• Both of these strategies within the context of currency markets can be further researched by Googling; I encourage you to do so if you?re interested in this project. Give a brief synopsis of what you find and how you might apply that to your project.
• Pick 10 currencies?5 with the highest momentum, 5 with the lowest, and do likewise for carry: 5 high yielding, 5 low yielding. Use the money market rates for carry, and historical spot or forward rate returns for momentum. Your calculations of momentum/carry can be daily, weekly, or monthly. Use a timeline of 2012 onward, unless you want to go back even further.
• Construct a portfolio of 50% momentum, 50% carry. Both are long-short portfolios: i.e., within the momentum portfolio, your returns are constructed as going long an equal weighted average of the recently top performing currencies, and going short an equal weighted average the recently worst performing currencies. Show the cumulative returns to the overall portfolio.
• How did your strategy work? Did you make (lose) money? How about tinkering with your strategy?do alternative specifications make more/less money?
• Whichcurrencieshavethebest/worstmomentumandyields?Cananyofthesedifferencesbeexplainedbytheirunderlyingeconomicfundamentals?

Design a Currency Trading Strategy:

Momentum strategies and carry trade strategies can actually make money over a long enough time period in FX markets. While this is unrelated to corporate finance, it can be a fun exercise to understand the way interest rates work in FX, as well as a test of how efficient markets may (or may not?) be.

Momentum is the idea that an asset that has had strong returns in the recent past will have strong returns going forward. Carry was discussed in class, in which we talked about the phenomenon of higher yielding currencies delivering stronger short-term performance.

Your work:

• Both of these strategies within the context of currency markets can be further researched by Googling; I encourage you to do so if you?re interested in this project. Give a brief synopsis of what you find and how you might apply that to your project.
• Pick 10 currencies?5 with the highest momentum, 5 with the lowest, and do likewise for carry: 5 high yielding, 5 low yielding. Use the money market rates for carry, and historical spot or forward rate returns for momentum. Your calculations of momentum/carry can be daily, weekly, or monthly. Use a timeline of 2012 onward, unless you want to go back even further.
• Construct a portfolio of 50% momentum, 50% carry. Both are long-short portfolios: i.e., within the momentum portfolio, your returns are constructed as going long an equal weighted average of the recently top performing currencies, and going short an equal weighted average the recently worst performing currencies. Show the cumulative returns to the overall portfolio.
• How did your strategy work? Did you make (lose) money? How about tinkering with your strategy?do alternative specifications make more/less money?
• Which currencies have the best/worst momentum and yields? Can any of these differences be explained by their underlying economic fundamentals?

FINC 536 Project Guide Your mission, should you choose to accept it, is to complete one of the four different tasks. Produce a 2-3 page, single spaced report answering the questions below in detail, as well as an excel workbook showing your calculations, analysis and results. If you have any questions, please post them on the iLearn message board. The data needed for each of these projects is included in the 'Data.xlsx' file. That file will have much more than you need... but you should be able to find everything you need there. You can turn in your project and excel files online through iLearn. One person per group can turn injust make sure to have the names of everyone in your group on the cover page of your report, as well as listed in the excel. Good luck! Hedge a Cash Flow: You are a U.S. based exporter that has just secured a 3 year contract that will provide one million British pounds for each of the next three years, receivable at the end of each year. In order to fulfill this contract, you need to purchase supplies from Thailand that cost 500,000 Baht each year. As well, you've booked an order that will secure you 2 million Euros for each of the next seven years, but this particular order is only renewable each year (in other words, you don't necessarily know that you'll continue receiving these cash flows for each of the next 4 years). Lastly, you've booked a sale that brings in 300,000 Baht for each of the next 2 years (this contract, like the one in British Pounds, can be relied upon for each of those years). Discuss, calculate, and analyze different ways to hedge these cash flows. In particular, how the results from a few different options from a combination of: 1) A money market hedge 2) A futures market hedge 3) A forward rate hedge 4) No hedge at all (i.e., looking at subsequent spot rates) Assuming that all this activity begins on January 1st, 2012, use the data in the excel sheet provided to calculate the expected values from your alternative scenarios. Which brings the best value? Why? Are there any strategic exposure considerations? Design a Currency Trading Strategy: Momentum strategies and carry trade strategies can actually make money over a long enough time period in FX markets. While this is unrelated to corporate finance, it can be a fun exercise to understand the way interest rates work in FX, as well as a test of how efficient markets may (or may not?) be. Momentum is the idea that an asset that has had strong returns in the recent past will have strong returns going forward. Carry was discussed in class, in which we talked about the phenomenon of higher yielding currencies delivering stronger short-term performance. Your work: 1) Both of these strategies within the context of currency markets can be further researched by Googling; I encourage you to do so if you're interested in this project. Give a brief synopsis of what you find and how you might apply that to your project. 2) Pick 10 currencies5 with the highest momentum, 5 with the lowest, and do likewise for carry: 5 high yielding, 5 low yielding. Use the money market rates for carry, and historical spot or forward rate returns for momentum. Your calculations of momentum/carry can be daily, weekly, or monthly. Use a timeline of 2012 onward, unless you want to go back even further. 3) Construct a portfolio of 50% momentum, 50% carry. Both are long-short portfolios: i.e., within the momentum portfolio, your returns are constructed as going long an equal weighted average of the recently top performing currencies, and going short an equal weighted average the recently worst performing currencies. Show the cumulative returns to the overall portfolio. 4) How did your strategy work? Did you make (lose) money? How about tinkering with your strategydo alternative specifications make more/less money? 5) Which currencies have the best/worst momentum and yields? Can any of these differences be explained by their underlying economic fundamentals? Determine a Firm's Cost of Equity Capital (Local and Global) The cost of equity capital is determined typically by The Capital Asset Pricing Model. This was discussed in class on Nov 3rd and 4th, and is covered in Chapter 13 (The Global Cost and Availability of Capital). Using the stock price data in the excel file (for IBM, Facebook, AAPL, etc.) calculate each firm's beta with respect to the U.S. market. Using a risk-free rate of 2%, what is each firm's equity cost of capital? Now estimate each firm's global beta, using the MSCI World market index and the same riskfree rate. What is each firm's global equity cost of capital? For each firm, which source of financing seems cheaper? Does this make sense? Are there any differences that you could attribute to the firm's industry or size? Given that you've estimated each firm's beta, how would you construct a portfolio that had an expected global equity beta of 1? How about a global equity beta of 0