Reference no: EM132010592
Term Project:
The goal of the project is to place you in the position of currency traders and portfolio managers. Using macroeconomic and exchange rate models taught in this course you must analyze current events in the economy and financial markets with the aim of constructing a portfolio of currencies. Economic theory can yield trading strategies for assets; your task is to link theoretical models with practical action. More precisely students should form groups of at least five. Each group will manage an imaginary amount of capital which will be invested in currencies; stock and commodity investment is also permitted. All trades should happen in the spot market. The amount of capital to be invested is one million Canadian dollars. Emphasize currency trades by trading a large number of currencies. Minimize 1 investment in Canadian stocks, focussing instead on foreign stock markets to confront currency risk linked to equity investment. Investment in Canadian equities should not exceed ten percent of the portfolio.
A report must be submitted at the end of the term describing the overall strategy and reasons for specific investments. Events that trigger key trades and portfolio shifts should also be described in the report. Stock and currency holdings must be liquidated by the end of the term and the proceeds converted back to Canadian dollars. Report any trading profits/losses in Canadian dollars. The package should be approximately 10-15 pages in length. It is possible to obtain capital gains by trading stocks and currencies at high frequency. The goal is keep informed of price movements in financial markets to ensure the best possible trades. To make the project manageable write up the reasons for trades and the results as they occur instead of waiting until the end of the course to compile results.
Every student in the group will receive the same grade. The grade will be determined by the quality of analysis rather than overall profitability. The point is to apply economic models taught in the course to predict exchange rate and stock price movements. Macroeconomics affects asset prices so the objective of the project is to use exchange rate models to construct investment portfolios. When a trade generates a loss the goal is to explain why it happened using the models. For instance, suppose the release of economic data causes depreciation of a currency you are holding with an implied Canadian dollar loss. Explain why the data caused the depreciation and why this did not conform to previously held expectations. High quality analysis will generate a high grade. A sample of the kind of analysis required is found on Blackboard with the course notes in the sample trade file.
Stock and Foreign Exchange Quotes: There are several websites useful for accessing financial quotes free of charge.
1. Exchange Rate quotes are accessed via The Bank of Canada (bankofcanada/rates/exchange/). Select the Daily Currency Converter. Select the foreign currency in the box marked "From". Select the Canadian dollar in the box marked "To" and press the box marked "Convert" to obtain the Canadian dollar price of the foreign currency.
2. Stock quotes:
2 a. Nasdaq quotes: Select "quotes" and key in the stock symbol or company name in the search box to access a quote.
b. finance yahoo website. Type the stock symbol or company name into the "search finance" box to access a quote. This can be used for NYSE stocks.
c. Toronto Stocks (Get Quotes-TMXmoney): There is a box where you can enter the company name or stock symbol to access a quote.
d. London stock quotes: londonstockexchange.com lists companies quoted on the London Stock Exchange alphabetically and provides price quotes free of charge.