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International Finance- FIN 465 |Views: 11|Likes: 0

Published by Mohammad Shaniaz Islam

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https://www.scribd.com/doc/95436418/International-Finance-FIN-465

10/27/2013

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1

**1.1 The origin of the report:
**

This term paper is prepared for MD. Al-Mamun, Senior Lecturer, Department of Business Administration of East West University. This term paper is prepared as a partial requirement of FIN-465 (International Finance) course for the semester of spring 2012.

**1.2. Objective of the study
**

Here we have only looked at the “Currency & Variables”. So the specific objectives are To give detailed information about Inflation rate of Bangladesh, USA and other countries Relation between these variables. To focus on the correlation regression analysis between these variables. To know briefly about these variables Their performance of our country in pre 1990 and post1990 period.

1.3. Methodology

The report is based on information collected from secondary source of data, by using web sites and annual report of these four giants published. Along with that we consulted with our Hon’ able course instructor. The data collected from the some other sources too. These ares Bureau of Statistics. Financial Journals.

**1.4. Limitations of the study
**

The major limitations encountered are: Lack of experience has acted as constraints in the way of meticulous exploration on the topic. Time wasn’t enough to complete such a complicated topic. Relevant papers and documents were not available sufficiently. In many cases up to date information is not available.

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Descriptive Part

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INFLATION:

Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services; consequently inflation occurs. Inflation is also erosion in the purchasing power of money ± a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.

EXCHANGE RATE:

Exchange rates between two currencies specify how much one currency is worth in terms of the other. It is the value of a foreign nation’s currency in terms of the home nation’s currency. For example an exchange rate of 68 BDT (TK) to the United States dollar (USD, $) means that BDT68 is worth the same as USD 1.

EXPORT

Export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer". In International Trade, "exports" refers to selling goods and services produced in the home country to other markets. Any good or commodity, transported from one country to another country in a legitimate fashion, typically for use in trade. Export goods or services are provided to foreign consumers by domestic producers.

IMPORT

Import is derived from the conceptual meaning as to bring in the goods and services into the port of a country. The buyer of such goods and services is referred to an "importer" who is based in the country of import whereas the overseas based seller is referred to as an "exporter". [1] Thus an

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import is any good (e.g. a commodity) or service brought in from one country to another country in a legitimate fashion, typically for use in trade. It is a good that is brought in from another country for sale.[2] Import goods or services are provided to domestic consumers by foreign producers. An import in the receiving country is an export to the sending country.

BALANCE OF TRADE

The balance of trade (or net exports, sometimes symbolized as NX) is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports.

BALANCE OF PAYMENTS

Balance of payments (Bop) accounts are an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers. The Bop accounts summarize international transactions for a specific period, usually a year, and are prepared in a single currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items.

**FACTORS AFFECTING EXCHANGE RATES
**

Currency changes affect you, whether you are actively trading in the foreign exchange market, planning your next vacation, shopping online for goods from another country—or just buying food and staples imported from abroad. Like any commodity, the value of a currency rises and falls in response to the forces of supply and demand. Everyone needs to spend, and consumer spending directly affects the money supply (and vice versa). The supply and demand of a country’s money is reflected in its foreign exchange rate.

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When a country’s economy falters, consumer spending declines and trading sentiment for its currency turns sour, leading to a decline in that country’s currency against other currencies with stronger economies. On the other hand, a booming economy will lift the value of its currency, if there is no government intervention to restrain it. Consumer spending is influenced by a number of factors: the price of goods and services (inflation), employment, interest rates, government initiatives, and so on. Here are some economic factors you can follow to identify economic trends and their effect on currencies.

1. Interest rates

"Benchmark" interest rates from central banks influence the retail rates financial institutions charge customers to borrow money. For instance, if the economy is under-performing, central banks may lower interest rates to make it cheaper to borrow; this often boosts consumer spending, which may help expand the economy. To slow the rate of inflation in an overheated economy, central banks raise the benchmark so borrowing is more expensive. Interest rates are of particular concern to investors seeking a balance between yield returns and safety of funds. When interest rates go up, so do yields for assets denominated in that currency; this leads to increased demand by investors and causes an increase in the value of the currency in question. If interest rates go down, this may lead to a flight from that currency to another.

2. Employment outlook

Employment levels have an immediate impact on economic growth. As unemployment increases, consumer spending falls because jobless workers have less money to spend on nonessentials. Those still employed worry for the future and also tend to reduce spending and save more of their income. An increase in unemployment signals a slowdown in the economy and possible devaluation of a country's currency because of declining confidence and lower demand. If demand continues to decline, the currency supply builds and further exchange rate depreciation is likely. One of the

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most anticipated employment reports is the U.S. Non-Farm Payroll (NFP), a reliable indicator of U.S. employment issued the first Friday of every month.

**3. Economic growth expectations
**

To meet the needs of a growing population, an economy must expand. However, if growth occurs too rapidly, price increases will outpace wage advances so that even if workers earn more on average, their actual buying power decreases. Most countries target economic growth at a rate of about 2% per year. With higher growth comes higher inflation, and in this situation central banks typically raise interest rates to increase the cost of borrowing in an attempt to slow spending within the economy. A change in interest rates may signal a change in currency rates. Deflation is the opposite of inflation; it occurs during times of recession and is a sign of economic stagnation. Central banks often lower interest rates to boost consumer spending in hopes of reversing this trend.

4. Trade balance

A country's balance of trade is the total value of its exports, minus the total value of its imports. If this number is positive, the country is said to have a favorable balance of trade. If the difference is negative, the country has a trade gap, or trade deficit. Trade balance impacts supply and demand for a currency. When a country has a trade surplus, demand for its currency increases because foreign buyers must exchange more of their home currency in order to buy its goods. A trade deficit, on the other hand, increases the supply of a country’s currency and could lead to devaluation if supply greatly exceeds demand.

**5. Central bank actions
**

With interest rates in several major economies already very low (and set to stay that way for the time being), central bank and government officials are now resorting to other, less commonly used measures to directly intervene in the market and influence economic growth. For example, quantitative easing is being used to increase the money supply within an economy. It involves the purchase of government bonds and other assets from financial institutions to provide the banking system with additional liquidity.

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Analytical Part

8

USA

Regression:

Model Summary Model R

a

R Square

Adjusted R Square

Std. Error of the Estimate .115192823

1

.373

.139

.061

a. Predictors: (Constant), D, T, DT

ANOVA Model 1 Regression Residual Total Sum of Squares .071 .438 .509 df 3 33 36

b

Mean Square .024 .013

F 1.781

Sig. .170

a

a. Predictors: (Constant), D, T, DT b. Dependent Variable: CUSD

Coefficients Model Unstandardized Coefficients

a

Standardized Coefficients

T

Sig.

B 1 (Constant) DT T D .153 .496 -.006 .009

Std. Error .046 1.356 .004 .089

Beta 3.367 .132 -.510 .039 .366 -1.457 .103 .002 .717 .155 .919

a. Dependent Variable: CUSD

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T-Test:

One-Sample Statistics N CUSD_1973_1990 CUSD_1991_2008 18 18 Mean .10002129 .03398346 Std. Deviation .163143186 .028088581 Std. Error Mean .038453218 .006620542

One-Sample Test Test Value = 0 95% Confidence Interval of the Difference t CUSD_1973_1990 CUSD_1991_2008 2.601 5.133 df 17 17 Sig. (2-tailed) .019 .000 Mean Difference .100021293 .033983461 Lower .01889210 .02001534 Upper .18115049 .04795158

0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 -0.1 0 -0.2 -0.3 5 10 15 20 25 30 35 40 int_dif CUSD

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Interpretation

The mean difference of the year from 1973 to 1990 is about .01889210 (lower) and .18115049 (Upper) at 95% confidence Interval and the significance level is .019. And mean difference of the year from 1991 to 2008 is about .02001534(lower) and .04795158 (Upper) and the significance level is .000 which is much more lower than the year from 1973 to 1990. So we can say that the Dollar value has Appriciated more at the previous time than the recent time. And the value of Taka depriciated from 1991 to 2008 at a lower pace.

United Kingdom

Regression:

Model Summary Model R

a

R Square

Adjusted R Square

Std. Error of the Estimate

1

.249

.062

-.023 a. Predictors: (Constant), DT, T, D

.116557443

ANOVA Model 1 Regression Residual Total Sum of Squares .030 .448 .478 df 3 33 36

b

Mean Square .010 .014

F .726

Sig. .544

a

a. Predictors: (Constant), DT, T, D b. Dependent Variable: CUKP

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Coefficients Model Unstandardized Coefficients

a

Standardized Coefficients

t

Sig.

B 1 (Constant) T D DT .106 -.003 -.055 .002

Std. Error .057 .005 .151 .007

Beta 1.845 -.241 -.243 .226 -.484 -.367 .246 .074 .631 .716 .807

a. Dependent Variable: CUKP

T-Test:

One-Sample Statistics N CUKP_1973_1990 CUKP_1991_2008 18 18 Mean .08141338 .03078281 Std. Deviation .140094138 .082666248 Std. Error Mean .033020505 .019484622

One-Sample Test Test Value = 0 95% Confidence Interval of the Difference t df Sig. (2tailed) CUKP_1973_19 90 CUKP_1991_20 08 1.580 17 .133 .030782814 -.01032614 .07189177 2.466 17 .025 Mean Difference .081413384 .01174621 .15108056 Lower Upper

12

Interpretation

The mean difference of the year from 1973 to 1990 is about .01174621 (lower) and .15108056 (Upper) at 95% confidence interval, and the significance level is .025. And the mean difference of the year from 1991 to 2008 is about -.01032614 (lower) and .07189177 (Upper) and the significance level is .133 which is much lower than the year from 1973 to 1990. So we can say that the Pound value has appreciated more at the previous time than the recent time, and another thing we can see that the value of Pound has depreciated in the recent time. The value of Taka was very strong against Pound from 1991 to 2008.

INDIA

Regression:

Model Summary Model R

a

R Square

Adjusted R Square

Std. Error of the Estimate

1

.656

.431

.324 a. Predictors: (Constant), DT, T, D

.069246346

ANOVA Model 1 Regression Residual Total Sum of Squares .058 .077 .135 df 3 16 19

b

Mean Square .019 .005

F 4.032

Sig. .026

a

a. Predictors: (Constant), DT, T, D b. Dependent Variable: CIND_Rup

13

Coefficients Model Unstandardized Coefficients

a

Standardized Coefficients

t

Sig.

B 1 (Constant) T D DT -.138 .016 .295 -.024

Std. Error .045 .007 .152 .011

Beta -3.071 1.147 1.788 -2.402 2.472 1.945 -2.178 .007 .025 .070 .045

a. Dependent Variable: CIND_Rup

T-Test:

One-Sample Statistics N CIND_1990_2000 CIND_2001_2009 10 10 Mean -.04613632 .03087437 Std. Deviation .076197194 .076606017 Std. Error Mean .024095668 .024224950

One-Sample Test Test Value = 0 95% Confidence Interval of the Difference t df Sig. (2tailed) CIND_1990_2 000 CIND_2001_2 009 1.274 9 .234 -1.915 9 .088 Mean Difference .046136320 .030874371 -.02392627 .08567501 -.10064451 .00837187 Lower Upper

Interpretation

The mean difference of the year from 1990 to 2000 is about -.10064451 (lower) and .00837187 (Upper) at 95% confidence interval and the significance level is .088. And the mean difference of the year from 2001 to 2009 is about -.02392627 (lower) and .08567501 (Upper) and the significance level is .234 So we can see that the Rupee value has some fluctuation in both two

14

terms, sometimes Indian Rupee value appreciated and sometimes depreciated. But we can also see that the Rupee value appreciated sharply in very recent period. So, now a days the value of Taka is not strong against Indian Rupee.

Saudi Arabia

Regression:

**Model Summary Model R
**

a

R Square

Adjusted R Square

Std. Error of the Estimate

1

.514

.264

.126 a. Predictors: (Constant), DT, T, D

.025839680

ANOVA Model 1 Regression Residual Total Sum of Squares .004 .011 .015 df 3 16 19

b

Mean Square .001 .001

F 1.915

Sig. .168

a

a. Predictors: (Constant), DT, T, D b. Dependent Variable: C_Saudi_real

Coefficients Model Unstandardized Coefficients

a

Standardized Coefficients

t

Sig.

B 1 (Constant) T D DT .023 .004 .042 -.006

Std. Error .017 .002 .057 .004

Beta 1.400 .754 .781 -1.851 1.430 .748 -1.477 .181 .172 .465 .159

a. Dependent Variable: C_Saudi_real

15

T-Test:

One-Sample Statistics N C_Saudi_real_1990_2000 C_Saudi_real_2001_2009 10 10 Mean .04253599 .02816979 Std. Deviation .023898836 .030454894 Std. Error Mean .007557476 .009630683

One-Sample Test Test Value = 0 95% Confidence Interval of the Difference t df Sig. (2tailed) C_Saudi_real_1990 _2000 C_Saudi_real_2001 _2009 2.925 9 .017 .028169795 .00638368 .04995591 5.628 9 .000 Mean Difference .042535988 .02543979 .05963219 Lower Upper

Interpretation

The mean difference of the year from 1990 to 2000 is about .02543979 (lower) and .05963219 (Upper) at 95% confidence Interval and the significance level is .000. And mean difference of the year from 1991 to 2008 is about .00638368 (lower) and .04995591 (Upper) and the significance level is .017. So we can say that the Real value has appreciated more at the previous time than the recent time. And the value of Taka depreciated from 1991 to 2008 at a lower pace but it was in a greater significant level.

16

JAPAN

Regression:

**Model Summary Mod el 1 .319
**

a

R

R Square

Adjusted R Square

Std. Error of the Estimate

.102

.020 a. Predictors: (Constant), DT, T, D

.123136534

ANOVA Model Sum of Squares 1 Regression Residual Total .057 .500 .557 3 33 36 df

b

Mean Square

F

Sig.

a

.019 .015

1.246

.309

a. Predictors: (Constant), DT, T, D b. Dependent Variable: CYEN

Coefficients Model Unstandardized Coefficients

a

Standardized Coefficients

t

Sig.

B 1 (Constant) T D DT -.001 .000 .221 -.009

Std. Error .062 .006 .148 .008

Beta -.016 .031 .898 -1.069 .058 1.495 -1.181 .987 .954 .145 .246

a. Dependent Variable: CYEN

17

T-Test:

One-Sample Statistics N CYEN_1973_1990 CYEN_1991_2008 18 18 Mean .00267778 .01638333 Std. Deviation .004088658 .023074464 Std. Error Mean .000963706 .005438703

One-Sample Test Test Value = 0 95% Confidence Interval of the Difference t df Sig. (2-tailed) Mean Difference CYEN_1973_19 90 CYEN_1991_20 08 3.012 17 .008 .016383333 .00490867 .02785799 2.779 17 .013 .002677778 .00064454 .00471102 Lower Upper

Interpretation

The mean difference of the year from 1973 to 1990 is about .00064454 (lower) and .00471102 (Upper) at 95% confidence interval and the significance level is .013. And the mean difference of the year from 1991 to 2008 is about .00490867 (lower) and .02785799 (Upper) and the significance level is .008 which slightly higher than the year from 1973 to 1990. So we can say that the Japanese Yen value has appreciated more at the recent time than the previous time, but the significance level is lower. The value of Taka is not as strong as it was earlier against Yen in the very recent time.

18

Conclusion Part

19

CONCLUSION

As undergraduate student our level of knowledge is not that vast, so our study may not address all issues related to our study. Inflation rates of Bangladesh are collected from a data providing website, www.indexmundi.com. and is subject to doubt as world recession tells us lower inflation rates in 2007, 2008 and 2009 years. But here case is different and their information is based on commodity price level which may be the reason of the difference. However, we have come to that point; we are examining the truth that inflation affects exchange rates in a precise manner and from Bangladesh perspective we have tried to prove the fact. Since fundamental analysis is about looking at the intrinsic value of an investment, its application in for ex entails looking at the economic conditions that affect the valuation of a nation's currency. Here we look at some of the major fundamental factors that play a role in the movement of a currency.

References

Bangladesh Bank Publications Dahaka Stock Exchange Library Annual Report of NCC Bank Ltd. 2008 www.bangladesh-bank.com www.BeaurauofStatistics.bd.com www.seribd.com www.roc.gov.bd Newspaper: Financial Express

20

Assignment BUS 525

Oral Presentations Guide

Interview Questions

Blue Ocean Footwear Ltd

Report on Akij Group

MONEY MARKET AND CAPITAL MARKET

ACT427 Auditing

Management Structure of Beximco LTD

Organization And Job Analysis

Appraisal of DSE & CSE

Financial Data of Bangladesh From 1973 - 2009

Bank’s profitability and managerial expenses

Prime Bank Limited

One Bank Limited

Banglalink

NBR Tax Return Form (Bangladesh Income Tax)

Bank asia

Interview

The Holy Quran Bangla

Hypothesis testing

National Icons & History of Currency of Bangladesh

Cost of capital

Ratio Analysis of Beximco Pharmaceuticals Ltd.

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