means that it can be used to predict the future interest rates. The formula for calculating forward rates in the United States is:

Forward rate = Spot rate * (1+ interest rate of oversees country) / (1+interest rate of the domestic country)

Other factors

Inflation rates are a major source of effect in exchange of currencies, this can be depicted by the fact that a country with a lower inflation rate than another will experience a higher currency power that one that has a higher inflation rate. For example, when we look at the graph of the Euro against the Dollar, we find that in cases when there were high values for the Dollar there was relatively low inflation rates and high inflation rates at the European countries. Interest rates also play a big role in exchange rates of the Dollar and the Euro. This can be explained by the fact that an increase in interest rates has a relatively big effect in the exchange rates, which means that the exchange rates will be high as well. As a matter of fact the two are directly related and can be explained by the high interest rates that were experienced in the United States between 2015 and 2016. This increased the power of the Dollar and most countries in Europe, Africa and even Southern America felt the high exchange rates against the Dollar (Steven, 2003).

United Kingdom (GBP) – Luca

Balance of Payment Approach

The above graph demonstrates the quarter-by-quarter development of the UK’s trade deficit over a 10-year time period, starting from the fourth quarter of 2007 until the fourth quarter of 2017, in millions of GBP. The major increase in deficit from £-7.627M to £-16.333M (214.15%) between Q2 2016 and Q3 2016 respectively occurred due to the final election results voting pro-BREXIT, which caused the Great British Pound to experience a great depreciation in value, thus making imports more expensive and exports less financially valuable in an international context, when compared to goods and services that are traded in a different currency. Therefore, the UK trade’s balance, despite above-average performance prior, experienced a continuous decrease in 2016, with a slow but steady recovery period throughout the following quarters.

The above graph demonstrates the exchange rate of GBP to USD over a 10-year period. Before the economic crisis hit the global financial markets in 2008, the Great British Pound had a value of 1.9655 (May 31, 2008) against the US Dollar but then experienced a significant drop to 1.5395 (May 31,2009) over a one-year period with an all-time low of 1.4210 on March 31, 2009. This occurred primarily due to the US Dollar embodying the world’s ‘safe haven’ or ‘backup’ currency for nearly the entirety of all world countries. At this point in time, the US Dollar was not backed to tangible goods (i.e. gold) anymore and thus; the actual value was simply based on perceived value and speculations in the world’s financial markets. The economic crisis that primarily occurred due to un-backed mortgages therefore depreciated the US Dollar and simultaneously caused a decline in exchange rate from other currencies against the US Dollar. Throughout the economic recovery period commencing in 2010, the exchange rate started stabilizing again and until BREXIT in 2016, has largely remained stagnant at an average of about 1.5756 (based on monthly trade average from June 30 2009 – May 31, 2016). Upon the announcement of election results pro-BREXIT, the exchange rate experienced continuous declines up to an all-time low of 1.2342 on January 31, 2017.

The aforementioned graphs therefore dictate a directly intertwined relationship of major global world events that impact exchange rates and the fluctuations in trade deficit in an international context. In addition to this, the UK’s primary contributors to GDP are embodies by services and financial services, which accumulate to a total of 79% of economic output (UK Parliament, 2018). As financial services are composed of a large portion of intangible goods, the actual generation values are highly speculative. The announcement of Brexit therefore impacted the UK’s primary source of exports very significantly, thus shifting the balance of payments and trade statistics.

Purchasing Power Parity (PPP) Approach*

*The spot exchange rate prices are calculated based on a Big Mac Price in the United States of $3.57

The above calculation model represents the Purchasing Power Parity Approach, which is used to determine spot exchange rate, based on the Big Mac Index. In this capacity, it takes into account and compares the US Dollar to the GBP, Japanese Yen, and the Euro. In order to account for the Euro, this module has considered the price of a Big Mac in Germany. As we can see from the calculated Spot Exchange Rate, the rates in the UK and Germany are slightly higher than the actual exchange rate, while the Japanese Yen is slightly lower.

Interest Rate Approach

The above calculation accounts for the Interest Rate approach using the International Fisher Effect (IFE) in order to determine the theoretical spot exchange rate. Using current interest rates, the IFE comes up to 1.23%. To determine the Interest Approach the International Fisher Effect formula had to be calculated according to the following formula: E = ((i1-i2) / (1+i2)

· E represents the % change in the exchange rate

· “i1” represents the US interest rate

· “i2” represents the Japan interest rate

Forward Exchange Rate Calculation

To determine the Forward rate, the following formula was used for calculation purposes: Spot Rate * ((1+if) / (1+id)).

· Spot Rate: Spot Exchange Rate between the countries

· “if” represents the foreign country (United States)

· “id” represents the domestic country (Japan)

The above model represents the calculation for the forward exchange rate based on the data of January 1, 2017. In comparison, due to federal reserve adjustments to the US Dollar interest rate as a tool to battle inflation, as trends otherwise suggested to exceed the 2% target, an increase from 0.75% to 1.5% on January 1, 2018 was decided upon. Therefore, the actual exchange rate on January 1, 2018 was 0.7401 and about 0.0223 higher than expected.

Japan (Yen) – Jad

Japanese – Balance of Trade:

Japan is stated to have the 4th largest export economy in the world. The major recordings that occurred were seen in 2016 as there were $605 billion exports and $583 billion in imports. This resulted in a trade of surplus of $21.6 billion. The top exports of japan are cars ($90.3 billion), vehicle parts ($31.3 billion), Passenger and Cargo Ships ($12.2 billion). The top imports are Crude Petroleum ($50.8 billion), Petroleum Gas ($34.3 billion), and Computers ($15.5 billion). The impact of trade balance in terms of higher value of Yen had made Japanese goods and services pricy in foreign countries, thus causing consumers to buy less. This has a great advantage of the domestic buyer in Japan, as imports will be cheaper causing increases in sales. Thus, net effect will devalue the balance on trade, causing a significant decline in the economy. In terms of demand, lower import prices on inflation rate have not cause an effect. Demand can see an effect from deflation leading customers to suspend any purchases with the intention of prices getting lower.

The graph above shows a monthly observation of the trade surplus in the Japanese balance of trade. Since 1980 Japan has experienced trade surplus until 2010 as can be seen in the 10 year history (from 2008 until 2010). However in March 2011, after the Nuclear disaster that occurred in Fukushima, Japan’s trade balance experienced a swing to deficit as purchases of fossil fuels and gas had increased at the wake of a weaker Yen. Then between 2016 and 2017 the surplus had occurred again. The graph can also see a trend in the 10 years as it goes from a $-106.31M deficit in January 2008, to $-967.93M in January 2009, which means the country was importing more than it was exporting. From then on it kept changing significantly towards as there was a deficit and surplus from month to the other. In 2013, Japan logged a record $112.07 billion trade deficit in 2013, up 65.3 percent from the previous record, set in 2012” (Liljas, 2014). The bank of Japan initiated that Japan had to keep the inflation between 2 percent, hence, leading to an increase in exports for the first time in three years, however it was unsuccessful as it failed to compensate the mounting costs of imports. “Increased energy demands, following the cessation of atomic power generation in the wake of the Fukushima crisis, was noted as a major factor in driving up imports, which jumped 15 percent compared to the year before” (Liljas, 2014). However, big trend can be seen on January 1, 2014 where it hit $-2795.115M, which was one of the biggest shift in the graph as can be seen above. This record trade deficit urged by a weakened yen was exceeded by an import cost surge. “Exports rose 9.5 percent in January, Ministry of Finance (MOF) data released on Thursday showed, though growth slowed for the third straight month with the effect of the softer yen on shipments outweighed by a substantial rise in import costs” (Kajimoto and White, 2014). This was a reminder that a weak Yen is not able to enhance exports as firms in Japan were shifting abroad, while demand from foreigners demonstrate a deficiency of sufficient market uptake.

JPN/USD Exchange Rate:

The graph above examines the shift between the Japanese/ United States exchange rate over a 10 year period. Due to the financial crisis which had built up from 2007 and rocked up in 2008, the graph shows sporadic shifts in the increase of exchange rates. Thus, this correlation displayed signs of significant recession, therefore leading to an increase of inflation rates and interest rates as a method of quantitative easing that japan may have used to stabilise its economy. This allowed an appreciated 30% between 2007 until 2009. Likewise, it enabled Japanese export to fall 40% over the period, decrease of 35% in industrial production and a loss of 80% of the value in the Nikkei index (stock market index for Tokyo Stock Exchange). The next five years allowed a strong Yen, which did not change the effect on the aforementioned exports.

In 2012 an appreciated Yen caused a significant fall in exports especially towards the automotive industry. The Yen began to depreciate when Prime Minister Noda claimed that new elections will take place. This allowed investors to expect Japan to implement a more dovish monetary policy. As the months went by the Yen depreciated against the US Dollar by 17%, allowing the Nikkei index to gain 28% due to the automobile and electronics sectors.

The downward trend from 2013 onwards shows a correction period with exchange rates and stabilisation, therefore giving the assumption of lowering both effects of quantitative easing. As a result of the Bank of Japan procedures, the Yen had faced a losing streak against the USD, as a Dollar would be equivalent to 80 Yen back then, while nowadays a Dollar would buy 110 Yen.

Theoretical Spot Exchange Rate using PPP (Big Mac Index):

· The table above determines the Big Mac index of three different nations compared to the USD. These spot exchange rates are calculated in regards to the $3.57 price of Big Mac in the United States.

· The Big Mac index is a guide to determine whether different currencies are at the “precise” level. Based on the theory of Purchasing Power Parity, “the notion that global exchange rates should eventually adjust to make the price of identical baskets of tradable goods the same in each country” (The Economist, 2017).

Theoretical Spot Exchange Rate using Interest Rate Approach:

· To determine the Interest Approach the International Fisher Effect formula had to be calculated. E = ((i1-i2) / (1+i2)

· E represents the % change in the exchange rate

· “i1” represents the US interest rate

· “i2” represents the Japan interest rate

Forward Rate:

· Forward rate formula is calculated as: Spot Rate * ((1+if) / (1+id)).

· Spot Rate: Spot Exchange Rate between the countries

· “if” represents the foreign country (United States)

· “id” represents the domestic country (Japan)

Some investors attain a higher return in relation to other nations as they are provide a higher interest rate; these high returns appeal to foreign capital, in which causes an increase in exchange rate as there is a rise in demand. Thus, inflation impacts the time value of money as the value of the dollar decreases overtime. This time value of money determines the way the value of money today can be different to the value in the future. This can be seen in the table above where forward rate is examined from January 1, 2017 (Forward Rate Table) and the change in the United Sates interest rate after January 1, 2018 (Interest Rate Table). In one year as Japan’s interest rate stays the same, the US experiences an increase of %0.75 from January 1, 2018, and then another %0.25 percent later on calculating to %1.75. The decision was taken by the Central Bank as, “The US economy seems to be in somewhat of a sweet spot, with a synchronised global economy, a weaker dollar, fiscal expansion and the prospect of increased business investment all supportive of growth” (Chu, 2018).

Part V. Exchange Rate Mechanisms

In addition to the aforementioned examples of calculating exchange rates, there are a variety of additional mechanisms that can be used for the purpose of establishing the trading ratios between two (or more) currencies. One example for this includes a pegged exchange rate, which is “a hybrid of fixed and floating exchange rate regimes” (Investopedia, 2016). In this scenario, a nation decides to peg or fix their currency to another major currency (or basket of currencies), usually the US Dollar, or in the case of many African nations such as Senegal, to the Euro. The choice as to which currency to peg to is usually denominated by the most important trading partners of that nation or to a country’s external debt. Therefore, this process is usually adapted by smaller countries with weaker economies or currencies. In most cases, upon the implementation of a “pegged exchange rate, an initial target exchange rate is set and the actual exchange rate will be allowed to fluctuate in a range around that initial target rate. Also, given changes in economic fundamentals, the target exchange rate may be modified“ (Investopedia, 2016).

Another exchange rate mechanism is embodied by the managed float exchange rate, which is a free-floating currency in the foreign exchange markets however, is monitored regularly from the monetary authorities (Riley, 2011). Therefore, the actual value of the currency is determined by supply and demand for that particular currency, whilst local governments or central banks may conduct adjustments or interventions for the value to preserve macroeconomic objectives, which may include currency appreciations as well as depreciations. An example for this includes the Singapore Dollar, where between 1981 and 2001, there has been an appreciation of 20% for the currency, due to increasing international demand and is regulated by the Monetary Authority of Singapore (MAS, 2001).

In addition, the European Exchange Rate Mechanism (ERM) was first introduced by the ECC in March 1979, to “prepare for Economic and Monetary Union in Europe and the introduction for a single currency by reducing exchange rate variability and achieve monetary stability in Europe” (Eurostat, 2015). Later on, this tool was also used to establish potential memberships of nations into the European Union by assessing their risk stability and economic fluctuation rate. After the implementation of the EURO, the ERM was replaced by the ERM II in order to achieve “irrevocable and definitive fixing of exchange rates, the transfer of monetary competence to the ECB, and the introduction of the EURO as the only single currency” (EC, 2015).

Part VI: Influence of Economic/Political Events on Currency

United Kingdom – Luca

The above chart illustrates the impact of Brexit on the GBP value per one unit compared to the USD and the EUR. As shown, the value of the Great British Pound experienced a major decline on June 23, when the Brexit referendum was announced, causing the Pound to devalue by 11.22% and an additional major drop of 11.37% about 3 month later, when it was decided that no new referendum would take place and Brexit would in fact happen. Therefore, the UK’s exit out of the European Union caused a total of 22.59% devaluation on the Great British pound when compared to the Euro and US Dollar in a 3-month period. Throughout 2017, the currency started slowly appreciating again when compared to the USD due to the US purposely devaluating their currency to make exports cheaper and stimulate economic activity internally. However, the GBP continued declining against the Euro due to speculation and uncertainty of the UK’s future position with the European Union and the impact Brexit would have on trade and the exchange of goods and services with other member nations.

Japan - Jad

As demonstrated in the above graph, Fukashima earthquake was an energy accident that occurred on March 11, 2011, which commenced by a tsunami following an earthquake called Tohoku. Regarding the event that took place, it was an adverse supply shock, which showed a short-term effect on the Yen by showing depreciation. Likewise, it was presumed that investors would change their monetary assets to a foreign currency rather than the yen in order to conflict opposing returns on yen investment. “This causes a depreciation of the Yen as more Yen is required to purchase the same unit(s) of foreign assets as before the depreciation and thus there is less global demand for Yen” (The Legal Exchange, 2012). Subsequently, as the Yen depreciates, foreign currencies appreciate.

Conversely, the aforementioned assumptions were not entirely correct. As there was depreciation in the exchange rate of the Yen, it was opposed by large amount of foreign exchange assets that were apprehended in Japan. The International Monetary Fund stated that, “Japan held $1,288 trillion (USD) in foreign exchange reserves as at March 2012, second only to the People’s Republic of China which held approximately $3,236 trillion (USD) as at December 2011” (The Legal Exchange, 2012). Had the Yen experienced more depreciation, a percentage of the Bank of Japan’s foreign currency assets would have been sold in order to increase demand; by returning the movement of money to the Japanese economy, hence, appreciating the Japanese Yen. However, the Yen strangely began to appreciate at a very quick rate due to the banishment efforts from Japanese investors, in contrast with developing countries that suffered mutual natural disasters, enabling foreign currencies to depreciate in contradiction of the Yen.

US – Daniel

* Please note that due to the similarity of ask and bid price, the graphs are underlying each other, thus making one of them invisible.

In the recent years there has been a rise in the government debts in the United States, which can be closely associated with the reduced currency power. Despite that, most European countries have also been affected by the same making the effect to cut across the two countries. In addition, the United States government debt has not been adversely affected the debt to the extent that there have been inflation rates (Guzin, 1997). In European countries, the countries debts have had a direct effect on inflation rates, which have reduced the exchange rates slightly. This is the reason why the exchange rates rose by 0.2 of the Euro as compared to the Dollar in 2015 and 2016. In 2017 and 2018, the United States government debt increased which lead to a decrease in the Dollar exchange rate power in 2017 and 2018. This can be seen by the fact that it reduced by 0.1 in the 2 years. Control of inflation has a very big effect on the exchange rates because as much as the government debt can play a big role in affecting the exchange rates, inflation can become the real catalyst in making the effect real.

Conclusion (Group Summary)

UK (Luca):

In conclusion, due to Trump’s consistent attempts to depreciate the US Dollar’s value in conjunction with the recent trade affairs regarding tariffs on goods traded between the United States and China, such as on steel and aluminum, it is expected the US Dollar will continue to decline in vale. Furthermore, the Great British Pound has recently experienced increases in the per-unit exchange rate against the US Dollar. As Brexit negotiations between the United Kingdom and the European Union are starting to look more successful, it is assumed that resultantly, the GBP will continue to appreciate in value. Therefore, in the light of these events, it is herein assumed that over the next 12 months, the Great British pound will continue to experience a positive currency movement against the USD, meaning that the UK currency will become stronger than it currently is when compared to the Dollar. The accuracy of currency prediction however is very debatable, as unforeseen event such as geopolitical circumstances, demographic trends, environmental challenges (i.e. disasters), political involvement, and discovery of raw materials make the predictability of currency movements extremely difficult to evaluate. Exchange rates are highly speculative, especially in the context of international financial markets, and unless pegged systems are used that frame minimum and maximum limits of individual currency fluctuations and directly back them against other currencies, any major events may have a significant impact on otherwise forecasted levels of cross-currency exchange rates.

Euro (Daniel):

Based on the findings it is clear that one can fully predict the exchange rates through use of balance of payments approach which will give the real value of the imports against the exports which means that if the company imports more, it will have a direct effect on the currency making it stronger. More exports affect the currency because it makes the currency weaker. This means that as a country, it is important that the country invests in stabilizing the imports and exports but to try as much as possible to lean on the imports because it increases the rate at which the currency power is stronger against other currencies. Government debt brings about inflation, which in turn has an adverse effect on the exchange rates. As noted, it is clear that high inflation has a direct effect on the exchange rates because it makes the country being affected to become weaker as compared to the other currencies. This is one of the reasons as to why the United States always has a stronger currency, because it makes sure that they do not run into debts that may affect the economy and exchange rates (Steven, 2003).

Yen – Jad

For decades, the Yen has been experiencing deflation, and has been dropping compared to the Dollar since 2012 due to the Bank of Japan’s policies (BOJ). In previous years one Dollar would buy 80 Yen, at present a dollar can buy around 107 Yen. Thus, the Yen should see inflation return, as the BOJ will change the monetary policy. This will generally provide an appreciated Yen, which would show a significant upward drive of the global economy by carrying higher growth, inflation, and expenditure. BOJ has been pursuing an all-out war on deflation as they have introduced the idea to park savings in a Japanese bank; it will cost money as a way of showing negative interest rates.

This upturn will lead the BOJ to adjust their monetary polices which were put to combat deflation and raise interest rate to apply the new inflationary atmosphere. Currency will strengthen, as higher interest rates are implemented by appealing to foreign money with the expectation of higher returns. In the case of Japan, the misery of deflation throughout the years has been caused by drainage of money, which they can stop. Likewise, a recovery in Japanese domestic investing in their individual government bonds will show a decrease in outflows and help the Yen rise. Likewise, global expansion could amply thrust Japan’s inflation rates high, which would be a key for the BOJ to turn away from its policy. 

References

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Liljas, P. (2014). Japan Reports Record Trade Deficit in 2013 | TIME.com. [online] TIME.com. Available at: http://business.time.com/2014/01/27/japan-reports-record-trade-deficit-in-2013/.

Chu, B. (2018). US central bank raises interest rates to 1.75%. [online] The Independent. Available at: https://www.independent.co.uk/news/business/news/central-bank-federal-reserve-interest-rates-hike-175-a8267376.html#r3z-addoor.

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Booth, L. (2018). Components of GDP: Key Economic Indicators. [online] Researchbriefings.parliament.uk. Available at: http://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN02787 [Accessed 8 Apr. 2018].

Japan Trade Balance (in Millions $)

Trade Deficit or Surplus January 1, 2008 February 1, 2008 March 1, 2008 April 1, 2008 May 1, 2008 June 1, 2008 July 1, 2008 August 1, 2008 Sptember 1, 2008 October 1, 2008 November 1, 2008 Deceber 1, 2008 January 1, 2009 February 1, 2009 March 1, 2009 April 1, 2009 May 1, 2009 June 1, 2009 July 1, 2009 August 1, 2009 Sptember 1, 2009 October 1, 2009 November 1, 2009 Deceber 1, 2009 January 1, 2010 February 1, 2010 March 1, 2010 April 1, 2010 May 1, 2010 June 1, 2010 July 1, 2010 August 1, 2010 Sptember 1, 2010 October 1, 2010 November 1, 2010 Deceber 1, 2010 January 1, 2011 February 1, 2011 March 1, 2011 April 1, 2011 May 1, 2011 June 1, 2011 July 1, 2011 August 1, 2011 Sptember 1, 2011 October 1, 2011 November 1, 2011 Deceber 1, 2011 January 1, 2012 February 1, 2012 March 1, 2012 April 1, 2012 May 1, 2012 June 1, 2012 July 1, 2012 August 1, 2012 Sptember 1, 2012 October 1, 2012 November 1, 2012 Deceber 1, 2012 January 1, 2013 February 1, 2013 March 1, 2013 April 1, 2013 May 1, 2013 June 1, 2013 July 1, 2013 August 1, 2013 Sptember 1, 2013 October 1, 2013 November 1, 2013 Deceber 1, 2013 January 1, 2014 February 1, 2014 March 1, 2014 April 1, 2014 May 1, 2014 June 1, 2014 July 1, 2014 August 1, 2014 Sptember 1, 2014 October 1, 2014 November 1, 2014 Deceber 1, 2014 January 1, 2015 February 1, 2015 March 1, 2015 April 1, 2015 May 1, 2015 June 1, 2015 July 1, 2015 August 1, 2015 Sptember 1, 2015 October 1, 2015 November 1, 2015 Deceber 1, 2015 January 1, 2016 February 1, 2016 March 1, 2016 April 1, 2016 May 1, 2016 June 1, 2016 July 1, 2016 August 1, 2016 Sptember 1, 2016 October 1, 2016 November 1, 2016 Deceber 1, 2016 January 1, 2017 February 1, 2017 March 1, 2017 April 1, 2017 May 1, 2017 June 1, 2017 July 1, 2017 August 1, 2017 Sptember 1, 2017 October 1, 2017 November 1, 2017 Deceber 1, 2017 -106.31 935.8199999999996 1096.18 458.72 341.1 104.1 81.91 -31 4.23 90.97 -75.209999999999994 -227.5 -322.22000000000003 -967.92999999999961 70.84 -5.4 48.98 281.39 586.99 365.66 165.21 517.63 800.0599999999996 365.25 542.52 43.08 638.27 931.92999999999961 729.24 309.12 670.52 784.61 63.75 774.3099999999996 812.62 157.62 719.55 -497.15 636.98 170.93 -477.73 -860.68 64.45 69.739999999999995 -777.44999999999959 288.77 -283.01 -691.23 -208.3 -1480.67 25.89 -81.83 -518.41999999999996 -907.92999999999961 56.08 -528.5499999999995 -768.42999999999961 -568.19000000000005 -556.19000000000005 -957.04 -65.748000000000005 -1633.17 -773.32599999999957 -356.89699999999959 -877.36599999999942 -991.32099999999957 -180.52799999999999 -1032.4559999999999 -971.40800000000002 -943.24900000000002 -1100.4259999999999 -1301.0899999999999 -1307.1669999999999 -2795.1149999999998 -806.12900000000002 -1450.136 -825.52699999999959 -917.22299999999996 -834.05699999999956 -966.54 -953.21500000000003 -961.98099999999999 -741.75900000000001 -898.82099999999957 -665.58100000000002 -1160.45 -426.03500000000003 223.46199999999999 -58.341000000000001 -215.35 -60.903000000000013 -261.39100000000002 -567.54 -121.285 104.785 -387.49799999999959 138.947 -657.00400000000002 235.45699999999999 744.88699999999949 811.25900000000001 -47.339000000000013 686.471 504.52499999999992 -34.624000000000002 486.58699999999959 481.154 146.51900000000001 635.90499999999997 -1091.874 804.5259999999995 610.29499999999996 479.16699999999992 -206.416 441.42500000000001 421.9929999999996 109.491 663.98299999999949 280.685 107.113 358.72899999999959

Date

Trade Deficit or Surplus

JPN/USD Historical Exchange Rates

Historical Exchange Rates 39599 39629 39660 39691 39721 39752 39782 39813 39844 39872 39903 39933 39964 39994 40025 40056 40086 40117 40147 40178 40209 40237 40268 40298 40329 40359 40390 40421 40451 40482 40512 40543 40574 40602 40633 40663 40694 40724 40755 40786 40816 40847 40877 40908 40939 40968 40999 41029 41060 41090 41121 41152 41182 41213 41243 41274 41305 41333 41364 41394 41425 41455 41486 41517 41547 41578 41608 41639 41670 41698 41729 41759 41790 41820 41851 41882 41912 41943 41973 42004 42035 42063 42094 42124 42155 42185 42216 42247 42277 42308 42338 42369 42400 42429 42460 42490 42521 42551 42582 42613 42643 42674 42704 42735 42766 42794 42825 42855 42886 42916 42947 42978 43008 43039 43069 43100 43131 43159 43190 43195 9.5820000000000002E-3 9.3539999999999995E-3 9.3609999999999995E-3 9.1579999999999995E-3 9.3799999999999994E-3 9.9120000000000007E-3 1.0319999999999999E-2 1.0949E-2 1.1084999999999999E-2 1.0810999999999999E-2 1.0246999999999999E-2 1.0099E-2 1.0338E-2 1.0352999999999999E-2 1.0592000000000001E-2 1.0539E-2 1.0938E-2 1.1065999999999999E-2 1.1209999999999999E-2 1.1132E-2 1.0951000000000001E-2 1.1094E-2 1.1036000000000001E-2 1.0697999999999999E-2 1.0869E-2 1.0999E-2 1.1417E-2 1.1686E-2 1.1839000000000001E-2 1.2217E-2 1.2116999999999999E -2 1.2001E-2 1.2116E-2 1.2108000000000001E-2 1.2260999999999999E-2 1.2019999999999999E-2 1.2336E-2 1.243E-2 1.2598E-2 1.2975E-2 1.3022000000000001E-2 1.3056E-2 1.2888999999999999E-2 1.2855E-2 1.2992999999999999E-2 1.2756999999999999E-2 1.213E-2 1.2290000000000001E-2 1.2543E-2 1.2619999999999999E-2 1.2645999999999999E-2 1.2707E-2 1.2789E-2 1.2674E-2 1.2361E-2 1.1967E-2 1.1240999999999999E-2 1.0749E-2 1.056E-2 1.0226000000000001E-2 9.9109999999999997E-3 1.0283E-2 1.0026E-2 1.0220999999999999E-2 1.0089000000000001E-2 1.0222999999999999E-2 1.0003E-2 9.6659999999999992E-3 9.6200000000000001E-3 9.7900000000000001E-3 9.7769999999999992E-3 9.7590000000000003E-3 9.8200000000000006E-3 9.7979999999999994E-3 9.8340000000000007E-3 9.7199999999999995E-3 9.3279999999999995E-3 9.2639999999999997E-3 8.6250000000000007E-3 8.3639999999999999E-3 8.456E-3 8.4250000000000002E-3 8.3099999999999997E-3 8.3700000000000007E-3 8.2869999999999992E-3 8.0759999999999998E-3 8.1130000000000004E-3 8.1169999999999992E-3 8.3239999999999998E-3 8.3239999999999998E-3 8.1600000000000006E-3 8.2229999999999994E-3 8.4430000000000009E-3 8.7170000000000008E-3 8.8520000000000005E-3 9.11E-3 9.1979999999999996E-3 9.4820000000000008E-3 9.6310000000000007E-3 9.8790000000000006E-3 9.7949999999999999E-3 9.6469999999999993E-3 9.2250000000000006E-3 8.6169999999999997E-3 8.6899999999999998E-3 8.8599999999999998E-3 8.8520000000000005E-3 9.0799999999999995E-3 8.9110000000000005E-3 9.0209999999999995E-3 8.9029999999999995E-3 9.1079999999999998E-3 9.0360000000000006E-3 8.855E-3 8.8660000000000006E-3 8.8579999999999996E-3 9.0159999999999997E-3 9.2659999999999999E-3 9.4319999999999994E-3 9.3849999999999992E-3

Date

Historical Data

Average bid 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 *2018 0.69682999999999995 0.71101000000000003 0.75892999999999999 0.72291000000000005 0.77551999999999999 0.75039 0.77542 0.90773999999999999 0.90846000000000005 0.86680000000000001 0.81154000000000004 Average ask 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 *2018 0.69703999999999999 0.71121000000000001 0.75917000000000001 0.72313000000000005 0.77568999999999999 0.75055000000000005 0.77559999999999996 0.90803999999999996 0.90876000000000001 0.86699000000000004 0.81172999999999995

US Balance Of Trade 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 -61139 -37842 -37154 -47123 -50983 -41043 -38976 -41819 -43409 -48692 -56665

UK Trade Deficit Quarterly (in Millions of GBP)

UK Trade Deficit 10Y History 2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 -8992 -13461 -12521 -11225 -7846 -9462 -9290 -7527 -7174 -9322 -9217 -12364 -10265 -3042 -4996 -9723 -7410 -5263 -12287 -7886 -7928 -4508 -7907 -9172 -13780 -11410 -5942 -9839 -9640 -10073 -5820 -8226 -8251 -9758 -7627 -16333 -6959 -8944 -6849 -5188 -7639

Exchange Rate Fluctuation (GBP/USD)

39599 39629 39660 39691 39721 39752 39782 39813 39844 39872 39903 39933 39964 39994 40025 40056 40086 40117 40147 40178 40209 40237 40268 40298 40329 40359 40390 40421 40451 40482 40512 40543 40574 40602 40633 40663 40694 40724 40755 40786 40816 40847 40877 40908 40939 40968 40999 41029 41060 41090 41121 41152 41182 41213 41243 41274 41305 41333 41364 41394 41425 41455 41486 41517 41547 41578 41608 41639 41670 41698 41729 41759 41790 41820 41851 41882 41912 41943 41973 42004 42035 42063 42094 42124 42155 42185 42216 42247 42277 42308 42338 42369 42400 42429 42460 42490 42521 42551 42582 42613 42643 42674 42704 42735 42766 42794 42825 42855 42886 42916 42947 42978 43008 43039 43069 43100 43131 43159 43190 43193 1.9655050000000001 1.9658469999999999 1.9875860000000001 1.8957980000000001 1.798756 1.7088950000000001 1.5382910000000001 1.4887699999999999 1.4491069999999999 1.4396599999999999 1.4210050000000001 1.4697979999999999 1.539539 1.6373610000000001 1.636093 1.6542760000000001 1.6327510000000001 1.6167339999999999 1.6583349999999999 1.622309 1.6147849999999999 1.560751 1.5054449999999999 1.5330649999999999 1.470672 1.4738439999999999 1.527015 1.566479 1.5560780000000001 1.586414 1.5973949999999999 1.5594650000000001 1.5762149999999999 1.6114580000000001 1.6177569999999999 1.635696 1.635586 1.6224229999999999 1.6156550000000001 1.6365989999999999 1.580322 1.5765 1.5827709999999999 1.5594699999999999 1.5503640000000001 1.579812 1.5825290000000001 1.599075 1.594004 1.55528 1.5603659999999999 1.5710919999999999 1.6099289999999999 1.607829 1.596271 1.612576 1.598268 1.551687 1.5088410000000001 1.5307980000000001 1.5307280000000001 1.547105 1.517407 1.5494559999999999 1.5845739999999999 1.60907 1.6094710000000001 1.6371629999999999 1.6469780000000001 1.655038 1.6633309999999999 1.673308 1.68415 1.690199 1.708261 1.671179 1.630706 1.6072070000000001 1.578398 1.563439 1.5136940000000001 1.5315369999999999 1.4980290000000001 1.49353 1.5458639999999999 1.5572589999999999 1.5557259999999999 1.5586450000000001 1.533982 1.5326420000000001 1.5194000000000001 1.500284 1.441775 1.43164 1.4248149999999999 1.429959 1.452412 1.424158 1.3141430000000001 1.308846 1.3144769999999999 1.2374510000000001 1.2450000000000001 1.2480119999999999 1.234802 1.2484109999999999 1.234259 1.264146 1.2920590000000001 1.2800229999999999 1.3005139999999999 1.29565 1.3316920000000001 1.3196159999999999 1.3215840000000001 1.340408 1.381513 1.396922 1.3965019999999999 1.403662

Country CODE Currency Value Exchange Rate Spot Exchange Rate (PPP, Based on Big Mac Index)

United Kingdom USD/GBP GBP 3.19 0.71 0.89

Japan USD/JP¥ YEN 280.00 107.10 78.43

Germany USD/EUR Euro 3.79 0.81 1.06

CountryCODECurrencyValueExchange RateSpot Exchange Rate (PPP, Based on Big Mac Index)

United KingdomUSD/GBPGBP 3.190.71 0.89

JapanUSD/JP¥YEN 280.00107.10 78.43

GermanyUSD/EUREuro 3.790.81 1.06

Interest Rate UK 0.50% Interest Rate US 1.75%

International Fisher Effect 1.23%

Interest Rate UK 0.50%

Interest Rate US 1.75%

International Fisher Effect 1.23%

Id (Interest Rate Domestic Currency) 0.50% If (Interest Rate Foreign Currency) 0.75% S (Spot Exchange Rate) 0.7098

Forward Exchange Rate 0.7186725

Id (Interest Rate Domestic Currency) 0.50%

If (Interest Rate Foreign Currency) 0.75%

S (Spot Exchange Rate) 0.7098

Forward Exchange Rate 0.7186725

CountryCODECurrencyValueExchange RateSpot Exchange Rate (PPP, Based on Big Mac Index)

JapanUSD/JP¥YEN280.00107.1078.43

United KingdomUSD/GBPGBP3.190.710.89

ItalyUSD/EUREuro3.850.811.08

Interest Rate Japan-0.10%

Interest Rate US1.75%

International Fisher Effect1.85%

Interest Rate of Domestic Country (Japan)-0.10%

Interest Rate of Foreign Country (US)0.75%

Spot Exchange Rate106.89

Forward Exchange Rate107.799474