Currency Investment Portfolio

You are the Portfolio Manager of a global currency fund based in Canada. You have US$100,000 in cash to invest. Your investors would like you to take advantage of the possibility that some currencies may outperform the U.S. dollar to provide them with a higher than expected return. However, they would like the funds to stay relatively liquid, so assume for the exercise that investments are deposited with one of the top banks in the country for three months. You are immediately able to invest the currency on September 3, 2020 with a local bank. No equity investments are allowed for the fund. Your client would like to know the performance of the portfolio as of November 6, 2020 (Assignment Part 2). Use foreign exchange rate data (close) from The Wall Street Journal for September 3, 2020 and interest rate data from The Economist Intelligence Unit (EIU) provided for this assignment. Construct a currency investment portfolio deciding on the allocation of currencies in the portfolio according to the following guide. The top performing portfolio in U.S. dollar terms will be announced in class at the end of the term. Your investors require an investment allocation in at least six currencies: Canadian dollar (required), U.S. dollar (required), euro (required), British pound (required), Japanese yen (required), and at least one minor currency. You can invest in more currencies but you must meet the minimum allowable amount for each currency. You also cannot exceed the maximum allowable amount per currency or the total funds available for this investment portfolio. Minimum investment in any currency is 10% of the total funds available. Maximum allowable amount in any currency is 25%. Use the Excel spreadsheet “Currency Investment Portfolio Spreadsheet” to allocate your funds. See Table 1 below for an example. (5 points). Use the currency rates provided in The Wall Street Journal Exchange Rates for September 3, 2020. Post the relevant rate selecting from one of the tables of EIU interest rates, assumed to be offered by a major bank in the country of your selected currency. For the euro, assume the investment is with a large bank in Germany. Note: When you select a minor currency, check the currency and interest rate information from the posted rates to make sure there are rates for these currencies. If no rate is posted, assume you are not able to invest in the currency for this assignment. Using currency news from one of the following sources: Reuters, Bloomberg, Financial Post or The Economist, write a one-page information sheet (5 points). In the information sheet, justify your choice of allocation of weights in the currencies in your portfolio. What is your view of the direction of the U.S. dollar in the short-term against the major currencies? What is your view on the Canadian dollar in the short-term?

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