Part 1: Currency Watch
Track the changes in a foreign currency for the period Oct. 7 - Nov. 18 on a daily basis. You can choose a country from one of the following areas - Middle East; Asia; Africa; Latin America; North America; Europe. Each student will submit to the instructor in writing by Oct 2 the currency he/she will use for this project. No 2 students can use the same currency- therefore, first come, first served on choice of country. Using the Excel program, for the period mentioned, prepares tables showing the exchange rate movement daily (M - F), prepare a Trend Line; compute the mean and standard deviation of the trend.
Submit a written report (approx 2 pages) explaining any major disruptions in the movement of your rate, or even WHY your rate was not affected by any major/significant events that occurred in the world economy over the period studied.
Part 2: Hedging Investment
Assume you are a shoe manufacturer in the U. S., and you want to sell $1,000,000 worth of merchandise to a buyer in another country. You sign an agreement on Oct., 7, 2013 for payment on the purchase contract upon delivery of the goods at his city's port. You assume the delivery date will be Nov. 18.
Discuss 4 or 5 of the main import/export forms you would need to accomplish your transaction.
Estimate what will happen to the exchange rate between your 2 countries over the time period; however, you will need to determine how you can protect your investment from an exchange rate change detrimental to you receiving the full $1,000,000 payment in your currency. Discuss the terms of the hedge you plan to negotiate with the best information you can obtain on your currency, then discuss the results at the completion of your transaction (Nov. 18). Use whatever sources you can (WSJ; Internet; co-operating broker; your banker; library research; etc.) to accomplish your goal of protecting your investment.