Financial Markets and Institutes

This document provides an analysis of the four major currency pairs in the forex market - GBP/USD, AUD/USD, EUR/USD, and USD/JPY. It examines market trends, trading strategies, and the impact of trade relations on currency performance. The document also discusses the overall market outlook and provides insights into the behavior of investors in the forex trading market.

Running head: FINANCIAL MARKETS AND INSTITUTES
Financial Markets and Institutes
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Executive Summary
The four currency in the conducted study has been analyzed in a detailed manner which are
the GBP/USD, AUD/USD, EUR/USD and the USD/JPY. The movement in the price of the
currency has been analyzed in the conducted study. The reason for the ups and downs in
the trading market is depicted thoroughly and the decision or the strategy taken by the
members of the Singapore Bank plays a key role in this study regarding the foreign
exchange trading market.

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Table of Contents
1. Introduction:.................................................................................................................... 3
2. Discussion:..................................................................................................................... 3
2.1 Overall Market Outlook.................................................................................................4
2.1.1 GBP/USD.............................................................................................................. 4
2.1.2 AUD/USD.............................................................................................................. 5
2.1.3 EUR/USD.............................................................................................................. 6
2.1.4 USD/JPY............................................................................................................... 7
2.2 Elaboration of the Objective and the trading strategies adopted in Forex:....................7
3. Conclusion.................................................................................................................... 12

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1. Introduction:
The aim of the assignment is to perform the current market overview and the future
market has been analyzed in the report. The four currency which is the GBP/USD,
AUD/USD, EUR/USD and USD/JPY analyses is being done as per the overall market
strategies. There are certain economic ups and downs which have been taken into
consideration for the movement in the prices of the currency (Hsu, Taylor & Wang, 2016).
The behavior of the investors in such trading situation is also depicted in the conducted
analysis. The objectives and the trading strategy is also depicted in the analysis and further
outcomes associated with it. The forecast associated with the trading is evaluated in a
detailed process. The ongoing trade wars between the China and the US has also been
discussed accordingly (Mozetič, Gabrovšek & Novak, 2018). The effect in the forex trading
market due to such major trade relation have also been discussed and the reason of such
downgrading market are also depicted in the study. The strategy undertaken for each
currency has been evaluated in a detailed process in such a way that the effectiveness of
the portfolio in the forex trading has been depicted accordingly.
2. Discussion:
In the foreign exchange market, the trading of currencies is done in that case where
the market determines the foreign exchange rate. It deals with the all aspects of the ongoing
buying and selling of currency in the market (Ben-David, Birru & Prokopenya, 2018). Here
the exchange of the currency is done as per the current or the determined price. The trading
volume in this kind of market is huge which means that all the banks try to invest in this
market (Evans, 2018). The main participant in such trading process is the large international
banks. The trading is done among the large numbers of buyers and sellers in the market.
The foreign exchange markets works through various financial institutions and operates on
several level. Most of the foreign exchange dealers are the banks and all the transaction
happens through the banks. The foreign exchange market assist the investments and the

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international trade by enabling the conversion of currency. The currency market in such a
market where the investors buys and sells the currency in the market. The exchange rates
changes all the time and the potential investors in the market attempts to make huge profit
out of it (Yamada & Ito, 2017). There are certain risk associated in such kind of trading with
currencies in the market. Thus the leverage plays a significant role in that case as the
leverage depends on the potential of the investors.
2.1 Overall Market Outlook
2.1.1 GBP/USD
The current overview of the market since the Brexit has been an important discussion
regarding the impact on the forex trading in Britain. There was huge inflation in Britain for the
last five year since 2017 and after that as per the report there is a steady inflation which is at
2.4 percent. Steady and lower inflation resulted in the increase in the wages by 3.2 percent.
Many investors in the trading market withdraw their funds from the market which further led
to a drop in the GBP/USD since the last two years (Nikonov, Medvedeva, & Chernavin,
2015). As per the reports, the value of the pounds were decreasing before the election
process where the sterling currency rose 0.33 percent. In the middle of December the
GBP/USD stated to rise again which increased the chance of Theresa May to go through the
deal. There are certain ups and down in the GBP/USD were there was certain loss of
confidence to go through the deal in case of the Brexit scenario. At last second referendum
caused the defeat of the Theresa May which further weakened the GBP/USD to fall where
the investors started to lose confidence gradually due to such fall. Apart from such
deliberation caused in the market of the Britain due to such fall in Pound. There are another
reason in the fall in Pound which may affect the investors of the Britain where the US central
bank decided to increase the interest rate of the bank and the only solution to that kind of
struggling in the economy is that the buying of more bonds will automatically remove the US
economic problem. This created a huge impact in Europe which at the same time increases
the chance of Theresa May deal to be accepted. GBP/USD in such a case will automatically

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start to increase on the other hand the potential investors will be interested in making future
investment decision in such a resultant output.
In May, after such a movement there has been a sharp increase in Pound. Further
the recent talks about a deal with the China and US which will further strengthen the USD
currency and the future investment decision (Ross, 2016). This kind of trade relation put an
impact on the overall economic situation which is the demand and the supply in the market
which will put an impact on the current performance of the currency. However, for future
investment decision on the current performance of the currency it can be stated that this
trade relation is definitely going to increase the performance of the currency. The banks will
be interested to further invest in order to generate more revenue out of the current
investment decision in the market.
2.1.2 AUD/USD
The main factors as per the current market situation related in the impact on the
economy of the US and Australia due to certain trade deal. At the end of September there is
a decrease in the AUD/USD which is quite a challenging month due to the trade war
between the US and China. The US and China trade deal became a huge tension which
created major impact in the AUD/USD to fall, which further resulted in the huge downtrend in
the currency during the month of October (Ramli et al., 2018). After that in the month of
November there was an improvement due to the positive Brexit news where the data has
increased from 0.0137. When there was a fall in the ore prices the trade was also higher at
that time which is about to 11percent. On December 2018, there was a huge fall in the
currency which means that it hit the market with a fall of about 70 percent benchmark. Such
market crash is due to the China weak manufacturing results. After the economy became
stable slowly beyond the month of January. On February 2019, the currency was higher due
to the higher commodity price and also the enhancement in risk sentiments with domestic
economic leads and further increase dovish RBA. After that on 2nd February it decreased to
about 72 percent due to the divulgence in removing RBA tightening bias. Such

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aggressiveness resulted in the downturn for the next six months about $ 1.3 trillion economy
hit (Kočenda & Moravcová, 2019). The reasons for such kind of optimism is that strong
government spending, higher prices of the commodities, strong investments in the business
and availability of jobs in the market. But it resulted in the slowdown in the economic growth
of Australia which resulted in higher inflationary rate of Australia. For this reason the
AUD/USD currency in the trading system was falling rapidly in the month of March 2019.
In the upcoming forecast it can be said that AUD/USD will perform at stable range,
the downgrading of the trading market in the middle of the year is due to the uncertainty in
the trade relation between the US-China trade wars (Che et al., 2015). The FOREX team
members in such a case will try to sell the currency in the market due to the fact that the
price of the currency in such a situation is going to fall. In this kind of situation, the members
will try to wait until and unless the economic situation becomes stable for which the currency
price to rise again in order to go for the buying option.
2.1.3 EUR/USD
The current market situation is that, in the month of September 2018 the EUR/USD
currency has a downfall of about $1.16 due to some economic turmoil. The Italy’s agreement
on the budget where according to the investors point of view is defying Brussels and another
reason is the uneven business growth and settlement of Brexit. Italy’s 2018 latest fiscal
policy further resulted in the clash in the country’s budget which weakened the Euro
currency in the month of October (Ni et al., 2019). There is trade war in the world economy
and tension of Brexit in the Eurozone resulted in such a fall in the month of November. The
Euro tumbles in the ultralow interest rate and this rate of interest will automatically improve
the overall economic growth and will also remove the inflationary situation. On the other
hand, the rate of unemployment is decreasing and the labor market is improving steadily.
As per the study it can be said that EUR may fall if the economy falls and further will
not attract the potential investors in the market. However it can be said that the EUR/USD

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may become weak in the coming future. In such a situation the strategy of the members is to
sell the currency as per the spot price due to the current economic downgrading situation.
The strategy of the members in the trading market must be efficient and effective (Handley &
Limão, 2017). This kind of trade war puts an impact on the EUR currency and thus it is
resulted in such a fall in the currency market.
2.1.4 USD/JPY
The USD/JPY showed up line trend in the month of September 2018 due to the
increased demand in risk asset and a rise in the US government bond yield. In that case,
such aggressive risk lead to slight fall in the currency in the month of October (Rambaldi,
Pennesi & Lillo, 2015). The highlighted downfall is at the end of the year 2018 which
weakened the US equity market on the other hand the JPY is in the safety position and the
dollar remained under pressure. The economic relation of the currency USD/JPY has been
fluctuating due to some of the major economic ups and down. Thus if the stock price of the
AUD, EUR, GBP goes up then the JPY will go down (Irwin, 2017).
Therefore in the future it can be said that, the China-US trade war China suffered
more than the US which will further strengthen the USD/JPY in the year 2019. The economy
of Japan is increasing constantly which means that the USD/JPY is performing accordingly
well which will further attract the potential investors in the market and it becomes the perfect
time to make potential investment in this currency for the team members. The Japanese
economy is going to flourish in such a way that the currency will improve as per the ongoing
market trend.
2.2 Elaboration of the Objective and the trading strategies adopted in Forex:
The objective before trading in the market is that locating the market trend at first
which is trading as per the current market situation and it is further important to stay focused
(Achchab, Bencharef & Ouaarab, 2017). Identifying the market trend for the last few years in

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order to understand the strategies adopted in such cases. Minimizing the risk and bringing
the maximum profit out of such trading is important where correct strategies are needed to
be adopted accordingly. Triangular arbitrage strategy is implemented in order to evaluate the
best portfolio in the trading system. The trading system is done on the basis of the demand
and the supply in the market and the overall economic situation. The market trend is based
on the overall economic situation and the deals which is happening in the market. The
members waits for the right opportunity to buy or sell currencies while trading in the market.
The members tries to take advantage when the economic situation is stable and the price of
the currency is going to rise. In such a high trending market the members are going to
purchase the currencies by further analyzing and forecasting the current situation in the
market.
Triangular Arbitrage Strategy:
Triangular arbitrage is a strategy used in case of analyzing the portfolio made suppose 6
million dollars out of 10 million dollars. The evaluation of such portfolio is shown in the
following table:
Suppose,
Here USD/JPY is taken as a cross rate at the base point
Sell GBP 1million for USD @1.3099, where $13,09,900 proceeds will be in the form of the
US Dollars
Sell the US Dollars for @ 1.418037436, where $18,57,487.54 proceeds will be in the form of
the US dollars
The rate for USD/AUD will be delivered with the help of the (1/0.7052), where 1 USD will be
equal to AUD 1.1418.

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The triangular arbitrage strategy adopted in the trading system, which can be further
referred to as the arbitrage strategy in combinations of the given currency which is the
GBP/USD, JPY/USD, USD/GBP and USD/JPY (Galeshchuk & Mukherjee, 2017). It is an
effective strategy used in this kind portfolio in order to bring huge revenue for the bank of
Singapore. Accordingly, the portfolio of such investment is made accordingly as per the
current economic situation and the trade deals putting an impact on the currency. In this
calculation it is possible to show profit out of the portfolio made which is about 13715.49 out
of the investment made.
Hedging Strategy:
The above evaluated portfolio is for the remaining 4 million of the portfolio invested is
further based on the hedging strategy where the trading of the currency is based on the
current economic situation and accordingly the buy and sell decision of the currency is
made.
However from the investment made in the current market it is possible to show profit
which will definitely help the bank (Gompert, Cevallos & Garafola, 2016). In this arbitrage
strategy, JPY is sold and USD is bought as per trade relation in the market because the
economic situation of the Japan is favorable in that case. Hence the significant element
shown in the triangular arbitrage is profit which is rare and it is possible in this case. The

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trading of the currency is done on the basis of the spot rate or further known as the rate of
trading applied from the current trading index. The profit making is great opportunity for the
traders where the trades applied the impaction in the current market and thus made profit
out of the total portfolio made. Hence, for the members of the bank, it is a great opportunity
to buy the currency and it will be a good portfolio investment decision. As per the forecast
the economy will hit from such kind of trade deal where it will automatically benefit the
members for buying the currency.
In this situation the triangular arbitrage is possible where there lies the difference in
the currencies. Currently there is ongoing tension in the trade deals in Europe and for that
the trader got a real opportunity to study the market in a more detailed manner and hence it
became possible to bring profit out of the investment amount in the market. As per the
current strategy in such portfolio is to sell the currency in the forex trading market (Yong,
Ngo & Lee, 2015).
Triangular arbitrage is the form of the profit making technique by the traders who
deals with currencies in which the trader takes advantage of the differences in the exchange
rates through the process of trade algorithms. This kind of trading is done in a lump sum
amount to ensure that profit is made as per portfolio made in such a trading process. As per
the evaluated portfolio it is needed to buy which will be an effective strategy as per the spot
price value (Falat, Marcek & Durisova, 2016). The evaluation is based on the current
performance of the currency and accordingly the investment decision is made. The triangular
arbitrage is riskless profit where the risk of investment in the market is less at a particular
situation when quoted exchange rate does not equals the cross exchange rate of the
market. In case of the trading process sometimes the situation in the current market can go
against the expectations of the traders which becomes a riskier trading method in that case.
In such foreign exchange market, there are many competitors for the getting the arbitrage
opportunity and further for the arbitrage to be profitable it is needed to identify an arbitrage

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opportunity in order to outperform the competitors in the market. Hence this kind of strategy
is definitely going to help the bank out of such strong portfolio investments.
Such investment strategy regarding the portfolio is effective as the evaluation is done
in a correct way which leads to perfect investment decision and this will further benefit the
bank on such a trading strategy (Cox & Stokes, 2018). This kind of strategy in this portfolio
will increase the revenue as the forecast made according to the current economic situation
and the deals made by the countries. As per the forecast, the current trading strategy is
made whether to go for the buy or sell the currency (Sahu et al., 2016). According to this
trading strategy, it will definitely benefit the bank in such a case. The revenue generated in
such a trading will benefit the bank where the bank will be able to further make some of the
fruitful investment. As per the portfolio strategy made it is based on the evaluation technique
adopted in such trading strategy.

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3. Conclusion
However it can be concluded that, strategy plays an important role in making profit in the
foreign exchange trading (Pradeepkumar & Ravi, 2017). Effective forecasting is based on
the present economic situation in the market and thus accordingly investment decisions are
needed to be made by the members of the Singapore Bank. The portfolio made as per the
current economic situation and the whole analysis is drawn based on the current market
trend of the chosen four currency which are the GBP/USD, AUD/USD, EUR/USD and
USD/JPY. The evaluation as per the portfolio is made accordingly by analyzing the currency
movement which is due to the economic situation of the country. The strategy drawn in such
a case is important in order to develop effective investment strategy in the trading market.

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Appendices
Hedging Strategy
Triangular Arbitrage Strategy

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Spot Rate:
USD/JPY:

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AUD/USD:
GBP/USD: