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Economics Case Study

ECONOMICS CASE STUDY-ASSIGNMENT Part (a): The relevant stocks and their trends are given below. Uranium: The stock being considered is that of Cameco (CCO.TO).We can see that the prices follow a polynomial trend; this implies that these prices would steadily increase, till they reach a maxima and then follow a declining trend. From the graph, we can see that a maxima has been reached and now Uranium prices are decreasing. Thus, investing in Uranium stocks wouldnt be wise.

Gold: The stock being considered is Barrick Gold Corp. (ABX.TX). From the graph it can be seen that gold prices follow a very strong, positive upward relationship over time. Hence, investing in gold would be a good decision.

Economics Case Study

Silver The stock being considered is Pan American Silver Corp. (PAA.TO). From the graph, we can see that just like gold, silver prices also show strong, upward tendency, thereby making it a good investment. However, as can be seen from the goodness of fit, the upward trend of gold is stronger (with a Rsquared of 0.9) as compared to silver (with a R-squared of 0.7).

Diamonds
2

Economics Case Study

The stock being considered is Stornoway Diamond Corp. (SWY.TSX). The graph shows us that diamond prices approximate a polynomial relationship over time. We can see that these prices follow a wave like tendency and are currently on the upward crest. Hence, the prices are increasing, thus investing in this stock would be a good option. However, notice that the polynomial approximation is not a strong one, thereby the risk in investing is greater.

Nickel The stock being considered is LionOre Mining International Ltd. (LIM.TO). From the graph, one can see that Nickel prices follow a strong downward trend, thereby making investment in this stock risky.

Economics Case Study

Iron Ore The stock being considered is Baffinland Iron Ore Corp.(BIM.TO). From the graph, we can see that Iron Ore prices are on the decreasing part of the trend line. Hence, investing in this stock would not be advisable.

Economics Case Study

Potash The stock being considered is Baffinland Iron Ore Corp.(BIM.TO). From the graph, it can be seen that investing in potash would be a very wise decision as its prices are exponentially increasing. However, this might be risky as well, since the limit of this exponential expansion might be near.

Thus, from the above analysis, the following stocks would be good bets; gold, silver, diamond and potash. Out of these, the best and most risk free investment, according to me, would be gold as it displays a strongly positive, upward trend.

APPENDIX Data on stock prices


Year Urani um Gold Silver Diamo nds Nicke l Iron Potas h 5

Economics Case Study Dec00 Dec01 Dec02 Dec03 Dec04 Dec05 Dec06 Dec07 Dec08 Dec09 Dec10

4.375 6.5417 6.2467 12.458 3 20.975 36.895 47.2 39.57 21.05 33.93 40.3

24.61 25.45 24.35 29.31 29 32.41 35.85 41.78 44.71 41.46 53.12

4.2 6.73 12.72 18.46 19.75 21.71 28.26 34.75 18.01 25.48 40.32

1.88 2.8 1.16 7.4 7.2 4.2 4.24 2.44 0.4 2.14 2.52

13.65 9.34 5.45 10.25 9.82 9.81 8.87 3.64 2.21 3.67 6.89 1 2.15 3.05

19.55 16.27 67 16.61 67 18.705 33.25 31.03 33 55.66 67

2.5 143.49 3.91 89.54

0.17 114.39 1.43 154.45

Price Index Calculations:


Year Dec00 Dec01 Dec02 Dec03 Dec04 Dec05 Dec06 Dec07 DecUraniu m 100 149.52 46 142.78 17 284.76 11 479.42 86 843.31 43 1078.8 57 904.45 71 481.14 Gold 100 103.41 32 98.943 52 119.09 79 117.83 83 131.69 44 145.67 25 169.76 84 181.67 Silver 100 160.23 81 302.85 71 439.52 38 470.23 81 516.90 48 672.85 71 827.38 1 428.80 Diamo nds 100 148.936 2 61.7021 3 393.617 382.978 7 223.404 3 225.531 9 129.787 2 21.2766 Nickel 100 68.424 91 39.926 74 75.091 58 71.941 39 71.868 13 64.981 68 26.666 67 16.190 Iron Potas h 100 83.256 78 84.995 91 95.677 75 170.07 67 158.73 81 284.74 02 733.96 42 458.00 6

100 215 305 250 391

Economics Case Study 08 Dec09 Dec10 29 775.54 29 921.14 29 41 168.46 81 215.84 72 95 606.66 67 960 48 26.886 45 50.476 19 51 585.11 51 790.02 56

113.829 8 134.042 6

17 143

Part b): Brazilian Real vs Canadian dollar The value of Canadian dollar has sharply declined from 2001 to 2003. Then the currency has on an average appreciated in value from 2003 to 2008. Since 2008 the exchange rate has more or less stayed constant. The data is best fit in a polynomial function. Russian Rubles vs Canadian dollar The data in this case is available 2005 onwards only. The value of Canadian dollar has fallen slightly between 2005 and 2008. Then there is a small increase in the value between 2008 and 2009. After 2009 the value has fallen sharply. The data is best fit in a linear curve and approximation is stable. Indian Rupee vs Canadian dollar The data shows a sharp declining trend in the last decade. The value of Canadian dollar has shown a constant decreasing trend from 2001 to 2011. The data shows a linear trend and an attempt to approximate an equation to this regression is stable. Chinese Yuan vs Canadian dollar The value of Canadian dollar has shown a constant decreasing trend between 2001 and 2008. After that, there was a jump between 2008 and 2009 but it has again started declining after 2009. The data shows linear trend apart for a year between 2008 and 2009 and thus an approximation using regression will be stable.

Economics Case Study Part c): Yea r 0 1 2 3 4 5 6 7 8 9 10 Tot al IRR FV Flow Flow A A $5,000,0 $6,719,58 00 2 $1,894,6 $2,472,03 10 6 $1,894,6 $2,400,03 10 5 $1,894,6 $2,330,13 10 1 $1,894,6 $2,262,26 10 4 $1,894,6 $2,196,37 10 2 $1,894,6 $2,132,40 10 0 $1,894,6 $2,070,29 10 2 $1,894,6 $2,009,99 10 2 $1,894,6 $1,951,44 10 8 $1,894,6 $1,894,61 10 0 $15,000,0 00 36.162%

In the above cash flow, if the initial investment, loan repayment and all the expenses are paid in CAD and all the revenues are paid in the local currency of the four countries the IRR will change as follows for the countries: Year 0 1 2 3 4 Canadian dollar Real Rubles India China $5,000,00 69000 1.1E+0 1.5E+0 0 00 8 8 -26650000 $1,894,61 28229 416814 566488 9851972.6 0 69 23 43 87 $1,894,61 44144 416814 582782 9927757.0 0 42 23 08 92 $1,894,61 41870 416814 679217 11973936. 0 88 23 73 03 $1,894,61 42818 416814 677323 12807564. 0 19 23 12 49 8

Economics Case Study $1,894,61 0 $1,894,61 0 $1,894,61 0 $1,894,61 0 $1,894,61 0 $1,894,61 0 38081 66 35429 21 34292 44 33913 52 31450 53 32018 91 52.32 % 457548 35 426097 82 467400 32 460958 65 542047 96 579561 24 726961 91 711805 03 742687 17 734729 81 828323 55 866405 21 13205432. 62 12618103. 48 14152737. 69 10382463. 52 12485480. 77 12637049. 58

5 6 7 8 9 10 Total IRR

36.162%

37.42%

41.93%

40.58%

The chart shows that the internal rate of return is more for all the countries, if the investment is done in CAD and the revenues are in the local currency. The company will get best returns if it solicit buyer from Brazil

Part d) : The Euro Canadian dollar exchange rate is 1.36 Canadian dollar per unit Euro. So the cost of marble from Italy is: 1,000,000 In Canadian currency it is: 1.36 x 1,000,000 = 1,360,000CAD. The Selling price is: 1,500,000 CAD Thus the profit is 40,000 CAD. We should accept the deal.

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