FINANCIAL ASSIGNMENT

Financial Assignment



ABSTRACT

Equity markets in Canada, the largest trading partner of the U.K., fared much better during this period. Fueled by surging commodity prices and a buoyant economy, Canada's S&P/TSX Composite index rose about 23%; including dividends, the total return was 49.7%, or 4.4% annually. This means that the Canadian S&P/TSX Composite index outperformed the S&P 500 by 75.7% cumulatively or about 7.5% annually. U.K. investors who were invested in the Canadian market over this period did much better than their stay-at-home compatriots, as the GBP's 33% appreciation versus the greenback turbocharged returns for U.K. investors. In GBP terms, the S&P/TSX Composite gained 63.2%, and provided total returns including dividends of 98.3% or 7.5% annually. That represents an outperformance versus the S&P 500 of 124.3% cumulatively or 10.7% annually.

Financial Assignment

INTRODUCTION

Each year developing countries seek billions of dollars of investment in their infrastructure, and private investors, mostly in rich countries, seek places to invest trillions of dollars of new savings. Private foreign investment in the infrastructure of developing countries would seem to hold great promise. But foreign investors must cope with volatile developing country currencies. Many attempts to do so have created as many problems as they have solved. This Note proposes that investors take on all financing-related exchange rate risk, even though this may mean higher tariffs for consumers as a premium for bearing that risk.

The unhedged investor would have had a loss of £4,743 on the initial £10,000 investment in the EWC shares. The hedged investor, on the other hand, would have had an overall loss of £2,943 on the portfolio.

PAPER FOR CHIEF EXECUTIVE OFFICER

Foreign Currency Translation

Conversion of the accounting figures stated in one currency into another currency for financial reporting requirements. According to the U.S. GAAP regulations, the balance sheet items are converted at the exchange rate as on the balance sheet date, and income statement items are converted at the weighted-average exchange rate for the that year. The gains and losses resulting from the conversion are presented in the owners' equity section as a separate item. Any material change in the exchange rate occurring during the period between the financial statement date and the audit report date is disclosed in the following financial statement.

Feasibility of Forecasting Spot and Forward Rates of Exchange

An old debate in international monetary economics is whether the forward exchange rate contains useful information about the future path of the spot exchange rate. If the expected change in the exchange rate equals the interest differential between the currencies, and the difference between the spot and forward exchange rates `the forward premium' equals the interest rate differential, the equilibrium forward exchange rate established now in an efficient market for delivery of foreign exchange n periods ahead should be the best available predictor of the spot exchange rate realized n periods later. Numerous studies show, however, that the forward rate is not the best predictor of the future spot rate; indeed it tends to mispredict the direction of subsequent spot rate ...