Foreign Exchange Trading Activities Report Finance Essay

Oil Prices Go Up in Flames/9/17/2012/ With all of the uproar and chaos in the middle east at the moment, U.S. may look to other places to find oil. One of these places could be Australia. Although not mentioned specifically in the article, Australia exports a lot of oil, so this may be a new opportunity for the Aussie dollar to increase.

State of Europe's Banks: Safe and Stressed/ 9/25/2012/ Exposure to Spain could shake German banking, but experts say it is unlikely to trigger a 2008-style crash. I decided to invest in the Euro this week based on an article stating that although, the Euro is under pressure at the moment as a result of the Greece bail out, the currency still looks to be relatively stable.

Asia Gets Tactical With Its Stimulus/10/2/2012/ China has sped up infrastructure project approvals in an attempt to jump start the economy. This week I invested in the Hong Kong currency after reading an article stating that it is trying to improve the economy with infrastructure projects. Based on this I was hoping that this would push the currency upwards.

Hermes remains Upbeat on China/10/9/2012/ France's Hermes International is sticking by an upbeat outlook. It plans to invest tens of millions of euros over the next 5 years to develop its boutique Chinese label.

Once a Darling Australian Dollar Loses Favor/10/16/2012/ Investors are losing favor with the Aussie as a result from the slow growth of China. Since China's slowdown, the Reserve Bank of Australia has lowered rates for the third time this year. Investors no longer see the Aussie as a safe choice with high interest rates, robust Chinese Growth, and a solid American economy.

USD/CAD: underlying bull trend remains constructive - TD Securities/10/24/12/TD continues to recognize upside potential in this pair: "The underlying trend higher on the longer-term charts remains constructive and we think it is too early to call time on the broader move up."

EUR/USD lower in ranges as expected - UBS/11/2/2012/

A strong US labor market report and a European PMI that confirmed the bleak picture of earlier releases led EURUSD lower within trading ranges, says the UBS team. "1.2840 and 1.2780 should build, however, a solid support".A "We would be surprised if this were to be broken ahead of US elections as position taking and potential moves are likely to be very limited until the news is out on Wednesday", UBS comments. "Greece remains a big challenge for EURUSD, but here also the parliament decides on Wednesday on austerity measures".

Saying No to Growth in China/11/7/2012/ Although China, may have just completed a deal for a vast copper smelting project, thousands crowded the streets to protest this deal, which would create a $1.6 billion dollar factory that would pose a pollution project. What was once a good strategy for the Chinese may now be backfiring, due to the result of more people caring for the environment than ever before. This strategy was a build at all costs strategy and the Chinese now may have to think of something else.

European Stocks Climb on Spain Bailout Speculation/November 13, 2012/ European (SXXP) stocks climbed, halting a four-day decline for the benchmark Stoxx Europe 600 Index, as yields on benchmark Spanish bonds slipped amid speculation that the country's government will soon ask for a bailout.

GBP/USD extends rally to 1.6050/11/23/12/ The pound accelerated gains versus the dollar after breaking above to the 1.6 and reached a fresh two week high propelled by risk appetite amid think liquidity into the end of the week

EU Clears Spanish Bank Rescue/11/29/20120/ European Union Regulators ok'd $47.9 billion in euro funding for Spain's banking sector setting in motion a long-term cleanup. In exchange, four nationalized banks agreed to make sharp cuts in their balance sheets and payrolls. These funds and cuts are aimed at helping the banking sector absorb losses from the collapse of the real estate boom.

Nicholas Calabrase

Professor Huiping Li

Fundamentals of International Business

12/17/12

Reaction Paper

After selling off all positions on December 12, 2012, I had found that I had $1,001,074.38 in US currency, which is an increase of $1074.38. While I found this project to be a good way to be introduced to the forex market, I feel that there are some things that could be improved upon. First off, I feel that we should have gone over how the market works in class/how to use the software. Although you sent us the website to introduce us to the foreign exchange market, the foreign exchange program that the instructor was using was completely different than the one we had to use, which I found to only confuse me more. Also, I feel that we should have discussed why certain currencies went up/down and explain what we should be looking for. Another issue I feel that should be addressed is the number of currencies that we are allowed to use. This number should be increased because there were too many times that I found an article in the newspaper, predicting an upwards trending currency, only to realize later that we cannot trade with it due to the limited number of options. Some of the currencies that I feel we should be allowed to trade with that would also give us a better understanding of the foreign exchange market is:

Danish krone (DKK)

Mexican peso (MXN)

New Zealand dollar (NZD)

Norwegian krone (NOK)

Polish zloty (PLN)

Singapore dollar (SGD)

South African rand (ZAR)

Swedish krona (SEK)

While doing this project, I believe that there are some mistakes that I made that I can now look back on and reflect upon and hopefully change next time I do this competition. For example one mistake I made was instead of actually buying the currency of a different country, I only borrowed from the credit line. I never actually purchased that currency which is why I believe was the reason for my total at the end of the competition for being so close to $1,000,000. I did this in the first two weeks because I was unfamiliar with the process of buying a foreign currency with this software, which I believe is something that can be improved upon for next time.

Another mistake I believe I made was putting too much money into one currency and zero in others. Throughout the semester, the majority of money I had invested had gone into the Euro. This was breaking the cardinal rule of finance which is never put all of you eggs in one basket, meaning don't put all of your money into one stock because if it fails, you will be out a lot of money. One of the currencies that I did not use was the Swiss Franc as I could not find very many articles in the newspaper telling me to invest in it. As I mentioned above though I feel it would be very useful to increase the number of currencies students can choose from as, I believe it would make the project more interesting and exciting, as well as broaden the students' knowledge of different countries regarding their current economic status. Business students probably already know a lot about the major currencies and the countries that they belong too as a result of the news and media. Including smaller and more minor countries will allow students to broaden their knowledge about what is going on around the world everywhere, not just the major countries, which will definitely help them in the business world.

Although I did have many issues while doing this competition, I believe that there are a number of topics that I learned that will help me hopefully not just in future classes, but also later on in life. The first thing I learned was how exchange rates are always quoted in pairs like the EUR/USD. This is a standard used across the industry. I learned that the first currency listed is the base currency, while the second is called the quote currency. The currency pair shows how much of the quote currency is needed to purchase one unit of the base currency. In most cases, U.S. dollar is considered the base currency however the only exceptions to this are the Australian dollar, the Euro, and the Pound.

While doing research about how the foreign exchange market worked, I learned that there is a difference between international stock trading and foreign ordinary share trading. The first difference I learned was with the symbols. For the foreign exchange market, symbols include the root symbol, followed by a colon and then the two-letter currency that I want to trade in. This is different from foreign ordinary share trading in the way that symbols are five letters long ending with the letter "F".

A second difference I learned was that with foreign exchange, orders can execute on primary exchange, or they may be executed on automatic trading systems within the market which is determined by a local broker in each country. This is different from foreign ordinary share trading in the way that orders are executed by U.S. market makers, except with Canadian stocks.

A third difference that I researched did not have an impact on this project, but will probably be useful in the real world. This topic was about commissions. With foreign exchange, commissions are charged in the local currency. Commissions are charged on the trade that covers any clearing and settlement costs and local broker fees. Another fact is that additional fees such as stamp duty, transaction levy, and trading fees, that are specific to some foreign exchanges, will be identified as Other Fees at the time of the trade. There will also be a foreign currency exchange fee charged if U.S. dollar is chosen as the settlement currency. This is different from the foreign ordinary share market in the way that commissions charged are based on the U.S. domestic stock commission schedule. Also, foreign stocks that are not DTC eligible are subject to an additional $50 fee and foreign exchange fees are embedded in the execution price of the stock ("Stock faqs: international," ). Some types of securities that are DTC eligible are:

Equities

Warrants

Rights

Corporate debt and notes

Municipal bonds,

Government securities

Asset-backed securities,

Collateralized mortgage obligations,

Equity and debt derivatives, variable-rate demand obligations,

Money market instruments

American/global depositary receipts,

Shares of closed end funds,

Retail certificates of deposit,

Unit investment trust certificates

Shares of exchange traded funds

Insured custodial receipts (Information for Securities to be made "DTC-Eligible").

A third thing I learned was about the benefits and tradeoffs of foreign exchange trading. The foreign exchange market trade in over the counter market. This means that there is no central place where trades are made, unlike the New York Stock Exchange. Instead the market is made up of all the members in the market trading among themselves. This is an attractive benefit to traders as this means that because there is no central place, there is also little regulation, which allows for heavy competition between different providers to attract the most traders and volume to their firm. Transaction costs are also normally lower in over the counter markets when compared to similar products that trade on an exchange.

While I mentioned that the fact that there is no centralized center as an advantage, it can also be seen as a disadvantage. The low barriers to entry and lack of heavy oversight make it easier for firms offering trading to operate in a dishonest or fraudulent way. As there is no centralized exchange, the firm that you trade is the counterparty to your trade, so if something happens to that firm you are in danger of losing not only the trades you have with that firm but also your account balance (Waring, 2008).

Overall though, I definitely believe this project also helped enhance the course material as it provided a hands-on way to learn the stock market. I learned about how to look for trends and about what happens if you don't do your research properly. I learned about the differences between exchange traded and over the counter markets. I also gained valuable insight on how the market works and how quotes are listed in pairs, as well as the difference between the foreign exchange market and foreign ordinary share trading. I learned about how to look for trends in the market and to not always believe every analyst's opinion and hopefully I will be able to apply this knowledge in the future. This project also helped me in the way that I was able to learn the material in a way that best worked for me. I believe that this project was particularly great because it gave me a hands-on experience for learning which is the way I learn the best. "If you tell me something I will forget but if you show me I will understand" has really been the only way I have been able to learn over the past 15-18 years, which is why I felt it was a great project. Hopefully my suggestions will be taken into consideration and you agree with them so that the next student who has this project will be able to have a greater learning experience than I did.

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