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International Financial Management Assignment Sample

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Introduction - International Financial Management

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1.1 Background

The studies related to the International financial management behavior on exchange rate, that is introduces the concept of party theories and arbitrage (Kuo, 2019). The theories in the exchange rate behavior are interest rate parity (IRP), purchasing power (PPP) and International fisher effect (IFE). This chapter has made a clear case for the research's significance and its range of inquiry. Also introduce the foreign market currency conditions, exchange rate factors and government interference in the market of fore exchange.

1.2 Aim of the report

The main aim of the report is to test and expand the understanding of IRP, PPP, and IFE held in the forex market regarding the payment of AUD/USD over the past five years.

1.3 Findings

  • Summary stats
  • Correlation matrix
  • Conversion of data by extrapolation to a different frequency

2. Data and Summary Stats

The data and summaries have been presented for the monthly, quarterly and yearly nature of the data and data frequency.

2.1 Variables

The variables that have been taken for the study are monthly and quarterly exchange rate variables, Inflation rate variables and interest variables.

2.2 Sources

The sources that have been taken for the studies are the exchange rate graph of the world bank and data from Yahoo. Finance.

2.3 Summary stats

2.3.1 Summary statistics of monthly exchange rate

Summary statistics

Mean

0.713016542

Standard Error

0.005016215

Median

0.711276

Mode

#N/A

Standard Deviation

0.03475336

Sample Variance

0.001207796

Kurtosis

0.309449998

Skewness

-0.081700154

Range

0.170101

Minimum

0.616899

Maximum

0.787

Sum

34.224794

Count

48

Table 1: Monthly exchange rate

In the summary statistics report of monthly interest rate has been analyzed that the mean value is 0.713016542. Error standard value is 0.005016215 and the mean value is 0.711276. Standard deviation value is 0.03475336 and the sample variance value is 0.001207796. The total value of the sum is 34.224794. Monthly interest rate minimum and maximum value is 0.616899 and 0.787. Kurtosis and Skewness value is 0.309449998 and -0.081700154. Range 0.170101 and total interest count is 48.

2.3.2 Summary statics of quarterly exchange rate

Summary statistics

Mean

1.081044254

Standard Error

0.079696708

Median

0.732188

Mode

#N/A

Standard Deviation

0.632573012

Sample Variance

0.400148615

Kurtosis

-0.603096698

Skewness

1.171172789

Range

1.69539

Minimum

0.616899

Maximum

2.312289

Sum

68.105788

Count

63

Table 2: Quarterly exchange rate

In the summary statistics report of quarterly exchange rate has been analyzed that the Mean value is 1.081044254. Standard Error 0.079696708 and median value is 0.732188. Standard Deviation and Sample Variance value is 0.632573012 and 0.400148615. Kurtosis and Skewness value 1.171172789. The exchange rate range is 1.69539 and minimum and maximum value is 0.616899 and 2.312289. The total sum of the exchange rate is 68.105788 and total exchange rate count 63

inflation rate

Mean

0.395548387

Standard Error

0.154834893

Median

0.086129032

Mode

#N/A

Standard Deviation

0.536363803

Sample Variance

0.287686129

Kurtosis

2.067476939

Skewness

1.735271563

Range

1.596774194

Minimum

0.079032258

Maximum

1.675806452

Sum

4.746580645

Count

12

Table 3: Inflation rate

In the summary statistics report of the quarterly inflation rate of the USA, it has been analyzed that the Mean value is 0.395548387. Standard Error 0.154834893 and median value is 0.086129032 (Luka? et al. 2019). Standard Deviation and Sample Variance value is 0.536363803 and 0.287686129. Kurtosis and Skewness value 2.067476939 and 1.735271563. The inflation rate range is 1.596774194 and minimum and maximum value is 0.079032258 and 1.675806452. The total sum of the exchange rate is 4.746580645 and total exchange rate count 12.

2.4 Correlation matrix

Open

High

Low

Close

Adj Close

2018

1

2019

0.890127

1

2020

0.916791

0.932206

1

2021

0.663784

0.878135

0.850247

1

2022

0.663784

0.878135

0.850247

1

1

Table 4: Correlation matrix

The correlation of the monthly exchange rate is 0.890 and for the US interest rate it is 0.663 that has been derived from the 5 years monthly data in an allover basis.

3. Exchange Rate Behavior

3.1 key long-term trend of the spot rate

The exchange rate of spot is distinguished between AUD/USD paid over the last five years. The spot rate for an asset that is available for immediate delivery reflects current market supply and demand. The spot rate for an asset that is available for immediate delivery reflects current market supply and demand. As the fundamentals change, market participants' expectations tend to materialize more gradually in long term trends. The monthly exchange data rate in 2018 is higher than 2019. In 2019 the last four months the exchange rate is lower than 2018. In the middle of 2020 and the starting year of 2021, the exchange rate is increased. In 2022 the exchange rate value is lower than the 2021 exchange rate value.

3.2 Major intermediate trend

Major intermediate is basically a primary trend, which is interrupted by a number of countercyclical patterns. The intermediate downtrend in monthly exchange rate behavior in 2020 is falling downtrend and the exchange rate behavior in 2021 is intermediate uptrend. In 2022 the exchange rate will be down. In 2018 exchange rate value is intermediately uptrend in a 1st quarter and in 2019 1st quarter years the rate is downtrend than 2018. The quarterly value of the exchange rate is high in 2022 (Au.finance.yahoo, 2022).

3.3 Major fluctuations

Both interest rates and inflation have an impact on exchange rates. All potential shifts in the relative values of the currencies stated in the Tender, whether they occur from market factors, a formal devaluation, or a formal revaluation, these are the main major fluctuation in exchange rate behavior The interest of USA is quietly downtrend in month basis, in 2021 the value of 2021 is lower than the 2022. So, the interest rate is quite downtrend therefore the Aus. value is upended in a year basis

3.4 Economic, political, regulatory policy explanations of the exchange rate behavior

The price of one currency relative to another is known as the foreign exchange rate. The economic rates depend on the rates of every currency and the both economic countries (Riinawati. et al. 2022). The exchange varies on whether one currency can be exchanged for another is known as the exchange rate. Australia has a floating exchange rate economic policy which is developing their exchange rate system better than the USA. the regulatory policies of the USA. The rate at which one currency can be exchanged for another is known as the exchange rate.

4. Testing IRP, PPP, and IFE

4.1 Testing mechanisms/steps of IRP, PPP, and IFE

Purchasing power parity tested by the test unit root, cointegration test and many approaches towards the regression. IRP testing method is spot exchange rate multiplied by the domestic interest rate, then subtracted from the international interest rate (Mo?teanu. et al. 2019). IFE calculated by adding the ratio of the international interest rate to the domestic interest rate to the spot rate. Steps taken to test IRP, PPP and IFE is preparation, recovery and analysis detection.

4.2 Arbitrage opportunity

IRP does not contain any arbitrage condition in the market of foreign exchanges. Arbitrage trading is seen as a relatively low-risk activity (Borio, Farag, & Tarashev, 2020). The pop does not always contain the arbitrage opportunity to monitor the movements of the exchange rate.

4.4 Potential implications – MNCs, Banks, forex traders

Mncs implication might have Changes in exchange rates that have a direct effect on how relative costs and income are valued in many facets of international corporate operations in order to maintain the currency fluctuation (Narziev. et al. 2021). Due to the risks that banks are exposed to as a result of foreign exchange volatility, such as transaction risk, conversion risk, credit risk, interest rate risk, risk of inflation and decreasing the bank profitability.

Conclusion

In this report it has been concluded that fluctuation of exchange rate behaviors, their short long term intermediate and the policies. The summary stats of the exchange rate behavior in USA and Australia and conversation of data by different frequency. Testing IRP, PPP, and IFE arbitrage opportunities and their potential implication and their betrayal trades. The data and summary stats guess regarding the factors and their effects on exchange rate behavior. The inflation and interest behavior of the USA is better than Australia. In this report the researcher may face some issues such as collecting data and time related issues. The researcher will face issue in collecting reliable data in meeting the main aim of the study in a large basis.

Reference list

Borio, C. E., Farag, M., & Tarashev, N. A. (2020). Post-crisis international financial regulatory reforms: a primer.

Kuo, W. (2019). International financial management.]

Luka?, J., Fre?aková, M., Manová, E., Simonidesová, J., & Daneshjo, N. (2019). Use of Statistical Methods as an Educational Tool in the Financial Management of Enterprises in the Implementation of International Financial Reporting Standards. TEM Journal8(3), 819.

Mo?teanu, N. R. (2019). International Financial Markets face to face with Artificial Intelligence and Digital Era. Theoretical & Applied Economics26(3).

Narziev, O. (2021). The Perspectives Of The Establishment Of International Financial Centers In Uzbekistan And The Implementation Of English Law. Turkish Journal of Computer and Mathematics Education (TURCOMAT)12(4), 1104-1108.

Riinawati, R. (2022). Financial Management at Muhammadiyah Educational Institutions in Banjarmasin. Budapest International Research and Critics Institute (BIRCI-Journal): Humanities and Social Sciences5(1).

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