FNCE30003 International Finance
Group Assignment
2024 Semester 2
Details:
1. This assignment constitutes 15% of your final grade.
2. This assignment includes two files:
 this pdf assignment instruction file, and
 the Excel file containing the necessary data needed for the assignment.
3. It must be finished with your assignment group.
4. Due date: Monday September 31, 2024, 11:59pm through LMS.
Marking Guidelines:
1. The distribution of the marks are:
 Part I. 45 marks
 Part II. 25 marks
 Part III 30 marks
 Total: 100 marks
2. Penalties for late submission: In order to ensure equality for all students, the
assignment must be completed within specified time limits. Each calendar day beyond
the due date incurs 10 marks deduction. Assignments submitted later than 10 calendar
days after the due date will not be marked and will receive no marks.
3. Your submission to the assignment include a written report and an Excel file.
 The written report should contain all the answers, including all necessary
results and/or plots.
 The Excel file should provide all the calculations, including but not limited to
the results presented in the written report.
4. Referencing
 1. Websites, magazine/newspapers, etc.
o Refer to websites and magazines/newspapers as footnotes (footnotes
not endnotes).
o For websites, include the full link and also the date accessed. (You
don’t need to put these in the bibliography.)
o If you paste in a graph/figure/table from some other document or
website, you must provide full information on the source.
o If you create a table or a graph from data that you have found on a
website (or elsewhere), you must provide the data source.
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 Academic articles/books.
o When referring to academic sources in your essay, use the name of the
author(s) and the year of publication.
o For example: “Dixon (2015) reports that. . . ”; “. . . as Zeng and Gao
(2021) argue. . . .”
o If there are more than three authors, you should state the first author
followed by et al., for example “. . . La Portral et al. (2018).” (The full
list of authors must be included in the bibliography).
5. Plagiarism and Collusion:
Policy against plagiarism and collusion has been included in your course outline.
Please see https://academicintegrity.unimelb.edu.au/ for more information.
6. Policy against “free-riders”
You are encouraged to resolve any dispute by yourselves, which is a vital part of the
learning experience. Each group member will receive the same marks, except any
individual that is identified as a non-contributor by a formal statement with supporting
evidence from the group members. Zero mark will be recorded for such individual.
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Part I. Currency Carry Trade (45 marks)
All the questions and requirements are underlined with bold fonts.
In this exercise, we take a look at the currency carry trade. In the assignment Excel
file:
 Sheet “Part IA” includes the end of month exchange rate USD/AUD and
JPY/USD.
 Sheet “Part IB” includes the monthly interest rates for USA, Japan and
Australia.
 The data period is 30-Jan-2010 to 30-Jul-2024.
 Note: To be consistent, we will use the quote 1AUD = xUSD, 1USD = yJPY,
and 1AUD = zJPY, in answers to all the questions in this part.
1. Report the mean, standard deviation, skewness, kurtosis, and maximum
and minimum of monthly percentage change of the BID exchange rates
between USD and AUD, JPY and USD. (5 marks)
2. Report the mean, standard deviation, skewness, kurtosis and maximum
and minimum of the interest rate differences between JPY and USD, and
between USD and AUD. (5 marks)
3. Plot the time-series of percentage changes of USD-JPY exchange rate and
interest rate difference between JPY and USD, all in per annum terms.
Then in another graph do the same for AUD and USD. (10 marks) You
may find a similar graph in the lecture on AUD and JPY relation.
4. To explore whether currency carry trade is profitable, we use the following
strategy acting as a Japanese investor to consider AUD and JPY carry trade:
i). at the end of each month t, we borrow 1 million JPYs, convert to
AUD straight away, then invest the money for month t+1;
ii). then convert back to JPY at the end of each month t+1.
Starting with the given data, describe the steps and formula you use in the
calculation (backed up by your excel spreadsheet). Report the average
monthly profits or losses and the standard deviation. (20 marks)
5. At the beginning of 2019, suppose you just started your carry trade business.
You started replicating the same process as described in Question 4 for the full
2019 calendar year. Report your average monthly profits or losses from
your first year in carry trade. Regardless of your first year results, you
wanted to keep trading for the full 2020 calendar year. Report your average
monthly results for 2020. Is there any difference from these two years’
results? Comment on what potentially would cause the difference. (5
marks)
Note: Question 5 is an open question. The word limit is stickily no more than 100.

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Reference

Aiyar, S., Chen, J., Ebeke, C. H., Garcia-Saltos, R., Gudmundsson, T., Ilyina, A.,
Kangur, A., Kunaratskul, T., Rodriguez, S. L., Ruta, M., Schulze, T., Soderberg, G.,
& Trevino, J. P., 2023. Geo-Economic Fragmentation and the Future of
Multilateralism. International Monetary Fund.
Bown, C. P., 2020, Peterson Institute for International Economics. US-China Trade
War: The Economic Impact. Peterson Institute for International Economics.
Retrieved from https://piie.com/.
Campos, Rodolfo G.; Estefania-Flores Julia; Furceri Davide and Timini Jacopo, 2023,
Geopolitical fragmentation and Trade, Journal of Comparative Economics, Volume
51, Issue 4, 1289-1315.
Fernández-Villaverde, J., Mineyama,T. and Song, D., 2024, Are We Fragmented
Yet?: Measuring Geopolitical Fragmentation and its Causal Effects. University of
Pennsylvania. https://www.sas.upenn.edu/~jesusfv/Fragmentation.pdf

Son, M., 2022, The global propagation of the US–china trade war - empirical
economics,SpringerLink. https://link.springer.com/article/10.1007/s00181-022-
02231-7#citeas.