What would you do to protect yourself against possible exchange rate changes?

1) Financial and Economic History: Give a short summary (several pages) of the recent financial and economic history of your country.  This should be a general overview of how the country has been performing economically.

2) The Balance of Payments for this country over the past 5 years.  Use just the Current Account.  Make note of any trends that have occurred and how the balance of payments may have affected the exchange rates over this time period.  Balance of payments data is available at the library or on line.

3) Exchange rate trends versus the U.S. dollar and versus two other major trading partners of the country.  Again examine changes over the past 5 years.  The Wall Street Journal, The IMF book and other sources have this data.  One really good web site is Oanda.com.  At the bottom is a link for historical exch. rates.

4) Parity conditions.  Just focus on relative purchasing power parity.  Discuss how differential inflation and interest rates have affected changes in exchange rates between your country and two other trading partners.  Note: This is not the Big Mac topic which dealt with absolute purchasing power parity.

5) Make a prediction on what value your country’s currency will have in one year, on Jan 1, 2017.  Use ideas from Ch. 9.  Explain your reasoning and the basis of your prediction and what information you used for the prediction.  I want a prediction of an exact exchange rate NUMBER for Jan 1, 2017.

6) Import Hedge:  Create a numeric example:  Imagine that you are in the U.S. and want to import a product from your selected country and you will pay X, a fixed amount of foreign currency in your country’s currency (not dollars) (A/P) for the product. (Select a product as an example, be specific.  For example, rubber from Malaysia or oil from Norway.)  What would you do to protect yourself against possible exchange rate changes?  Give specific examples of various ways you would precede.  From chapter 10 include all of the major forms of hedges we discussed (i.e. no hedge, forward hedge, money market hedge, options hedge).  Find as much real data as you can and for data you cannot find make up reasonable data that could be true and then use it correctly in your example. That is, make some assumptions and then make sure your analysis follows correctly from those assumptions. What will be the final cost to import your product (in Dollars) using the various hedging strategies? Explain each of the four hedges. (If your country has a currency that is fixed to the US dollar, then import to Germany (not the US) from your country.)