Exchange Rate Risk Of International Stock Portfolios

Research Topic

Exchange Rate Risk of International Stock Portfolios Evaluating international stock portfolios using United Kingdom, Australia, and Canada as source of stock holdings.

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The research will be aimed to evaluate the various types of the international Stock of portfolios. The main considerations of the stocks wisll be done by the using United Kingdom, Australia, and Canada as source of stock holdings. The research report will be further be able to map the exchange rate of the risk by the use of historical data and stock returns on the major stock indices from the aforementioned countries. The research will also include the ETFs (Exchange Traded Funds) on NYSE, which will be dedicated to the stocks from the countries. After the establishment of the risk map, the financial instruments such as exchange rate will be used. Some of the use of major financial instruments will be seen in terms of options on those futures, exchange rate futures and risk management strategy based on the viewpoint of the various types of the investors situated in US (Scott, 2015).

The various types of the link among the stock of a country and the exchange rates are subject to empirical and the theoretical investigations for more than two decades. The main form of the nature and the magnitude of the services have been further seen to be associated to the interdependence among the exchange price and the stock price with the number of important issues faced in the international finance. The main significance has been seen in terms of evaluating the risk of stock market price of the exchange risk. The traditional method of CAPM tells us about the exchange risk being specific and non-systematic which should be diversified and should not be priced in the market. The second business significance is able to identify the presence of the exchange risk and the relationship with the stock market along with the implication on the international asset pricing.

The third forms of the risk has been observed with risk reward tradeoff based on the international diversification and manage the multi-currency equity portfolio with the way, stock price interacts. Moreover, rise in the cross border equity in specific investments has been further seen to be critical for funding the managers. The asset marker price has been further seen to be related to the equilibrium rate of determination (Gadanecz, Miyajima & Shu, 2014).

The various types of the risk associated to the research are listed below as follows:

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  • What the various types of the exchange risk involved in the major stock indices on a particular country?
  • What the various types of the exchange risk involved in the major stock indices of United Kingdom, Australia, and Canada stock holdings on NYSE ?
  • What the main form of the risk which are involved in the evaluations of the stock indices from the United Kingdom, Australia, and Canada on NYSE?
  • What are various types of the financial instruments which may be applied to the risk management strategy?

Background of the research topic

The various types of the research hypothesis need to be evaluated based on the following aspects:

  • Null Hypothesis (H0): The international stocks of the portfolios in United Kingdom, Australia, and Canada have high or moderate risk associated to the financial security of the investor’s based in U.S.
  • Alternative Hypothesis (H1): The international stock of the portfolios in United Kingdom, Australia, and Canada does not have any risk associated to the financial security of the investor’s based in U.S.

Currency futures or exchange rate futures are considered as transferable futures contract which can be bought and sold at a future date. It has been further observed that the currency futures are legally binding in nature with the various types of the counter parties and holding the contract with the various types of the holding of the contracts. The currency futures are further seen to allow the investors to hedge against the foreign exchange risk. The currency futures contracts are seen to be marked to the market as per the obligation on the investors to exit from the currency prior to the delivery date of the contract. The price of the currency future is determined on the date on which the contract is signed. It has been further discerned that most of the participants in the future market are the speculators who close out their position prior to the date of settlement so that most of the contracts are not seen to last until the date of delivery (Gabaix & Maggiori, 2015).

Options on future are seen to be option contract along with the underlying single futures contract. It has been further seen that the buyers of such futures has the right for the assumption of the particular futures position at a specified price before the expiration of the option. It has been further discerned that the buyer of a futures option contract is not obligated for the assumption of the particular futures position at a specified price before the expiration of the option. The future option for the seller has been further assumed as per opposite of the futures position, in cases where the buyer has the exercising right. Some of the important considerations which need to be made in Trading Futures Options has been based on the expiration dates, strike price and Exercising an assignment (Beckmann & Stix, 2015).

ETF are those marketable securities which tracks the bonds, commodity and collection of the assets such as index funds. ETFs are based on the trade as per the common stock on the exchange rates. ETF are further seen to experience the price changes as per the day on which the stocks are bought and sold. ETFs typically have a higher daily liquidity and lower fees than the mutual fund, thereby making them an attractive alternative for the investors.

Business Significance

The various types of the evaluation of the data will be based on the use of both primary and secondary data. It has been further discerned that the secondary data evaluations will be done with the historical process evaluation from the various types of the sources of the websites. It has been further discerned that the main strategy of the research will be considered based on a deductive research approach. It has been also seen that the impact of the exchange risk and the various types the research questions set on the topic shall be evaluated based on the use of the hypothesis. The main form of the evaluation based on the hypothesis of the study wile be able to devised with the various types of the impact which are seen to be associated to the portfolios of United Kingdom, Australia, and Canada on NYSE. It has been further discerned that the various considerations of the research will be based on the quantitative research approach. This will be further ensured with these of accurate sampling techniques and enumerate the process. The various types of the facts of the research will be considered as per the synchronization of the data along with the alignment of the research topic.

The main consideration of the data analysis is associated to the information based on the correlation of the information as per the previous journals and the articles based on the present analysis of the research. Some of the market indices have been further seen to be considered as per the secondary research methods. It has been further discerned that the different evaluations based on the report will be able to state on the survey on the exchange markets in United Kingdom, Australia, and Canada as source of stock holdings. The primary data will be collected from a total of 200 respondents through a survey with questionnaires. It has been further seen that the research study will include a total of 30 research questions. The various types of the risk associated to the research will be considered as per investor domiciled in the United States.

The various types of the methods for the analysis of the data will be further seen to be based on the statistical tools performed in MS excel.

The main types of the sample used in the research will be considered as per the simple random sampling method. The simple random sampling technique will ensure that the responses of the participants are not biased in any form. This will further be able to ensure that the respondents will not give preference to any particular choice of the questions. The sampling technique has been further able to ensure that the choices of the respondents are taken from reliable sources, which are into portfolio exchange rates. The various elements of the sample points will be considered as per the sample units based on the observation method.

Research Questions

The final discussion of the results will be considered as per the final research of the project. The various types of the discussion and the interpretations pertaining to the research will be considered as per the quantitative research approach. Some of the various types of the associated of the research will be considered based on the implementation of the concepts such as per the Currency futures, Options on future and Exchange-Traded Fund (ETF).

The different types of the results of the quantitative analysis will be considered based on the use of the statistical tools such as measures of dispersion and central tendency. The application of the currency future will be able to identify the positions before the date of settlement. It has been further discerned that the various types of the process based on the currency future will be considered on the time the contract is signed as it is done in case of the forex market. It has been further discerned that most of the participants in a future market will be considered as speculators.

The various types of the results from the research questions will be conducive in addressing the various aspects of the international stocks of the portfolios in United Kingdom, Australia, and Canada and its impact on the financial security of the investor’s based in U.S. The different types of the options based on the futures will be taken into consideration as per the options which is exercised based on the  short options for the various types of the underlying asset in the future date set as per specific price.

The project timeline is seen to be prepared to complete the project in six weeks. The first week has been seen to be related to the setting of the idea for the project. The second week of the project has been aimed to address the various types of the concerns associated to the designing of the project. The third stage in the project plan has been further seen to be identified to address the different types of the consideration which are seen to be related to address the various types of the requisite for the collection of the data. This process will continue for week 2, week 3 and week 4.  Interpretation of the collected data has been done in the 3rd and 4th week. The publication of the data will be done in week 5 and week 6.

12.0 Conclusion and Future work

The main interpretation of the study will be able to highlight use of historical data and stock returns on the major stock indices on NYSE. The study will be further able to identify the various types of the exchange risk involved in the major stock indices on a particular country. It will be also able to state on the various types of the exchange risk involved in the major stock indices of United Kingdom, Australia, and Canada stock holdings on NYSE. Some of the various types for the other aspects of the research will be able to include the main form of the risk which are involved in the evaluations of the stock indices from the United Kingdom, Australia, and Canada on NYSE. Various types of the financial instruments which may be applied to the risk management strategy will be stated in the study.

The hypothesis of the study will be further state the important assumptions as per whether the international stocks of the portfolios in United Kingdom, Australia, and Canada have high or moderate risk associated to the financial security of the investor’s based in U.S. The main methodology of the study has been further able to state on the important aspects of the quantitative data analysis. The use of the various types of the data analysis techniques will be able address on the use of the statistical tools such as measure of dispersion and central tendency. Some of the various types the aspects of the research will be taken into consideration   with the use of the simple random sampling technique. The important aspects of the research will be able to state in the different types the aspects of the research will be able to show the use of the survey questionnaire for the data collection.

References

Beckmann, E., & Stix, H. (2015). Foreign currency borrowing and knowledge about exchange rate risk. Journal of Economic Behavior & Organization, 112, 1-16.

Gabaix, X., & Maggiori, M. (2015). International liquidity and exchange rate dynamics. The Quarterly Journal of Economics, 130(3), 1369-1420.

Gadanecz, B., Miyajima, K., & Shu, C. (2014). Exchange rate risk and local currency sovereign bond yields in emerging markets.

Scott, K. D. (2015). CNY & USD: Foreign Exchange Rates.