MBA6125 Final Assessment Task 1 - Individual Foreign Currency Valuation Analysis What You Need to Do 1. Choose a foreign currency which is a close peer of Australian currency. In this regard you can...

Australian Currency
Australian Currency
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Contents
Introduction    3
Choose a foreign currency which is a close peer of Australian currency. In this regard you can use any of the G20 countries’ currency. Discuss and access the various components and instruments of the currency, financial and money markets in the context of a firm operating globally.    3
Conduct and analysis of the chosen currency’s current market value given current global events and the recent period of high stress in world economies and markets    5
Exchange Rates    6
Reason No. 2: Sequestration    8
Dollar Trends 2016-20: Fluctuations amid Uncertainty    8
Is the selected currency performing better or worse than Australian dollar in terms of current global market conditions and future economic prospects? Discuss your answer fully and provide evidence of credible research as this is a complex problem.    9
How are current market conditions for your chosen foreign currency similar or different from the GFC, in terms of the response of stock markets and financial institutions? Discuss your answer fully and provide evidence of credible research using your technical skills from the unit.    13
What are the key measures taken by the central banks and governments to stabilise the currency right now? Which country is performing better in this regard? Elaborate your answer.    15
From your answer of part 5, what are the long-term economic and financial impacts of the measures taken by the central banks and governments of the respective countries? Critically reflect on processes and assumptions.    16
Capital investment plan including a hedging strategy for MNCs operating into these countries (ULO1 and ULO2).    19
For the conclusion, suggest regulatory measures arising from previous discussion of our problem that the respective governments of the two countries can take to better safeguard their currencies for future crises. Approximate word limit:    20
References    21
Introduction
As the world becomes more global, currency valuation becomes more important. Currency valuation becomes more important as the Federal Reserve continues its slow grind to higher interest rates. As inflation increases, currency valuation becomes more important. Basically, as long as there is fiat currency, you need to pay close attention to microeconomic power and macroeconomic power.
Choose a foreign currency which is a close peer of Australian currency. In this regard you can use any of the G20 countries’ currency. Discuss and access the various components and instruments of the currency, financial and money markets in the context of a firm operating globally.
Economic performance is central to the decision to sell or buy the dollar. A strong financial system will attract outlay from around the world with its ability to achieve perceived security and an acceptable return on savings. Investors are looking for the biggest predictable and "secure" yields, so strong capital accounts are created, especially when foreign investment increases, resulting in higher demand for the dollar (Clark and Judge, 2009). On the other hand, US consumption, which brings in imports of services and goods from the other countries, reasons the dollar to flow out of country. If there are more imports than exports, the current account will be in the red. A country with a financial system can attract the foreign capital to make up for its trade deficit. This enables the United States to maintain its role as a consumer engine that fuels the entire global economy, despite being a debtor that consumes and borrows this money.
This also enables other nations to export to U.S. as well as keep their personal economies rising. From currency trading perspective, when it come to taking a place in dollar, traders need to evaluate these various expects that influence the dollar value to determine directions and trends (Ding, 2011).
• The US dollar was the foundation of the world financial system and the reserve currency for global finance and trade.
• Like other fiat currencies, relative value of the dollar based on US financial activity or outlook.
• Additionally to technical factors and fundamentals, market sentiment moreover geopolitical risks also affect the value of the dollar in the global market (Do and Vu, 2013).
When the United States exports goods and services, consumers have to pay for the goods or services in dollars, which makes demand for dollars. Therefore, you need to convert your local currency to dollars by selling your home currency to purchase dollars to make payments (Duangploy and Helmi, 2000). Additionally, if the US government and large US companies issue bonds to increase capital and foreign investors buy them, they must also pay in dollar. This applies to the acquisition of US corporate stock from non-US investors. In this case, foreign investor would have to sell the currency and buy the dollar to buy these stocks. These instances show how United States creates demands for dollar, which puts demands on supply of dollar as well as increases dollar value as compared to currencies sold to purchase it (Jones, 2017). In addition, the US dollar is considered a secure haven during a time of global financial uncertainty; hence demand for the US dollar often persists as the performance of US financial system fluctuates.
Sentiment and Market Psychology of Dollar Value
For example, if rising unemployment weakens the US economy and slows consumption, the US faces the possibility of being sold in the form of cash refunds from the sale of stocks and bonds to return to local currency (Clark and Judge, 2009).
Technical Factors that Impact the Dollar
Traders are tasked with measuring whether the dollars supply is less or greater than demands for the dollars. To examine this, we have to pay some attention to events and news that can affect the value of the dollar (Ding, 2011). It includes the publication of several government statistics, for instance GDP data, salary data, as well as other financial data, to help examine whether an economy has strengths or weaknesses.
Central banks initially use them as a reserve, which help to influence their domestic exchange rates. Such as, selling reserve to purchase your home currency can help you rise compared to the currencies sold. Bigger investors spend in currencies to speculate, betting on price fluctuations, as well as to hold them as currency hedge. Several currencies work very well in various conditions (Do and Vu, 2013). Such as, Australia's financial system is still heavily dependent on exports of commodity, and demand increases when the financial system is strong. Therefore, the AUD is cyclical. If the financial system is strong, the AUD is usually strong. AUDs are usually sold out when there are "risk-off" episodes.
Conduct and analysis of the chosen currency’s current market value given current global events and the recent period of high stress in world economies and markets
The US dollar value is calculated in three manners: Treasury securities, exchange rates, and foreign exchange reserve. The most general technique is by exchange rate, but in reality, you have to be much familiar with the each of the three to make a knowledgeable guess about where dollar could go next.
Exchange Rates
The dollar ER compares its value to currencies of other nations. It enables you to examine how much of specific currency you can replace for dollar (Alexius and Sellin, 2012). The most famous exchange rate measurement is the U.S. Dollar Index.
Since currencies are trade on the forex market, these rates change every day. The "forex" value of a currency depends on some aspects, including: • CBIR • National debt level • Economic strength When these aspects are very strong, the currency value is also strong (Alexius and Sellin, 2012). Many nations have a floating exchange rate system, allowing forex trading to examine cost of their currency. The Federal Reserve has a lot of financial methods that can affect the appreciation of dollar (Chen, Ferreira de Alencar and Spearpoint, 2016). These methods, albeit indirectly, are a way for the government to control exchange rates.
2011: The value of the dollar against euro has fallen by 11%. Later It regained the ground. As of December 30, 2011, the euro was worth $ 1.30.
2012: By the 2012end, euro was value $ 1.32 due to the weaker dollar.
2013: The dollar has lost value beside euro as the European Union finally appears to have resolved the crisis in the euro area. By December, it was cost $ 1.38.
2014: The euro-to-dollar exchange rate fell to $ 1.22 as investors fled the euro.
2015: The euro-to-dollar exchange rate fell to a low of $ 1.05 in March before increasing to $ 1.13 in May. After the terrorist attacks in Paris in November, it fell to $ 1.05 and reached $ 1.08 at the end of the year.
The dollar is detained by foreign government in foreign exchange reserves, which is third aspect affecting its cost. They export in excess of they import or receive dollar in payments, so they are stockpiling dollars (Alexius and Sellin, 2012). Most of countries consider it better to hold the dollar in order to keep the currency value low. A few of the biggest or leading holders of the US dollar are China and Japan. When dollar strengthens, American-made products become more costly as well as less competitive than foreign-made products. This will reduce US exports and slow economic growth. Since oil is traded in dollars, it also leads to lower oil prices. Whenever the dollar rises, profit margins in its own currency are unaffected, allowing oil-producing countries to ease oil prices (Alexius and Sellin, 2012).
As a result, Saudi Arabia did not have to restrict supply as oil value fell to $ 40 a barrel in 2015. The currency value is influenced daily by the amount of goods that can be purchased with funds at a particular time. As food and gas prices rise, certain amounts of money can be purchased less than before, reducing the currency value. The dollar value can also be compared to what was previously available in the U.S. The value of the dollar today is much lower than in the past due to inflation.
Dollar Trends 2002-11: The Decline
To 2011from 2002, the dollar fell. This was exact for all three methods, for three main reasons: increased US debt, quarantine, and global diversification.
Reason No. 1: Growing U.S. Debt
Investors were concerned about rising US debt. Foreign holder of this debt is always worried that the FR will enable the dollar to devalue and US debt repayment will be less in their own currencies. The Federal Reserve's quantitative easing program monetized debt, thereby allowing the dollar to be artificially strengthened. This was done to maintain low interest rates. At the end of the program, investors became concerned that dollar could fall.
Reason No. 2: Sequestration
Debt has put demands on parliament and president to slow spending taxes or increase taxes. This may led to quarantine, limiting spending or slowing economic developmet. Investors have been dispatched to pursue higher return in other nations.
Reason No. 3: Worldwide Diversification
The increase in subsequent and debt quarantine has raised concerns among foreign investors that the dollar is not very credible and needs to diversify its portfolio with the non-dollar asset. This was added to downward pressure on dollar.
Dollar Trends 2011-16: Strengthening
Between 2011 or 2016, dollar rose. After years of depreciation, there were six espects joints to make dollar...