International Finance (FIN 00126)

Assignment 1: Concepts and Web Exercise

Length: 1500 words

Answer the following questions:

1) Define Purchasing Power Parity (PPP) theory. Based on PPP, would you expect the price of a TV to be the same in India as it is in Australia? Give reasons to justify your answer. (5 marks)

2) Collect monthly data on the spot exchange rate between the Australian Dollar and Chinese Yuan from July 2012 to June 2015. Plot the data and briefly comment on the exchange rate behaviour. (5 marks)

3) Discuss 3 factors that affect the exchange rate. (5 marks)

4) Define a currency option. Using a well-articulated example( Provide a table) show how a currency option might be used to manage currency risk. (5 marks)

Excess length and penalty

Up to 5% – No deduction

More than 5% – less than15% – 2 marks

More than 15% – less than 30% – 3 marks

More than 30% – Assignment will not be marked and graded as zero