International Financial Management

This document provides an analysis of the exchange rate changes, depreciation/appreciation of currencies, and possible reasons for currency movements in international financial management. It includes calculations, discussions, and conclusions on USD/JPY and USD/KRW currency pairs.

Running head: INTERNATIONAL FINANCIAL MANAGEMENT
International financial management
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1INTERNATIONAL FINANCIAL MANAGEMENT
Table of Contents
Introduction:....................................................................................................................................2
1. Calculating the exchange rate changes for each of the currencies:.............................................2
2. Discussing whether the currencies have depreciated or appreciated over time against the US
dollars:.............................................................................................................................................3
3. Discussing the possible reasons for the currency depreciation/appreciation:.............................6
4. Calculating the indirect exchange rates for both currencies:.......................................................8
Conclusion:......................................................................................................................................9
References:....................................................................................................................................10

2INTERNATIONAL FINANCIAL MANAGEMENT
Introduction:
The overall assessment relatively analyses the price action of USD/JPY and USD/KRW
from 2016 to 2018 to determine the trend in the currency. Moreover, relevant evaluations are
also depicted on the change on exchange rates that has been incurred during the past 3 years.
Furthermore, information on depreciation or appreciation has been depicted on both JPY and
KRW for the past 3 years. Adequate information on the reasons behind the decline or increment
in the value of exchange is also stated. Additionally, the calculation for indirect exchange rate is
also derived, which can help in detecting the accurate value of the USD in accordance to JPY
and KRW.
1. Calculating the exchange rate changes for each of the currencies:
2/1/2016
4/1/2016
6/1/2016
8/1/2016
10/1/2016
12/1/2016
2/1/2017
4/1/2017
6/1/2017
8/1/2017
10/1/2017
12/1/2017
2/1/2018
4/1/2018
6/1/2018
8/1/2018
10/1/2018
12/1/2018
-8.00
-6.00
-4.00
-2.00
-
2.00
4.00
6.00
8.00
10.00
12.00
USD/JPY Return
The above figure provides information about the changes in USD/JPY during the past 3
years, where it could be identified that at the fluctuations during 2016 was a relatively higher in
comparison to the price movement in 2018. The volatility in the currency exchange rate has
rapidly reduced during the past 3 years as depicted in the above figure which is a positive sign
for both United States and Japanese government.

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1/1/2016
3/1/2016
5/1/2016
7/1/2016
9/1/2016
11/1/2016
1/1/2017
3/1/2017
5/1/2017
7/1/2017
9/1/2017
11/1/2017
1/1/2018
3/1/2018
5/1/2018
7/1/2018
9/1/2018
11/1/2018
-10.00
-8.00
-6.00
-4.00
-2.00
-
2.00
4.00
6.00
USD/KRW Return
The price fluctuations in USD/KRW are similar to USD/JPY where the volatility was
relatively higher during 2016, which eventually calm down during the 2018 fiscal year. This is
due to the stability that is provided why both the governments to reduce the volatility in the
currency exchange.
2. Discussing whether the currencies have depreciated or appreciated over time against the
US dollars:
USD/JPY:

4INTERNATIONAL FINANCIAL MANAGEMENT
1/1/2016
3/1/2016
5/1/2016
7/1/2016
9/1/2016
11/1/2016
1/1/2017
3/1/2017
5/1/2017
7/1/2017
9/1/2017
11/1/2017
1/1/2018
3/1/2018
5/1/2018
7/1/2018
9/1/2018
11/1/2018
90
95
100
105
110
115
120
125
USD/JPY
The above figure provides information on the price movement of USD/JPY for the past 3
years. From the relevant chart, it could be identified that the overall USD depreciated during
January of 2016 till September of 2016, where the actual values of USD/JPY declined from the
levels of 120 to 100 in just nine months. During the nine months the fluctuations in the currency
market continued due to relevant external and internal factors. After the depreciation of USD in
context to JPY, The values of the currency lingered between the exchange rate of 1 USD=100
JPY, after which it started to incline to the levels of 118. This Rapid increment in the overall
Exchange rate was due to the strengthening of USD in comparison to JPY. This increment in the
valuation was during September of 2016 till December of 2016, after which the value started to
decline again (Reuters.com 2019).
However, the decline from 2017 was mainly gradually and not steep in comparison to
2016 price trends. The deprecation of USD started to occur after the sentiments and actions taken
by the both US and Japanese governments. Moreover, the price depreciation of USD/JPY
continued till 2018 march, where the value has steep to 105 JPY per USD. Therefore, the sudden
decline in the USD/JPY value was confined by the overall declining value in 2017. However,
after the April of 2018 the values of USD/JPY started to increase in a steady and gradual manner,
where it is currently trading in the range of 110 to 115. Therefore, the USD/JPY currency has
been depreciated and appreciated twice in three years. However, the current values of USD/JPY

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are lower than the staring values in 2016, which indicates that USD has lost relevant currency
value to JPY (Cnbc.com 2018).
USK/KRW:
1/1/2016
3/1/2016
5/1/2016
7/1/2016
9/1/2016
11/1/2016
1/1/2017
3/1/2017
5/1/2017
7/1/2017
9/1/2017
11/1/2017
1/1/2018
3/1/2018
5/1/2018
7/1/2018
9/1/2018
11/1/2018
950.00
1,000.00
1,050.00
1,100.00
1,150.00
1,200.00
1,250.00
1,300.00
USD/KRW
The price action movement of USD/KRW has relatively depreciated over the period of 3
years, where the value of USD was close to 1,250 during the February of 2016. However, after
the peak in February the overall currency value of USD/KRW started to fall until June of 2018.
Values of the Korean currency started decline until September of 2016 link between 1,100 mark,
after which it started to increase and appreciate in value. Depreciation was relatively due to the
change’s external government decision in United States. The currency conversion of USD is
relatively based on continuous demand in the market, which allowed the USD to gain higher
growth against KRW. Furthermore, during the Jan of 2017 the overall value of USD/KRW
started to increase and touch the level of 1,200KRW per USD. This appreciation in the currency
value of USD was short lived, as after the Jan of 2017 the USD started to depreciation against
KRW till the march of 2018. This gradual decline in the value of USD in comparison to KRW
indicated about the appreciation that was achieved by KRW and deprecation that was being
conducted for USD (Dailyfx.com 2019).
Moreover, after lingering in the values between 1,050 to 1,100 the USD/KRW started to
increase and appreciate to new levels. The appreciation of USD started from July of 2018, as
depicted in the above figure, after which the values continued to rise and appreciate higher in

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value. The current value of USD/KRW was between 1,100 to 1,150 where its continued to be
volatile in nature. Therefore, from the overall valuation of the currency price movement from
2016 to 2018, it could be identified that the overall USD has been depreciated during the 3-year
period. Filippou, Gozluklu and Taylor (2018) mentioned that MNCs by analyzing the currency
movement can predict the overall trend, which help them take appropriate steps to minimize the
negative impact on their revenue.
3. Discussing the possible reasons for the currency depreciation/appreciation:
The depreciation and appreciation of the currency is mainly conducted, due to the actions
that is been taken by the Central banks of the country. The change in the overall valuation and
perception of the government also strengthens or weakens the overall value of the currency. The
possible reasons behind the appreciation or depreciation of USD/JPY and USD/KRW is directly
depicted as follows.
USD/JPY:
Depreciation:
There were major events that led to the deprecation of USD against other countries,
during 2016. One of the major global events was the decision for Brexit, which had a direct
impact on the USD, EUR and GBP valuation. The decision of Brexit was directly related to the
valuation of USD/GBP, as UK would not be under EU, which in turn could have impact its
valuation and led to the alteration in USD. The event of Brexit is considered to be a global event,
where maximum of the countries’ currencies was impacted were impacted. The change in
valuation also led to the decline in USD value against other currencies. However, the
appreciation of USD after Brexit was due to the change in sentiments and relevant depreciation
of GBP. However, after the US election of 2016 the overall appreciation that was anticipated in
the USD was not fulfilled, which led to the depreciation of the currency. The policies adopted by
the US government after the selection of Donald Trump has gradually declined the USD value in
the global market, which in turn has affected the valuation of USD/JPY. The second depreciation
of US during the December of 2017 was due to the actions that was taken by the Japanese
government. The USD continued to depreciation due to the changes in the Japanese government

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actions over the period of time. Nevertheless, the changes in FED rates has also negative impact
on the USD/JPY, where the JPY currency depreciated (Xe.com 2019).
Appreciation:
During 2017 December the Japanese government posted the longest streak of expansion
in nearly 30 years. This led to the increment in the valuation of the JPY against other countries,
while USD was still holding the pressure from declining values. The appreciation of JPY against
USD during 2016 was due to rapid improvement steps that was taken by the Japanese
government. The Japanese government posseted in 2017 the highest growth in their exports and
increase in global demand for the products. This appreciated the overall JPY in comparison to
USD. The Japanese currency movement hurt the exporter of the country, as USA is their biggest
client, where the declining US current and appreciating JPY started to become problematic for
business men and economy. In this similar context, the changes in the interest rate proposed by
FED has mainly improved the level of USD and appreciated its value against JPY. Moreover, the
appreciation of JPY against USD was also indicated by the loose monetary conditions that is
been adopted by the Japanese government to curb the rate of inflation and strengthen their
current currency value (Cnbc.com 2018).
USD/KRW:
Depreciation:
The major depreciation of USD/KRW is seen from the declining parameters of USD, as
its overall valuation is reduced due to the external factors. The major problem that has been
witnessed from the deprecation of USD/KRW is the change in valuation of USD due to the
actions taken by the government. The increment in the purchasing power of US citizen has
mainly declined the overall value of USD due to rising imports from different countries. The
depreciation of USD was also initiated by the rising investments in the Korean market by the US
investors. The economic conditions of Korean are relevantly high, as there is high demand for
ships, automobiles and electronics in the world market, which directly increases the overall
demand for KRW. From 2016 the USD values started to depreciate, as overall exports of KRW
increased with an increment in the FDI investments. The combination of exports and FDI has

8INTERNATIONAL FINANCIAL MANAGEMENT
mainly allowed the KRW to appreciate, which in turn has depreciated the overall USD value in
comparison to KRW (Xe.com 2019).
Appreciation:
The overall appreciation KRW started from the 2016 Jan, where USD started to weaken
due to the global events and KRW increased with the rising demand for their exports. The low
control of Korean government on currencies manipulation has mainly allowed the KRW to
achieve appropriate valuation in the currency market. The government has changed certain
monetary policies to control the inflation that is relevantly increasing in Korean, while this
improvement has mainly triggered appreciation of the KRW against USD. The high interest rates
provided in KRW also increased the FDIs in the country, which in turn strengthened and
appreciated the KRW against USD. However, the impact of the Brexit result was seen during
July of 2016, where the USD started to appreciate, as demand for USD started to grow in the
global level. This strengthened the USD against KRW regardless of the rising exports in Korea
(Reuters.com 2019).
4. Calculating the indirect exchange rates for both currencies:
Particulars Dec 31, 2018
USD/JPY 109.58
JPY/USD 1/109.58 = 0.009125753
JPY/USD 0.009125753
Particulars Dec 31, 2018
USD/KRW 1,114.30
KRW/USD 1/1,114.30 = 0.000897424
KRW/USD 0.000897424
The above table provides information regarding the indirect exchange rate for USD/JPY
and USD/KRW. The relevant calculations have been conducted by dividing one from the overall

9INTERNATIONAL FINANCIAL MANAGEMENT
currency value to determine its indirect exchange rate. The indirect exchange rate for JPY/USD
is calculated to be at the levels of 0.009125753, while for KRW/USD is at 0.000897424. The
indirect exchange rate indicates about the values of 1 JPY or 1 KRW for USD, which can help in
determining the currency value that can be traded in terms of foreign currency.
Conclusion:
The assessment has mainly evaluated the performance of USD/JPU and USD/KRW for
the period of three years. Moreover, the relevant graph has been presented for portraying the
overall changes in the level of JPY and KRW over the period of three years. The valuation has
also indicated that values of USD in companies to JPY and KRW started to decline and improve
over the period of three years. However, the actual value of USD has mainly depreciated against
both JPY and KRW, as the less amount of JPY and KRW is generated from 1 USD. There was
relevant news regarding the Japanese and Korean government, where relevant actions are taken
to strengthen their currency against USD.

10INTERNATIONAL FINANCIAL MANAGEMENT
References:
Cnbc.com. 2018. Signs point to the Japanese yen getting even stronger as the US dollar keeps
sliding. [online] Available at: https://www.cnbc.com/2018/02/27/japanese-yen-may-strengthen-
as-dollar-weakens-morgan-stanley-and-ing.html [Accessed 19 Apr. 2019].
Dailyfx.com. 2019. USD/JPY - Live Rate, Forecast, News and Analysis. [online] Available at:
https://www.dailyfx.com/usd-jpy [Accessed 19 Apr. 2019].
Filippou, I., Gozluklu, A.E. and Taylor, M.P., 2018. Global political risk and currency
momentum. Journal of Financial and Quantitative Analysis, 53(5), pp.2227-2259.
Reuters.com. 2019. Exclusive: South Korea to look at boosting outflows if won rally.... [online]
Available at: https://www.reuters.com/article/us-southkorea-markets-forex-exclusive/exclusive-
south-korea-to-look-at-boosting-outflows-if-won-rally-continues-sources-idUSKBN1ES05Z
[Accessed 19 Apr. 2019].
Xe.com. 2019. XE: Convert USD/KRW. United States Dollar to Korea (South) Won. [online]
Available at: https://www.xe.com/currencyconverter/convert/?
Amount=1&From=USD&To=KRW [Accessed 19 Apr. 2019].