INTERNATIONAL FINANCE

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Write a summary on each of these articles/commentaries

I. Pound Weakens as London Terror Attacks Heighten Election Stakes

The pound fell in Asia trading after a weekend terror attack in London killed seven people,
days before the nation goes into a snap election. The sterling declined as much as 0.3 %
against the dollar. The third attack in the U.K. in less than three months comes before the
June 8 election, which will be held as armed police patrol the streets in the greatest show of
force for decades. The pound has been buffeted over the past two weeks as polls have
depicted a tightening race, raising the possibility of a hung parliament. An outcome, with
either the Conservative Party or the opposition Labour Party unable to secure an outright
victory, would create huge uncertainty just 11 days before Brexit negotiations are set to
begin. It fell 0.5% in May after having rallied 4.6 % in the previous two months.

II. Dollar Drops to Post-Election Low as Rate Hike Odds Recalibrated

The dollar dropped to its lowest since before the U.S. presidential election in November after
the May U.S. employment report missed both analyst forecasts and elevated trader
expectations, leaving the timing of Federal Reserve rate hikes beyond June in question. The
greenback declined as much as 0.5 % after the data, reaching its lowest since Nov. 4 and
relinquishing gains of 0.1 % built ahead of the jobs report. Average hourly earnings growth
slowed, raising questions about whether tight employment is feeding through to wages, a key
component of inflationary gauges. The dollar fell versus nine of its G-10 peers and the
Bloomberg dollar index was on track to end the week with a loss of 0.4 %.

III. Euro Drops after Hitting One-Week High as PMI Data Come Mixed

The euro retained its resilience and stayed close to a one-week high hit during the Asia
session despite softer manufacturing data out of France and Italy. While strategists
warn clients on short-term downside risks, Europes shared currency remained comfortably
above the $1.1200 handle. It may now be down to data out of the U.S. for the euro to either
hit a fresh high above $1.1257 or to test bidding interest near $1.1190, as ADP and
manufacturing data capture traders attention. Investors who look for euro weakness are in no
hurry to sell at current levels and prefer to fade a rally toward the Nov. 9 high at $1.1300,

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according to foreign-exchange traders in Europe and the Middle East. Chasing the market
lower at the moment poses few risks as sizable bidding interest is seen extending all way to
$1.1100 from current levels, said the traders, who asked not to be identified as they werent
authorized to speak publicly. As the one-week tenor in option structures now envelopes the
European Central Bank policy meeting on June 8, implied volatilities in euro crosses jump as
demand for long vega exposure on the event is seen. Bets for large euro price swings versus
the dollar and the pound rise to their highest since May 8, while demand for exposure over
the Federal Reserve meeting on June 14 remains subdued.

IV. Pound in Thrall to Election Projections as Market Jitters Rise

The pound is being buffeted by conflicting projections of the general election outcome,
bearing the brunt of increasing market tension before next weeks vote. Sterling first dropped
to a more than five-week low on Wednesday after a YouGov Plc study in the Times, based on
a new model, showed Theresa Mays Conservative Party may fall short of a majority. The
currency later rallied after the release of a Panelbase poll showing a 15 % point lead for the
Tories, even though that survey was carried out more than a week ago, before erasing the
days losses as a Kantar study showed a 10 point advantage. A separate
Times/YouGov poll Wednesday night showed the Conservatives leading Labour by three
points. The increased sensitivity to polls, no matter what their caveats, is suggestive of the
way the pound traded before the Brexit vote, when individual releases often caused large
swings in the currency. While doubts over polling remain after a failure to predict the U.K.s
2015 election result, the moves on Wednesday are emblematic of how the market has been
shocked out of its pre-election complacency by mounting evidence that the race is getting
tighter. Measures of expected volatility in sterling that cover the election are jumping, while
last weeks drop against the dollar was the pounds worst this year.

V. China Crushes Yuan Bears, Snubs Moody's as Currency Takes Off

China is dishing out a tough lesson to currency traders and strategists alike: dont bet against
the yuan. The currency jumped its highest level in seven months offshore, extending
Wednesdays gain of 1.2%, despite analyst forecasts for declines this quarter. Surging

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interbank rates are squeezing bears by driving up the cost of short positions. The rally, which
broke months of calm against the dollar, comes as a rebuke to Moodys Investors Service,
which downgraded Chinas sovereign debt rating last week.

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INTERNATIONAL FINANCE
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Kashini A/P Subramaniam - 16030087

Discuss with illustration and references to evidences, six factors which affect the
movement of the selected exchange rate trading pair. Explain in details.

Exchange rates are determined by factors, such as interest rates, confidence, and current
account on balance of payments, economic growth and relative inflation rates. For example:

a. Inflation

If inflation in the UK is relatively lower than elsewhere, then UK exports will become more
competitive and there will be an increase in demand for Pound Sterling to buy UK goods.
Also foreign goods will be less competitive and so UK citizens will buy less import.
Therefore countries with lower inflation rates tend to see an appreciation in the value of
their currency. For example, the long term appreciation in the German D-Mark in post-war
period was related to the relatively lower inflation rate.

b. Interest rates

If UK interest rates rise relative to elsewhere, it will become more attractive to deposit money
in the UK. You will get a better rate of return from saving in UK banks; therefore demand for
Sterling will rise. This is known as hot money flows and is an important short run factor in
determining the value of a currency. Higher interest rates cause an appreciation. Cutting
interest rates tends to cause depreciation

c. Speculation

If speculators believe the sterling will rise in the future, they will demand more now to be
able to make a profit. This increase in demand will cause the value to rise. Therefore
movements in the exchange rate do not always reflect economic fundamentals, but are often
driven by the sentiments of the financial markets. For example, if markets see news which
makes an interest rate increase more likely, the value of the pound will probably rise in
anticipation.

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The fall in the value of the Pound post-Brexit was partly related to the concerns that UK
would no longer attract as many capital flows outside the Single Currency.

d. Change in competitiveness

If British goods become more attractive and competitive this will also cause the value of the
exchange rate to rise. For example, if the UK has long-term improvements in labour market
relations and higher productivity, good will become more internationally competitive and in
long-run causes an appreciation in the Pound. This is a similar factor to low inflation.

f. Relative strength of other currencies

In 2010 and 2011, the value of the Japanese Yen and Swiss Franc rose because markets were
worried about all the other major economies US and EU. Therefore, despite low interest
rates and low growth in Japan, the Yen kept appreciating. In the mid-1980s, the Pound fell to
a low against the Dollar this was mostly due to strength of Dollar, caused by rising interest
rates in the US.

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g. Balance of payments

A deficit on the current account means that the value of imports (of goods and services) is
greater than the value of exports. If this is financed by a surplus on the financial / capital
account then this is OK. But a country, who struggles to attract enough capital inflows to
finance a current account deficit, will see depreciation in the currency. (For example current
account deficit in US of 7% of GDP was one reason for depreciation of dollar in 2006-07). In
the above diagram, the UK current account deficit reached 7% of GDP at the end of 2015,
contributing to the decline in the value of the Pound.

h. Government debt

Under some circumstances, the value of government debt can influence the exchange rate. If
markets fear a government may default on its debt, then investors will sell their bonds
causing a fall in the value of the exchange rate. For example, Iceland debt problems in 2008
caused a rapid fall in the value of the Icelandic currency.

For example, if markets feared the US would default on its debt, foreign investors would sell
their holdings of US bonds. This would cause a fall in the value of the dollar. See: US dollar
and debt.

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i. Government intervention

Some governments attempt to influence the value of their currency. For example, China has
sought to keep its currency undervalued to make Chinese exports more competitive. They can
do this by buying US dollar assets which increases the value of the US dollar to Chinese
Yuan.

j. Economic growth / recession

A recession may cause depreciation in the exchange rate because during a recession interest
rates usually fall. However, there is no hard and fast rule. It depends on several factors.
See: Impact of recession on currency.

Example fall in value of Sterling 2007 Jan 2009

Sterling exchange rate index, which shows value of Sterling against basket of currencies.

During this period 2007-09, the value of Sterling fell over 20%. This was due to:

Restoring UKs lost competitiveness. UK had large current account deficit in 2007
Bank of England cut interest rates to 0.5% in 2008.
Recession hit UK economy hard. Markets expected interest rates in UK to stay low for a
considerable time.

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Bank of England pursued quantitative easing (increasing money supply). This raised prospect
of future inflation, making UK bonds less attractive.

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INTERNATIONAL FINANCE
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Kashini A/P Subramaniam - 16030087

Register for an online forex trading account for forex trading simulation. Show
evidence of your registered account and record of trading simulation activities.

Describe your activity, experience and outcome of forex trading simulation.

Select suitable forex website and account types. I select (https://app.plus500.com.my)

and choose personal account. I registered using my e-mail ID and password using
Demo mode due to assignment purposes.

Next you can log-in to your trading account. Here, you will be credited RM50, 000.00
for the members in demo mode. The objective of the crediting is for the new joiner to
try and learn all the forex trading process.

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As new Forex learner, I should learn on all the basic functions of each buttons
available as per below:

List of products in
current market

Past Order and

Current Order

List of products
name Price of Sale and
Buy

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Next I purchased an oil product with RM47.46 per ton at the position of decreasing.

Later I press the button on current order to check my order. This helps me to check of
the movement of price rate of the product oil against market price (pink button) based
on the graft created.

Graft of product
movement Page 11 of 15
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I also tried on few products on the market list for few days. My trading shows profit
by looking into the green written figure. The total profits that I earned during my
demo mode trading is RM81,166.36

Below is the summary of 1 traded product- Oil. Total earning from this product is
RM33, 157.98 and premium to be pay amounting to RM354.70.

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From the lessons you learnt in the simulation exercise, come out your advice on the five
Dos and five Donts to those newbies in forex trading. Explain in details.

Donts to those newbies in Forex Trading

DONT let your feelings get in the way when you are deciding on whether or not to
make a trade. The forex market is much more complicated than it looks, and each and
every move needs to be well thought out. You cannot close your eyes and make
decisions and expect to make a killing. Even if you have this nagging feeling that you
should do something, it is best to ignore it and do more research.
DONT trade if you dont have the patience to wait for results. As stated a little
earlier, forex is very complicated. There is a lot involved with it and it is not an arena
that usually provides speedy results. If you need instant gratification, you should be
on your way to the casino, because this is not the right thing for you. Forex is an
investment opportunity, not a simple gamble. Keeping that in mind will help you stay
on track.
DONT think of forex as a game since it is far from it. This is a very real financial
opportunity and you dont want to take it as a joke. People who walk into the door
thinking that this is the same as playing slots or bingo are sadly mistaken. This is
something that is very serious and you have to have that mind-set if you expect to
make any money.
Dont get caught up and over leverage. It is better you take your time and come up
with a well thought approach that will help you be consistent in the long-run. Simply
dont trade more cash than you have in your portfolio especially if you dont
understand Forex trade well.
One of the biggest mistakes a trader can make is involving their emotions involved
when making trades. A loss in a trade can encourage a trader to trade more so he or
she can win back what he or she lost. The trader may want to exact revenge when they
get frustrated or disappointed with the trades result. The trader may overtrade, and
this may bring a chain of frustration and bad decisions. Similarly, a chain of wins may
also affect a trader negatively, leading to overconfidence when making trades. The
trader may overtrade with the idea that he or she can no longer lose. Patience is also

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lost when one is too emotionally involved. Patience is one of the most important
virtues to remember when trading. One must be persistent in waiting and looking for
the best price action in order to attain the best results. One must be more logical than
emotional when trading. This ensures the best decisions in the trade therefore
generating better trades and lesser risk of loss.

Dos to those newbies in Forex Trading

DO try a simulator before you risk any real money. This is one way that you can
decide if the forex market is really a good fit for you. if you are doing horrific while
using a simulator, it would be a good idea for you to keep your money in your pocket
and invest it elsewhere. Forex is far too risky to take chances on, especially if you
have an indicator that you would not do well.
DO think about the money you are investing before you make any rash moves. If you
are not sure that you can stand to lose this money, dont do it. The only money people
should use for forex trading is that they can stand to lose since this is such a risky
investment. If you use money that was intended for something else, you may end up
in hot water.
The science of successful trading is less dependent on making profits, but rather on
avoiding losses. The need to restrict drawdowns and prevent losing trades from
significantly eroding capital should be your main objective in any type of trading. To
reduce losses, most traders prefer to use a specific plan with pre-determined exits.
Do Trade With a Plan. As with any other investment, forex trading requires one to
have a plan if theyre to achieve the most efficient results. A forex trading
plan prepares you for different trading situations, if you stick to it. Whatever situation
comes your way, the plan should always be followed. A plan helps you to focus on the
goals you set for yourself. You can better track your progress as a trader when you
have milestones to achieve with which you base your development. Sticking to your
plan prevents you from making decisions based on impulse, and prepares you to make
immediate actions, no matter which direction your trade is going. Having a forex

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trading plan you can stick to also helps you avoid getting emotional a big no-no in
trading.
You need to make yourself aware about the pitfalls of leverage. The brokers bless
them; offer us traders very tempting leverage to wipe out our accounts if things do
not go according to plan, which can often happen during the trading day. Should you
use too much leverage, meaning having a position size too large for the size of your
account (available margin), then small moves may be enough to cause the trade to be
closed as it moved only slightly against you. Leverage is required; its the excessive
leverage that causes the problems. Yes, great amounts of money can be made, but
losses are boosted no end. Your capital could disappear in the wink of an eye

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