Determine the yuan-euro exchange rate consistent

Assignment Help Financial Management

Reference no: EM133720087

Assignment: Financial Markets & Investments

Learning Outcomes:

1) Demonstrate a deep understanding of the role of financial markets and financial institutions;

2) Examine the financial instruments;

3) Critically evaluate what interest rates mean and why interest rates change;

4) Demonstrate understanding of bond prices and bond yields;

5) Analyze stock price changes;

6) Demonstrate understanding of foreign exchange rates and its effect on businesses.

Task

Part I

1. Assume you are an investment advisor. Your client is unsure what are the main benefits and reasons for investing in a Mutual Fund or in an index fund with an ETFs.

2. Explain the main differences and similarities between each other

3. Explain what are the main advantage and disadvantage of investing in mutual funds or ETFs versus investing in Equity Stocks.

4. Explain the difference between investing in fixed income and an ETF that follows the S&P 500.

Part II

1. What information does provide the Morningstar Style Box?

2. Morningstar assigns a Rating to each Mutual Fund. What are the criteria they use to assign this rating?

3. Use the information provided above (style box and ratings) to choose 2 different mutual funds/ETFs (3 funds/ETFs per each portfolio) to prepare 2 portfolios for 2 different types of investors:

a. Aggressive

b. Conservative

c. The total amount to invest in each portfolio is 1.000.000€.

4. In half a page for each portfolio, explain:

a. The rationale behind choosing the given funds/ETFs per each portfolio

b. The criteria chosen to build each portfolio

5. Follow up the prices for all 2 portfolios for a week. Calculate the return for each portfolio at the end of the week. Explain your results.

Part III

Calculate the NAV of the following fund, assuming 4,500 shares are outstanding. Calculate the percentage change in the NAV of the fund if stock C climbs to $50.41.

Stock	Shares owned	price
A	500	$5.74
B	6,000	$65.10
C	3,000	$12.04
Cash	n.a.	$4,368.40

1. Will the NAV increase or decrease? Why?
2. Calculate your return on your investment given the change in NAV (the change takes place in the period of one year)

Part IV

Suppose the US Dollar is currently traded at 1.16US$/€. The Chinese Yuan is traded at 0,16US$/Yuan. Ignoring transaction costs:

1. Determine the Yuan/Euro exchange rate consistent with these direct quotations.

2. Suppose the Yuan/Euro cross rate in the market was at Yuan8/EURO. Is there any arbitrage opportunity?

Reference no: EM133720087

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