YOUR INSTRUCTIONS

• There are 5 questions to this assignment.

a) For Qs (1) – (4): You will need to upload your assignment via the link on Blackboard.

The file must be in PDF. You can submit your assignment multiple times until the due

date. However, only the last submission will be marked. You would also need to submit

this file through TurnItIn for plagiarism analysis (see more information below).

b) For Q1 and Q5, Please submit ONLY one Excel Spreadsheet that combines Q1 and Q5,

via the Blackboard Assessment link.

1. For Q1, please use an Excel Spreadsheet to show your raw data and calculation.

2. For Q5: you need to design an Excel Spreadsheet to show all your calculations.

• Please make sure you have your full name and student number on every page of your

assignment (i.e., insert a Header).

• Your PDF document should be typed in Times New Roman font, size 12. The

assignment should be double spaced and have margins of 2.54 cm.

• Teaching staff will not answer any questions regarding the assignment as this gives

students an unfair advantage over others. However, you may post any questions to the

assignment discussion board on Blackboard and they will be answered there.

• Note that your assignment will be analysed for plagiarism using TurnItIn. Once you are

satisfied with the TurnItIn similarity report for your PDF file, that copy becomes your

final copy. See for instructions https://www.library.uq.edu.au/library-services/turnitinassignments (link on BB with assignment)

• Late submissions will lose marks as per the ECP.

• Please ensure you reference appropriately and correctly in each question. For example,

your references for Q1 should be at the end of Q1, NOT at the end of the document.

• Please start each question on a separate page.

• In terms of word count, please use a maximum of 150 words per mark as a guide. For

example, 2 marks = 300 words max)

2

Questions 1 to 4: International Monetary System/International Parity

Conditions/Foreign Exchange Exposure (1 & 2) [14 marks in total]
In this part of the assignment, you will be investigating the cryptocurrency market and

globalisation.

1) Using daily close data, please plot the following two exchange rates on the same chart:

i) exchange rate between VEF (Venezuelan Bolivar) and USD from 1 July 2013

to 30 June 2021; and

ii) exchange rate between Bitcoin (BTC) and USD from 1 July 2013 to 30 June

2021.

Indicate one specific point on each of these two lines where the trend changes, and

provide some reason(s) why this is the case.

(Hint: Please clearly mark the legend and the relevant information on the axes, and

provide data sources. You can use the left axis for the VEF/USD exchange rate,

while using the right axis for the BTC/USD exchange rate. Please note that you

should create a chart on your own rather than copying from other sources.)

(4 marks)

2) By 2015, the International Monetary Fund (IMF) had decided to include RMB in the

special drawing rights (SDR) basket, classifying it as freely usable—widely used

globally and traded in the major exchange markets. Do you see RMB as the next major

international reserve currency in the next 10 years? Please discuss what issues need to

be addressed for RMB to become a major reserve currency? (3 marks)

3) Please discuss the implications of RMB internationalization on the future of the

international monetary system. (3 marks)

4) The Bank for International Settlements (BIS, 2018) show that non-financial firms from

emerging market economies have borrowed $3.7 trillion through U.S. dollardenominated debt. Bruno and Shin (2017, RFS) find that firms from emerging market

economies tend to borrow more in USD when the dollar carry trade is more favourable.

Please discuss the risks involved in this strategy. (2 marks)

Note: 2 marks will be allocated for correct grammar and clear and logical writing.

3

Q5 International Portfolio Theories [Total: 6 marks]
For Part 2, you only need to submit your designed spreadsheet (no other files, i.e., PDF) via

Blackboard.

Using the monthly return data for Australia (A), China (C) and the Japan (J) between Jan 2000

and June 2021, calculate the following three items for Countries A, C and J:

(3 marks)

a) Yearly mean returns

b) Yearly standard deviation of returns

c) Covariance between these three countries

Please present the following table with answers in your excel spreadsheet. Please include the

raw data and the formula you used in your excel spreadsheet.

Country A Country C Country J

Yearly Mean Return

Yearly Standard deviation (Returns)

Covariance between Countries

A, C

A, F

C, J

d) Provide an efficient frontier for these three assets (A, C and J). (3 marks)

For part (d), you are required to provide a figure showing the efficient frontier for

Countries A, C and J. [Hint: Below is an “illustrative” example of an efficient frontier

between other assets.]
0.0900

0.1000

0.1100

0.1200

0.1300

0.1400

0.1500

0.1400 0.1900 0.2400 0.2900 0.3400 0.3900

Portfolio Return (%pa)

Portfolio Risk (% pa)

Example ONLY: Efficient Frontier (2000 – 2020)

4

To come up with an efficient frontier, you will need to design your Excel spreadsheet to

calculate the optimal portfolio weight for each of these three countries (A, C and J) to maximise

the portfolio returns while achieving a range of target sigma.

[Hint: You may try any target sigma ranges from 0.08 to 0.20, and plot an incremental interval

of 0.01 (i.e., 0.08, 0.14, 0.15, …, 0.20) in your figure.]
To calculate the optimal portfolio weight, you can try to use the “solver” function in Excel.

Please note that portfolio weights are not restricted to positive values only.

You must save the answer for target sigma = 0.15 as a scenario in your Excel spreadsheet for

marking. For example, please save your answer for (Q5d) as “Q5d”.

Part 2

Q5d