Introduction

Two exams

(mid-term and final).

1. Every once in a while, I might ask you some bonus questions. If you answer one correctly, you receive a bonus point. Each bonus point is worth 1% of total score.
2. If I make a mistake and you correct it, you would get a bonus point (which applies to only important subjects).

Foreign exchange rates are published in Wall Street Journal and other newspapers. These rates are also published on the Internet. This assignment is due on the first day of the last month of this semester. (2 points)

Each of you has $2 million idle for one semester. In this case, one would normally deposit the money in a bank to collect interest. But ignore the interest income. Assume that interest rates are equal throughout the world. If the interest rate is 9% annually, then for four months, one would get about 3%. For simplicity, ignore this interest income also. We can simply assume that capital is perfectly mobile between countries, and hence the world interest rates are the same. You have $2 million for speculative purpose only.

          The purpose of this exercise is to help you become familiar with foreign exchange transactions necessary for international trade.

1. Convert $2 million into another currency (or a combination of currencies) using the exchange rates on January 10, and hold the sum until February 1. (For each of these transactions, please attach copies of the quotations from Wall Street Journal, other newspapers, or Internet quotations)
2. On February 1, convert your foreign currency holding into some other currencies.
3. Repeat this on March 1 and April 1.
4. On April 23 (Monday), convert all foreign currencies you have into USD to determine whether you have made profits in your speculation. Whether you made money or not has no bearing on your grade.
5. This assignment is due on April 23 (Monday)

Alternatively, you can multiply the amount of US $ by the figures in the third/fourth column
(ii) $1 million x (1/e) = the amount of foreign currency.

George Soros is a currency speculator. In one famous week in 1992, he made over $1 billion, betting against the British pound, earning him the grudging title of "the Man Who Broke the Bank of England".

          Soros' Quantum Fund makes money by anticipating economic shifts around the world. In 1992 Soros thought the British pound would lose value because of political and economic pressures. He borrowed billions of pounds and converted them to German marks. When the pound collapsed on September 16, Soros repaid the pounds at the lower rate and pocketed the difference. His profit: over $1 billion.

          Malaysian Prime Minister Mahathir Mohamad accused him of being a criminal. He said Soros the speculator had attacked Southeast Asian currencies to punish their governments for permitting Burmese military regime to ASEAN.