Answer the following questions:

1. You may take a long or short position in each foreign currency or long position in one or short position on the other.

2. Justify your investment decisions based on a trend (uptrend or downtrend) analysis.

3. Justify your investment positions based on the relative inflation rate between two nations. For example, if the inflation rate is higher in the United States relative to the euro zone, all else equal, the dollar would depreciate against the euro.

4. Justify your investment positions based on the expected relative inflation rate between two nations. For example, if the inflation rate is expected to be higher in the United States relative to the Britain, all else equal, the dollar would depreciate against the British pound.

5. Justify your investment position based on the relative interest rate between two nations. For instance, if the Australian banks pay higher interest rate than the US. banks, investors or speculators would move their funds, all else equal or all other variables stay the same, to Australia to take advantage of the higher interest rate.

6. Similarly, you may justify your investment decisions based on expected interest rate between the copyright © 2016 by Thomas Edison state college. All rights reserved. Two nations. For example, when investors expect higher interest rate in Canada, they would invest in Canadian denominated assets that, in turn, would cause the Canadian dollar to appreciate, all other variables held fixed.

7. You may justify your investment decisions based on some other macroeconomic or fundamental analysis such as the unemployment rate, gross domestic products, trade balance, and capital flows that you have learned from the textbook or some other outside materials.

8. Select the two currencies in your portfolio which have negative correlations or a weak correlation for the reduction of risk and risk management purpose.

9. Calculate your return for each investment and overall return.