Project - A Real Life Carry Trade Strategy
This project is about constructing a real life carry trade strategy between the USD (US dollar) and a currency (country) of your choice? Detailed information and instructions are below.
Project Information:
1. You have access to USD 27.00 million or its equivalent in any other currency at today's spot rates.
2. Clearly state your starting currency at the top of the Excel file in row number 6 (see below for more details).
3. You borrow, invest, or divest. Under no circumstance should you utilize any of your personal funds in this activity.
4. Today is any day during the 7-day period of Friday, July 21 to Thursday, July 27, 2017. I will have access to nearly all the rates and figures to verify your choices during this period.
5. Your horizon is four months. Though this initial period is fixed, subsequent market conditions may prompt you to roll over your strategy beyond this period. If so, it is not of any concern to us in this project. Please do not extend the strategy beyond this period.
6. You may terminate prior to reaching the maturity date. If so, there is a penalty equal to two months of the interest amount (earned or unearned). Note: early penalty withdrawals apply to your deposit account.
7. When you reach maturity or if you terminate the strategy prior to maturity, you are expected to revert back to your initial currency/location position.
8. You need to research exchange rates and interest rates for the dates that you need for this strategy.
9. This strategy requires a good forecast of USD against the currency of your choice. Provide a reliable measure of this forecast and how you obtained it. You may resort to the theories involving parities between nations.
10. Exchange rates need to be daily. Interest rates are nominal annual rates, or whatever else you may be able to get. Your deposits due to the carry trade strategy are compounded daily, i.e., annual nominal interest rate is acceptable but compounding in your account is daily. Assume uniform 30 days per month, or 360 days per year.
11. Your interest rate on USD is 1.62+FFR (Federal Funds Rate).
12. Proper selection of the input data, accuracy, gaining access to real-time data, forecast of the currency, and execution of the strategy are very important. Whether you make a profit or encounter a loss is not the focus of this project. Loss or profit does not penalize your grade, but of course ending with a profit is better, though it cannot be guaranteed.
13. The first six lines in the carry trade sheet of the Excel file should follow the format in Table 1 below.
14. All your computations should be based on the contents of Table 1. Further, the Excel file is expected to include internal formulas for calculating any cells that appear in it. In other words, the Excel file should be self-sufficient in terms of its computations.
Table 1 - Input in rims 1 through 6, Columns A through C, of the Excel file (Carry Trade sheet) (Include your group's full names and panther IDs in columns D and E, respectively. Replace the question marks and fill in the rest of the cells in this table).
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Inputs
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Initial date: July ??, 2017
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Maturity date: January ??, 2018
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Selected currency exchange rate per each USD (Note per one USD)
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Annual nominal interest rate on selected currency in percent
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Annual nominal interest rate on USD (=) 1.62+FFR in percent
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Forecast of selected currency exchange rate per each USD (Note per one USD)
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N.A.
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Starting currency is ??
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Note: Details and instructions are very important in this project.
This project is hypothetical but its design and data are as real as it could be. Please note that currency movements, particularly cash and other liquid instruments, may be subject to governmental rules and regulations.