Project: AUD/USD Exchange Rate and Financial Market Analysis

This project analyzes the AUD/USD exchange rate, focusing on a trading strategy over a specific period. It examines factors influencing the exchange rate, such as Brexit and US-China trade relations, and assesses risk and return. The analysis includes two to four transactions using a 25 million USD investment to demonstrate the potential for profit based on fluctuations in the AUD/USD exchange rate. The student highlights the impact of economic and political events on currency values and details the rationale behind each trade, along with the resulting profit or loss. The project concludes by emphasizing the importance of considering various macroeconomic, business, social, and political factors when making investment decisions. The student's work demonstrates a practical application of financial market principles.

Running head: FINANCIAL MARKET
Financial Market
Name of the Student:
Name of the University:
Author’s Note:

1FINANCIAL MARKET
Table of Contents
Question 1..................................................................................................................................2
References..................................................................................................................................5

2FINANCIAL MARKET
Date Rate Trading amount Profit/ loss
Buy 10/9/2019 1.4575 25000000 USD
36437500 AUD
-
Sell 11/9/2019 0.6862 25003431 USD 3431 USD
Buy 12/9/2019 1.4556 36395388 AUD
Sell 13/9/2019 0.6887 25067509 USD 64078 USD
Total 67,509 USD
Question 1
Summary of the Above part and use the below table to showing a minimum of 2
transactions and a maximum of 4 transactions with 100 million USD – AUD which
means use 25 million USD for 4 trades.
Key Summary: From the above analysis done above we can well understand that the
AUD/USD exchange rate will be stable and be appreciating over a period of time as the
interest rate differentials between the two economies reduces. In order to well capitalize the
same we would be incorporating various aspects of the above given factors like the changing
economic and political conditions that were in the field of Brexit and Volatility in the interest
rate. It was well important to capture the difference associated with the these factors and for
the same a trade will be initiated where the investment will be done in the AUD currency
from the USD currency conversion in order to capture the changes in the exchange rate in the
form of profitability.

3FINANCIAL MARKET
The trading strategy has yielded a profit of USD 67,509 from the initial investment of
USD 25 million for 4 trades. The AUD USD exchange rate is favorable due to the stable
exchange rates and favorable sentiment form China on the US China trade wars. The first
trade that will be executed will be done by including the 25 million of investment where the
initial starting currency will be 1.4575 USD/AUD Exchange Rate. At the same time, it is
important to note that the above $25 million will be converted using the 1.4575 rate to around
A$36,437,5001. The reason behind the trade on 10th of September has been due to that AUD
will be appreciating as the AUD/USD has been volatile in the recent time period of
September because of the US-China Trade War relations and the sterling of course that is
much more emphasized on Brexit Risks2. The economic and political events that were
happening has given a wider range of trade movement in the USD/AUD Exchange rate that
would have affected the USD Exchange rate. In response to the above events a short trade
was initiated on the USD Dollar by investing the proceeds into the Australian Dollar. In total
of two transactions were done form the first trade where a sum of $25 million was included
where the Australian Dollar will be purchased and sold simultaneously by the company.
On 11th of September 2019 the USD/AUD Exchange rate indeed saw a depreciation
from 1.4575 to 1.4573 reflecting a profitability of $3431 for the investor. On the other hand,
for the second trade it was estimated that the Australian Dollar will be strongly boosted due
to the Australian Dollar Outlook that the NAB gas forecasted after NAB Changes the RBA
Interest Rate for Australia3. In the case of second trade a total of $25 million in USD amount
1 Skinner, J. 2019. The Australian Dollar Outlook is in Doubt after NAB Changes RBA Interest Rate Forecast.
[online] Pound Sterling Live: Today's British Pound, Euro and Dollar News, Forecasts and Data. Available at:
https://www.poundsterlinglive.com/aud/12030-australian-dollar-bounce-in-question-after-nab-changes-rba-rate-
call [Accessed 15 Sep. 2019].
2 Skinner, J. 2019. The Pound-to-Australian-Dollar Rate is Set to Outperform in Weeks Ahead, Westpac Says.
[online] Pound Sterling Live: Today's British Pound, Euro and Dollar News, Forecasts and Data. Available at:
https://www.poundsterlinglive.com/aud/12023-pound-to-australian-dollar-rate-tipped-to-outperform-in-weeks-
ahead [Accessed 15 Sep. 2019].
3 Pound Sterling Forecast. 2019. Pound to Australian Dollar Forecast: Brexit Developments - Pound Sterling
Forecast. [online] Available at: https://www.poundsterlingforecast.com/2019/09/pound-to-australian-dollar-
forecast-brexit-developments/ [Accessed 15 Sep. 2019].

4FINANCIAL MARKET
will be invested in the Australian Dollar where the exchange rate that would be applicable for
the purpose of transaction will be around $1.4556 USD/AUD Exchange rate and the sum of
amount would be converted using the above rate getting in total of AUD$36,395,388 for the
investors. The investor would be selling the Australian dollar as the Australian dollar
appreciates and the USD depreciates due to the changes in the interest rate factor that has
been well taken into consideration for the trade. The AUD$36,395,388 amount will be then
sold at the rate of $0.688 per AUD/USD for the purpose of booking the profit. The total
amount of profit that would be generated from the trade would be around $67,509 and the
same would be well generated due to the forecasted depreciation of USD Dollar in
comparison to the AUD exchange rate. The total amount of profitability that the investor
would be making from the trade would be around $67,509 and the same would be achieved
by the investor with an initial investment of $25,000,0004. However, it is important to note
that there are various other factors that the investor should consider while investing and
deciding upon the trade level and the same would be in the field of macro-economic
variables, business factors, social and political factors that well affect the overall trading
strategy undertaken by the investor.
4 Skinner, J. 2019. The Australian Dollar Outlook is in Doubt after NAB Changes RBA Interest Rate Forecast.
[online] Pound Sterling Live: Today's British Pound, Euro and Dollar News, Forecasts and Data. Available at:
https://www.poundsterlinglive.com/aud/12030-australian-dollar-bounce-in-question-after-nab-changes-rba-rate-
call [Accessed 15 Sep. 2019].

5FINANCIAL MARKET
References
Pound Sterling Forecast. 2019. Pound to Australian Dollar Forecast: Brexit Developments -
Pound Sterling Forecast. [online] Available at:
https://www.poundsterlingforecast.com/2019/09/pound-to-australian-dollar-forecast-brexit-
developments/ [Accessed 15 Sep. 2019].
Skinner, J. 2019. The Australian Dollar Outlook is in Doubt after NAB Changes RBA Interest
Rate Forecast. [online] Pound Sterling Live: Today's British Pound, Euro and Dollar News,
Forecasts and Data. Available at: https://www.poundsterlinglive.com/aud/12030-australian-
dollar-bounce-in-question-after-nab-changes-rba-rate-call [Accessed 15 Sep. 2019].
Skinner, J. 2019. The Australian Dollar Outlook is in Doubt after NAB Changes RBA Interest
Rate Forecast. [online] Pound Sterling Live: Today's British Pound, Euro and Dollar News,
Forecasts and Data. Available at: https://www.poundsterlinglive.com/aud/12030-australian-
dollar-bounce-in-question-after-nab-changes-rba-rate-call [Accessed 15 Sep. 2019].
Skinner, J. 2019. The Pound-to-Australian-Dollar Rate is Set to Outperform in Weeks Ahead,
Westpac Says. [online] Pound Sterling Live: Today's British Pound, Euro and Dollar News,
Forecasts and Data. Available at: https://www.poundsterlinglive.com/aud/12023-pound-to-
australian-dollar-rate-tipped-to-outperform-in-weeks-ahead [Accessed 15 Sep. 2019].