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Attempt any one question
Q1 Take the data of currency spot rates and forward rates from three major currencies over a period of three years on a quarterly basis in an excel worksheet. (You may use any reliable website to do this, including the one we discussed in the lecture such as http://markets.ft.com/RESEARCH/markets/DataArchiveFetchReport?Category=CU&Type=DSP&Date=01/09/2012).
a) Using this data, what can you state about a) the inflation differentials, b) interest rate differentials?
Do these figures reflect PPP and International Interest Parity?
(60 marks)
b) Do you think that the forward rate is an unbiased estimator of the spot rate?
(20 marks)
c) Calculate and interpret the forward premium or discount. (20 marks)
You should show all workings clearly, whilst reporting the figures. You do not need to use sophisticated quantitative techniques while answering (b) but are welcome to do so if you wish.
(Total: 100%)
OR
Q2 Consider any three countries currently in the news and construct an analytical discussion on what constitutes/explains their sovereign risk.
To do this you might consider what constitutes sovereign risk and discuss the factors in theory which explain it. [Note that a good discussion will need to be linked to a review of literature on sovereign risk models.] (Total: 100%)
General guidelines:
Justify your answers with reasonable explanations and analysis. Use appropriate referencing, diagrams and citations to enrich your answer.
Treat the above topics as mini dissertations. There are three dimensions which you must highlight: basic computations and discussion, use of industry information and use of journal citations. Make sure you do not cut and paste information without referencing it and citing it from legitimate sources. Analysis is paramount, thus mechanical answers are not enough.
5-49%: fail
50-60%: calculations are largely correct but theory is faulty (or vice versa) in parts
60-69%: calculations all correct, theory is correct but submission does not contain presentation, logic and journal articles to back up
Above 70%: first class. Theory, calculations, presentation and referencing
Total marks: 100% for this unit
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