Analysis of Exchange Rate Risk in International Stock Portfolios

This report examines the exchange rate risk associated with international stock portfolios, focusing on the United Kingdom, Australia, and Canada. The research investigates the impact of exchange rate fluctuations on stock returns and utilizes financial instruments like currency futures, options on futures, and Exchange-Traded Funds (ETFs) for risk management. The study employs both primary and secondary data, including surveys and historical market data, to evaluate the relationship between exchange rates and stock market performance. The methodology includes a deductive research approach with quantitative analysis using statistical tools. The report addresses research questions concerning exchange rate risk in major stock indices and the application of financial instruments in risk mitigation strategies. The findings will contribute to understanding and managing the complexities of international investment and the associated currency risks, offering insights for investors and financial managers. The report also includes a detailed project timeline and milestones.

Running head: EXCHANGE RATE RISK OF INTERNATIONAL STOCK PORTFOLIOS
Exchange Rate Risk of International Stock Portfolios
Name of the Student
Name of the University
Author’s Note

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Table of Contents
1.0 Research Topic..............................................................................................................2
2.0 Background of the research topic..................................................................................2
3.0 Business Significance....................................................................................................2
4.0 Research Questions........................................................................................................3
5.0 Literature Review..........................................................................................................4
5.1 Currency Futures.......................................................................................................4
5.2 Options on futures......................................................................................................4
5.3 Exchange-Traded Fund (ETF)...................................................................................5
6.0 Research Methodology..................................................................................................5
7.0 Data Collection and Analysis........................................................................................6
8.0 Data Sampling Method..................................................................................................6
9.0 Discussion of Results.....................................................................................................6
10.0 Discussion of Hypothesis............................................................................................7
11.0 Milestone Report.........................................................................................................7
12.0 Conclusion and Future work........................................................................................8
References............................................................................................................................9

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1.0 Research Topic
Exchange Rate Risk of International Stock Portfolios – Evaluating international stock
portfolios using United Kingdom, Australia, and Canada as source of stock holdings.
2.0 Background of the research topic
The research will be aimed to evaluate the various types of the international Stock of
portfolios. The main considerations of the stocks wisll be done by the using United Kingdom,
Australia, and Canada as source of stock holdings. The research report will be further be able to
map the exchange rate of the risk by the use of historical data and stock returns on the major
stock indices from the aforementioned countries. The research will also include the ETFs
(Exchange Traded Funds) on NYSE, which will be dedicated to the stocks from the countries.
After the establishment of the risk map, the financial instruments such as exchange rate will be
used. Some of the use of major financial instruments will be seen in terms of options on those
futures, exchange rate futures and risk management strategy based on the viewpoint of the
various types of the investors situated in US (Scott, 2015).
3.0 Business Significance
The various types of the link among the stock of a country and the exchange rates are
subject to empirical and the theoretical investigations for more than two decades. The main form
of the nature and the magnitude of the services have been further seen to be associated to the
interdependence among the exchange price and the stock price with the number of important
issues faced in the international finance. The main significance has been seen in terms of
evaluating the risk of stock market price of the exchange risk. The traditional method of CAPM
tells us about the exchange risk being specific and non-systematic which should be diversified
and should not be priced in the market. The second business significance is able to identify the

3EXCHANGE RATE RISK OF INTERNATIONAL STOCK PORTFOLIOS
presence of the exchange risk and the relationship with the stock market along with the
implication on the international asset pricing. The third forms of the risk has been observed with
risk reward tradeoff based on the international diversification and manage the multi-currency
equity portfolio with the way, stock price interacts. Moreover, rise in the cross border equity in
specific investments has been further seen to be critical for funding the managers. The asset
marker price has been further seen to be related to the equilibrium rate of determination
(Gadanecz, Miyajima & Shu, 2014).
4.0 Research Questions
The various types of the risk associated to the research are listed below as follows:
1) What the various types of the exchange risk involved in the major stock indices on a
particular country?
2) What the various types of the exchange risk involved in the major stock indices of
United Kingdom, Australia, and Canada stock holdings on NYSE ?
3) What the main form of the risk which are involved in the evaluations of the stock indices
from the United Kingdom, Australia, and Canada on NYSE?
4) What are various types of the financial instruments which may be applied to the risk
management strategy?
5.0 Research Hypothesis
The various types of the research hypothesis need to be evaluated based on the following
aspects:
 Null Hypothesis (H0): The international stocks of the portfolios in United Kingdom,
Australia, and Canada have high or moderate risk associated to the financial security of
the investor’s based in U.S.

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 Alternative Hypothesis (H1): The international stock of the portfolios in United
Kingdom, Australia, and Canada does not have any risk associated to the financial
security of the investor’s based in U.S.
5.0 Literature Review
5.1 Currency Futures
Currency futures or exchange rate futures are considered as transferable futures contract
which can be bought and sold at a future date. It has been further observed that the currency
futures are legally binding in nature with the various types of the counter parties and holding the
contract with the various types of the holding of the contracts. The currency futures are further
seen to allow the investors to hedge against the foreign exchange risk. The currency futures
contracts are seen to be marked to the market as per the obligation on the investors to exit from
the currency prior to the delivery date of the contract. The price of the currency future is
determined on the date on which the contract is signed. It has been further discerned that most of
the participants in the future market are the speculators who close out their position prior to the
date of settlement so that most of the contracts are not seen to last until the date of delivery
(Gabaix & Maggiori, 2015).
5.2 Options on futures
Options on future are seen to be option contract along with the underlying single futures
contract. It has been further seen that the buyers of such futures has the right for the assumption
of the particular futures position at a specified price before the expiration of the option. It has
been further discerned that the buyer of a futures option contract is not obligated for the
assumption of the particular futures position at a specified price before the expiration of the
option. The future option for the seller has been further assumed as per opposite of the futures
position, in cases where the buyer has the exercising right. Some of the important considerations

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which need to be made in Trading Futures Options has been based on the expiration dates, strike
price and Exercising an assignment (Beckmann & Stix, 2015).
5.3 Exchange-Traded Fund (ETF)
ETF are those marketable securities which tracks the bonds, commodity and collection of
the assets such as index funds. ETFs are based on the trade as per the common stock on the
exchange rates. ETF are further seen to experience the price changes as per the day on which the
stocks are bought and sold. ETFs typically have a higher daily liquidity and lower fees than the
mutual fund, thereby making them an attractive alternative for the investors.
6.0 Research Methodology
The various types of the evaluation of the data will be based on the use of both primary
and secondary data. It has been further discerned that the secondary data evaluations will be done
with the historical process evaluation from the various types of the sources of the websites. It has
been further discerned that the main strategy of the research will be considered based on a
deductive research approach. It has been also seen that the impact of the exchange risk and the
various types the research questions set on the topic shall be evaluated based on the use of the
hypothesis. The main form of the evaluation based on the hypothesis of the study wile be able to
devised with the various types of the impact which are seen to be associated to the portfolios of
United Kingdom, Australia, and Canada on NYSE. It has been further discerned that the various
considerations of the research will be based on the quantitative research approach. This will be
further ensured with these of accurate sampling techniques and enumerate the process. The
various types of the facts of the research will be considered as per the synchronization of the data
along with the alignment of the research topic.

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7.0 Data Collection and Analysis
The main consideration of the data analysis is associated to the information based on the
correlation of the information as per the previous journals and the articles based on the present
analysis of the research. Some of the market indices have been further seen to be considered as
per the secondary research methods. It has been further discerned that the different evaluations
based on the report will be able to state on the survey on the exchange markets in United
Kingdom, Australia, and Canada as source of stock holdings. The primary data will be collected
from a total of 200 respondents through a survey with questionnaires. It has been further seen
that the research study will include a total of 30 research questions. The various types of the risk
associated to the research will be considered as per investor domiciled in the United States.
The various types of the methods for the analysis of the data will be further seen to be
based on the statistical tools performed in MS excel.
8.0 Data Sampling Method
The main types of the sample used in the research will be considered as per the simple
random sampling method. The simple random sampling technique will ensure that the responses
of the participants are not biased in any form. This will further be able to ensure that the
respondents will not give preference to any particular choice of the questions. The sampling
technique has been further able to ensure that the choices of the respondents are taken from
reliable sources, which are into portfolio exchange rates. The various elements of the sample
points will be considered as per the sample units based on the observation method.
9.0 Discussion of Results
The final discussion of the results will be considered as per the final research of
the project. The various types of the discussion and the interpretations pertaining to the research

7EXCHANGE RATE RISK OF INTERNATIONAL STOCK PORTFOLIOS
will be considered as per the quantitative research approach. Some of the various types of the
associated of the research will be considered based on the implementation of the concepts such
as per the Currency futures, Options on future and Exchange-Traded Fund (ETF).
The different types of the results of the quantitative analysis will be considered based on
the use of the statistical tools such as measures of dispersion and central tendency. The
application of the currency future will be able to identify the positions before the date of
settlement. It has been further discerned that the various types of the process based on the
currency future will be considered on the time the contract is signed as it is done in case of the
forex market. It has been further discerned that most of the participants in a future market will be
considered as speculators.
10.0 Discussion of Hypothesis
The various types of the results from the research questions will be conducive in
addressing the various aspects of the international stocks of the portfolios in United Kingdom,
Australia, and Canada and its impact on the financial security of the investor’s based in U.S. The
different types of the options based on the futures will be taken into consideration as per the
options which is exercised based on the short options for the various types of the underlying
asset in the future date set as per specific price.
11.0 Milestone Report
The project timeline is seen to be prepared to complete the project in six weeks. The first
week has been seen to be related to the setting of the idea for the project. The second week of the
project has been aimed to address the various types of the concerns associated to the designing of
the project. The third stage in the project plan has been further seen to be identified to address
the different types of the consideration which are seen to be related to address the various types

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of the requisite for the collection of the data. This process will continue for week 2, week 3 and
week 4. Interpretation of the collected data has been done in the 3rd and 4th week. The
publication of the data will be done in week 5 and week 6.
12.0 Conclusion and Future work
The main interpretation of the study will be able to highlight use of historical data and
stock returns on the major stock indices on NYSE. The study will be further able to identify the
various types of the exchange risk involved in the major stock indices on a particular country. It
will be also able to state on the various types of the exchange risk involved in the major stock
indices of United Kingdom, Australia, and Canada stock holdings on NYSE. Some of the various
types for the other aspects of the research will be able to include the main form of the risk which
are involved in the evaluations of the stock indices from the United Kingdom, Australia, and
Canada on NYSE. Various types of the financial instruments which may be applied to the risk
management strategy will be stated in the study. The hypothesis of the study will be further state
the important assumptions as per whether the international stocks of the portfolios in United
Kingdom, Australia, and Canada have high or moderate risk associated to the financial security
of the investor’s based in U.S. The main methodology of the study has been further able to state
on the important aspects of the quantitative data analysis. The use of the various types of the data
analysis techniques will be able address on the use of the statistical tools such as measure of
dispersion and central tendency. Some of the various types the aspects of the research will be
taken into consideration with the use of the simple random sampling technique. The important
aspects of the research will be able to state in the different types the aspects of the research will
be able to show the use of the survey questionnaire for the data collection.

9EXCHANGE RATE RISK OF INTERNATIONAL STOCK PORTFOLIOS
References
Beckmann, E., & Stix, H. (2015). Foreign currency borrowing and knowledge about exchange
rate risk. Journal of Economic Behavior & Organization, 112, 1-16.
Gabaix, X., & Maggiori, M. (2015). International liquidity and exchange rate dynamics. The
Quarterly Journal of Economics, 130(3), 1369-1420.
Gadanecz, B., Miyajima, K., & Shu, C. (2014). Exchange rate risk and local currency sovereign
bond yields in emerging markets.
Scott, K. D. (2015). CNY & USD: Foreign Exchange Rates.