MBA7006 – Finance of International Business

MBA7006 – Finance of International Business

AIMS

The aim of the assessment is to provide students with a working understanding of the portfolio theory through creating and managing a portfolio from internationally traded assets. The students are also required to critically evaluate the portfolio performance from the knowledge and skills learned from the module.

LEARNING OUTCOMES

On completion of this coursework, students will be able to:

1. Apply the principles of modern portfolio theory when making a rational investment decision.
2. Critically evaluate the effectiveness of portfolio evaluation techniques and apply the various approaches to the portfolio.
3. Demonstrate an ability to access, analyse and interpret data.
4. Create an investment portfolio and confidently present their work to prospective investors.
5. Develop critical and analytical skills and the ability to work independently.

ASSESSMENT REQUIREMENTS AND INSTRUCTIONS

1. There are THREE sections on the assessment. You must attempt all sections. The total mark for all sections is 100 marks.

1. You must show all appropriate working using EXCEL and present all spreadsheets as an Appendix in the report. There must be a clear reference made to the content of your work.

The report can only be completed by you. An assignment feedback form must be attached at the front page after the cover sheet of your report. 

PART A (40%)

1. Use Bloomberg or Bank of England and any other websites that offer historical spot foreign exchange data to extract the daily closing currency values for the most recent three year (e.g. 31 January 2017 to 31 January 2020).

 

1. Calculate the following:

(a)   The daily rate of returns for each of the currencies. Visually examine the performance of the value of the currency and the daily rate of returns for each of the currencies by showing the data on graphs or charts as appropriate.

(b)   The mean returns for each of the currencies.

(c)    The variance and standard deviation of returns for each of the currencies.

(d)   The covariance of returns between each pair of the currencies.

(e)   The correlation coefficients of returns between each pair of the currencies.

1. Based on your results from (a) to (e) and any further analysis you may wish to do, compare and comment the risk and return patterns and characteristics for each of the currencies. Your comments should draw on materials and theories you have learnt in this module. Relate the performance of the currencies to relevant events (e.g. economic, financial or political events) that took place during this period and discuss how they had influenced the performance for each of the currencies. You must give bibliographic references to the sources of your information.

 

PART B (40%)

This section requires you to construct an equally weighted portfolio of the currencies selected above.

1. Calculate the following:

(a)   The daily rate of returns of the portfolio. Visually examine the performance of the returns for the portfolio and each of the currencies by showing the data on graphs or charts as appropriate.

(b)   The mean, variance and the standard deviation of the portfolio returns.

(c)    The covariance and correlation coefficients of returns between each currency and the portfolio.

(d)   The coefficient of variation of returns for each currency and the portfolio.

1. Based on your results from (a) to (d), examine and compare the performance of your equally weighted portfolio returns with those of the individual currencies. Comment on your observations, relating to the portfolio theory, and discuss the benefits of diversification across these currencies. You may also apply the portfolio evaluation techniques to evaluate critically the performance of your portfolio with those of the individual currencies.

PART C (20%)

This section requires you to draw a conclusion of the portfolio construction and analysis above.

From the viewpoint of a fund manager who wishes to determine whether the currencies that you examined are worth investing in, how useful is the portfolio analysis that you carried out? What limitations do you see in your analysis and results? What further analysis would you wish to carry out?