This assessment is worth 20% of your final grade for FINS3616 – International Business

Finance. Next to each question is the allocation of marks. There are a total of 50 marks for

this assignment.

Assignment Learning Objectives

The purpose behind this assignment is to get students to:

1. apply and assess the relevance of the International Parity Conditions and Purchasing

Power Parity (PPP) Theory in a practical setting,

2. think outside the textbook and homework questions framework,

3. conduct their own research,

4. using actual data and statistical methods (regression and regression analysis),

5. explore and visualize macroeconomic data and improve their familiarity with statistical

tools in Microsoft Excel.

This assignment is designed to give students an insight into how economists and analysts in

industry approach the topic of exchange rate modelling.

This assignment is individual work and must be submitted as individual work only.

IT IS RECOMMENDED THAT STUDENTS WORK ON THIS ASSIGNMENT FREQUENTLY.

CRAMMING AT THE LAST MOMENT IS A BAD STRATEGY.

Mohamad MOURAD – Term 3, 2024 UNSW Sydney

2

FINS3616 – iLab Assignment

The LIC will randomly assign each student one of five countries in the list below:

1. South Africa (ZAR)

2. South Korea (KRW)

3. Switzerland (CHF)

4. Thailand (THB)

5. United Kingdom (GBP)

Once assigned a country, the student will analyse the exchange rate 푒

ℎ/푓

comprising that

country’s currency in relation to that of the United States (USD). The USD is the base

currency irrespective of which currency you have been allocated. Thus, if you are

assigned South Africa, then you need to complete the iLab assignment on the ZAR/USD

exchange rate. The ZAR/USD exchange rate is interpreted as the number of ZAR per USD.

Download the Excel file uploaded on Moodle to see which country you have been allocated.

Section 1 – Qualitative Analysis.

You are constructing a regression model to forecast an estimate of the exchange rate. You

expect changes in future exchange rates depend on a set of key macroeconomic variables:

− the countries’ real GDP growth rates

− the inflation rate differential

− long-term interest rate differential

Answer the following questions below. The limit for each question is 150 words.

1.1 – What are the exchange rate systems in both countries? Are there any differences

between the two countries’ foreign exchange systems over the sample period? (1 mark)

1.2 – Comment on the reputation of each country’s central bank and its degree of

independence. (2 marks)

1.3 – Using the most recently available data, what are the sovereign credit ratings for the two

countries you have been assigned? What might be driving these differences? What issues

could this create from a MNC’s perspective? (3 marks)

1.4 – What is your assessment of the degree of political risk within both countries? Are there

any recent examples of political risk? What are possible methods for hedging against such

risk? (3 marks)

Section 2 – Downloading the Data and Setting up the Excel File.

2.1 – Using FACTSET, obtain quarterly data from 2001Q1 to 2024Q2 on: