international finance- fin 465

7/31/2019 International Finance- FIN 465

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Introduction part


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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 wasnt 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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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 nations currency in terms of the home nations 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 ofexports 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 aspositive 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 countryor 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 countrys money is reflected in its foreign

exchange rate.
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When a countrys economy falters, consumer spending declines and trading sentiment for its

currency turns sour, leading to a decline in that countrys 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. Ifinterest 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 non-

essentials. 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 countrys 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.
http://fxtrade.oanda.com/analysis/economic-indicators/united-states/employment/non-farm-payrollhttp://fxtrade.oanda.com/analysis/economic-indicators/united-states/employment/unemployment-ratehttp://fxtrade.oanda.com/analysis/economic-indicators/forex-rateshttp://fxtrade.oanda.com/analysis/economic-indicators/internationalhttp://fxtrade.oanda.com/analysis/economic-indicators/united-states/rates/aaa-corporate-bond-yieldhttp://fxtrade.oanda.com/analysis/economic-indicators/united-states/rates/aaa-corporate-bond-yieldhttp://fxtrade.oanda.com/analysis/economic-indicators/internationalhttp://fxtrade.oanda.com/analysis/economic-indicators/forex-rateshttp://fxtrade.oanda.com/analysis/economic-indicators/united-states/employment/unemployment-ratehttp://fxtrade.oanda.com/analysis/economic-indicators/united-states/employment/non-farm-payroll


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Analytical Part


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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 thesignificance 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 R Square Adjusted R

Square

Std. Error of the Estimate

1 .249a

.062 -.023 .116557443

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

ANOVAb

Model Sum of Squares df Mean Square F Sig.

1 Regression .030 3 .010 .726 .544a

Residual .448 33 .014

Total .478 36


b. Dependent Variable: CUKP


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Coefficientsa

Model Unstandardized Coefficients Standardized

Coefficients

t Sig.

B Std. Error Beta

1 (Constant) .106 .057 1.845 .074

T -.003 .005 -.241 -.484 .631

D -.055 .151 -.243 -.367 .716

DT .002 .007 .226 .246 .807

a. Dependent Variable: CUKP

T-Test:

One-Sample Statistics

N Mean Std. Deviation Std. Error Mean

CUKP_1973_1990 18 .08141338 .140094138 .033020505

CUKP_1991_2008 18 .03078281 .082666248 .019484622

One-Sample Test

Test Value = 0

95% Confidence Interval of the Difference

t df Sig. (2-

tailed)

Mean

Difference

Lower Upper

CUKP_1973_19

90

2.466 17 .025 .081413384 .01174621 .15108056

CUKP_1991_20

08

1.580 17 .133 .030782814 -.01032614 .07189177


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Interpretation


(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 thesignificance 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


Square


1 .656a

.431 .324 .069246346


ANOVAb


1 Regression .058 3 .019 4.032 .026a

Residual .077 16 .005

Total .135 19


b. Dependent Variable: CIND_Rup


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Coefficientsa


Coefficients

t Sig.

B Std. Error Beta

1 (Constant) -.138 .045 -3.071 .007

T .016 .007 1.147 2.472 .025

D .295 .152 1.788 1.945 .070

DT -.024 .011 -2.402 -2.178 .045

a. Dependent Variable: CIND_Rup

T-Test:



CIND_1990_2000 10 -.04613632 .076197194 .024095668

CIND_2001_2009 10 .03087437 .076606017 .024224950

One-Sample Test

Test Value = 0

95% Confidence Interval of the Difference

t df Sig. (2-

tailed)

Mean

Difference

Lower Upper

CIND_1990_2

000

-1.915 9 .088 -

.046136320

-.10064451 .00837187

CIND_2001_2

009

1.274 9 .234 .030874371 -.02392627 .08567501

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


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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


Square


1 .514a

.264 .126 .025839680


ANOVAb


1 Regression .004 3 .001 1.915 .168a

Residual .011 16 .001Total .015 19


b. Dependent Variable: C_Saudi_real

Coefficientsa


Coefficients

t Sig.

B Std. Error Beta

1 (Constant) .023 .017 1.400 .181

T .004 .002 .754 1.430 .172

D .042 .057 .781 .748 .465

DT -.006 .004 -1.851 -1.477 .159

a. Dependent Variable: C_Saudi_real


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T-Test:



C_Saudi_real_1990_2000 10 .04253599 .023898836 .007557476

C_Saudi_real_2001_2009 10 .02816979 .030454894 .009630683

One-Sample Test

Test Value = 0

95% Confidence Interval of the

Difference

t df Sig. (2-

tailed)

Mean

Difference

Lower Upper

C_Saudi_real_1990

_2000

5.628 9 .000 .042535988 .02543979 .05963219

C_Saudi_real_2001

_2009

2.925 9 .017 .028169795 .00638368 .04995591

Interpretation


(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.


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JAPAN

Regression:

Model Summary

Mod

el

R R Square Adjusted R

Square


1 .319a

.102 .020 .123136534


ANOVAb

Model Sum of

Squares

df Mean Square F Sig.

1 Regression .057 3 .019 1.246 .309a

Residual .500 33 .015

Total .557 36


b. Dependent Variable: CYEN

Coefficients

a


Coefficients

t Sig.

B Std. Error Beta

1 (Constant) -.001 .062 -.016 .987

T .000 .006 .031 .058 .954

D .221 .148 .898 1.495 .145

DT -.009 .008 -1.069 -1.181 .246

a. Dependent Variable: CYEN


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T-Test:

Interpretation


(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.



CYEN_1973_1990 18 .00267778 .004088658 .000963706

CYEN_1991_2008 18 .01638333 .023074464 .005438703

One-Sample Test

Test Value = 0

95% Confidence Interval of the

Difference

t df Sig. (2-tailed) Mean

Difference

Lower Upper

CYEN_1973_19

90

2.779 17 .013 .002677778 .00064454 .00471102

CYEN_1991_20

08

3.012 17 .008 .016383333 .00490867 .02785799


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Conclusion Part


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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.bdNewspaper: Financial Express
http://www.beaurauofstatistics.bd.com/http://www.beaurauofstatistics.bd.com/

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