Assignment on International Finance | Study

International Finance

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Introduction
A currency’s worth is measured against the values of the other currency. The currency
fluctuations are the product of the fundamental and technical factors as well as the floating
exchange rate system as adopted in the major economies around the globe. The changes in
the external environment in the form of political, economic, technological and social changes
lead to significant changes in the values of the currency.
The following report is an attempt to study the currency fluctuations and the
underlying causes behind the said fluctuations. The three chosen currency for the analysis are
Chinese Yuan, British Pound and the Australian Dollar. The exchange rates would be studied
over the course of the one year period and the external changes leading to such change would
be examined and elaborated. The reasons for the changes in the exchange rate movements
would be studied for all the three chosen currencies independently.
Analysis of the Exchange Rates for Currencies
The floatation of the national currencies against one another in the global market is
prevalent since the gold standard system was abandoned. The values of the currency fluctuate
based on varied factors such as the economic activity of nation along with the growth
prospects, changes in the interest rates, and the geopolitical risks. It is to be noted that the
above factors affect the demand and supply of the currencies in the international markets. The
above mentioned factors are generally in a state of consistent instability as per the external
events and internal policies and thus the currency values are fluctuating from one moment to
the other. Often, an atmosphere of economic uncertainty and instability can be created by the
extensive fluctuations of the currency which can influence the cash flows majorly.
The fact that the US Dollar is a global currency and is accepted for the trade generally
by all the countries, leads to currencies being expressed in terms of the US Dollar. This
further leads to the easy comparison of the values. The analysis of the exchange rate
fluctuations over a one year period is presented as follows. The following is presented a table
of the monthly average exchange rate of the three chosen currencies over the period of one
year.

Month AUD/USD CNH/USD
Pound/
USD
Jan-19 1.398 6.709 0.775
Feb-19 1.400 6.703 0.768
Mar-19 1.412 6.723 0.759
Apr-19 1.405 6.737 0.768
May-19 1.439 6.937 0.779
Jun-19 1.439 6.868 0.788
Jul-19 1.432 6.909 0.802
Aug-19 1.476 7.161 0.822
Sep-19 1.468 7.141 0.809
Oct-19 1.470 7.046 0.789
Nov-19 1.464 7.031 0.776
Dec-19 1.452 6.961 0.763
Jan-20 1.456 7.001 0.764
Australian Dollar and US Dollar
The Australian Dollar or AUD is the currency of Australia and the excluding
territories. The AUD per USD figures indicate how much an AUD can be bought against a
USD and the higher line on graph indicate lower AUD value in the market and vice versa.
The following graph is descriptive of the currency movements of AUD per USD in the
previous year.
K
Thus, as evident from the graphical representations, there are sharp fluctuations in the
value of AUD per USD. It can be observed that the AUD started with a comparatively higher
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Jul-19
Aug-19
Sep-19
Oct-19
Nov-19
Dec-19
Jan-20
1.34
1.36
1.38
1.4
1.42
1.44
1.46
1.48
1.5
AUD/USD
AUD/USD