Details:

1. This assignment constitutes 20% of your final
2. It includes three files, this document (pdf), an excel data file and a word file for answering
   • I do point out the sources of the data in case you want to check yourself. However, the pdf and excel files include all the information needed for this
   • All the answers must be on the answering booklet: You can copy and paste plots and tables to the booklet. You can type all the answers in EXCEPT the last question: You must handwrite either on the hardcopy then scanning the whole 8-page file or using digital devices.
3. It must be finished within a group of either 1 or 2
4. Due date: Wednesday October 14^th, 2020 11:59pm through LMS.

Marking Guidelines:

1. The distribution of the marks for the two parts are:
   • Part 20 marks
   • Part 80 marks
   • Total: 100 marks
2. Penalties for late submission: In order to ensure equality for all students, the assignment must be completed within specified time limits. Each additional day beyond the due date incurs 10 marks deduction. Assignments submitted later than 10 days after the due date will not be marked and will receive no marks.
3. Your submission to the assignment include the answer booklet (PDF) and an Excel spreadsheet. The booklet should answer all the questions or show all the required results and plots. The Excel spreadsheet should provide all the calculations for the results in the written report.

4.  Plagiarism and Collusion:

Policy against plagiarism and collusion has been included in your course outline. Please see http://www.services.unimelb.edu.au/plagiarism/plagiarism.html for more information

5.  Policy against “free-riders”

Each group member will have the same marks as the mark of the assignment. However, if one student contributes nothing and the other group member states such in a formal letter, then the non-contributor will get zero mark.

Part I. PPP Study Using Specific Commodities (20 marks) All the questions and requirements are underlined with bold fonts.

1. We start with the Big Mac The original data are from The Economist’s

website: http://www.economist.com/content/big-mac-index. For this assignment, we want to look at the following regions: USA, Australia, Brazil, Canada, Hong Kong, New Zealand, Philippines, Singapore, UAE, UK. Use data from July 2020, write down the local price, market exchange rate vs. USD, PPP implied exchange rate vs. USD, and relative difference (in percentages) between the two exchange rates. (5 marks).

2. For comparison, we will also look at the same results using the iPhone. You can check 128G iPhone 11 outright prices across different regions from Apple’s website: http://www.apple.com/choose-your-country/. For the same ten regions above, write down the local prices, PPP implied exchange rate USD, and relative difference (in percentages) between the two exchange rates. (5 mark) Note: You can use the same market exchange rate as above, since Apple’s price do not change that often.

3.      Compare the results for Big Mac and iPhone and briefly discuss the differences. (10 marks)

Part II. Exchange Rates during Brexit (80 marks)

All the questions and requirements are underlined with bold fonts.

On Thursday, June 23, 2016, electorate in the United Kingdom and Gibraltar voted in the referendum on whether to Remain or Leave the European Union. Voting started at 0700 BST and finished at 2200 BST. The final result was announced at 0720 BST, June 24, 2016. We will take a look at the exchange rate movements during this period.

1. The original data is sourced from Bank of England. It includes daily data in 2016 (Jan 4 – Dec 30) covering UK Official Bank Rate (1 month), Spot and 1- month forward USD/GBP rates, and spot EUR/GBP rate. Find the daily change in spot $/£ rate: ΔSt+1=St+1 – St and the rate of change: et+1 = ΔSt+1/St.Plot the two series, ΔS and e. Report the mean, standard deviation, max and min of ΔS and e. Which one do we usually use when studying exchange rate movements and why? Also find out the dates for the max,  (15 marks)
2. We are interested in the two-week period from June 20 to July 1. Find the 1- month dollar rate over the two-week period using the official bank rate of GBP, forward rate and spot rate. Plot both the 1-month dollar rate and official 1-month pound rate, using percentage point per annum. Did the dollar rate vary a lot or not over the two-week period? Compare it with the pound rate, state the likely reason(s) of the dollar rate pattern. (10 marks)
3. You are a forex trader with a long position in GBP. In the evening of Jun 20 just before going home, you were very happy that your position just got the largest boost of the year so far. What did the market predict the GBP rate (in USD) in the future at the time? Why? (5 marks)
4. (Open Question) In the afternoon of June 22, 2016, you, as an analyst of a major investment bank, were asked to give your opinion on the status of markets and referendum, the effects of the referendum result the next day on the markets, and provide suggestions of speculative trading strategy of say 10 million USD for a major hedge fund client. What will you say? (50 marks)

• This is an open question, meaning there is no right or wrong answer. Your marks depend on your analysis, not on your conclusions.
• There is an 800-word
• Your report should include 3 parts: (1) analysis of the situation; (2) strategy and your rationale; (3) ex post evaluation.
• You do NOT need to go outside to search for additional materials and data. Using the data provided and the knowledge you learned in the class is