ECF2210 Capital Markets 1 Assignment Sample

Stock Trading Game

Part 1: Journal

Introduction:

In the assessment, the game is plated, which is based on trading in the stock market. The trading has started on 23 March 2020 and ended on 14 May 2020. 1st week was the demo week, and so it will not be considered the part of the trading which has to be written in the journal. So the journal trading started on 30 March 2020 and ended on 14 May 2020. The fluctuations of the prices and profitability are to be measured and analyzed during, and it has to be presented in the journal on a weekly basis. So the purpose of performing the game is to analyze the trade market behaviour practically by performing the practical activities.

Foreign Exchange:

AUD/USD Pair:

Week 1:

Week 1 was the basis week and not have the practical knowledge about practical training. In week 1, the basic analysis was done while the determination of prices. So the investment in 1st week has been made hypothetically with the now knowledge of factors of both factors that can affect the prices.

Week 2:

In week 2, I have started to analyze the factors that can affect the pricing in the stock exchange market. Working was done to stabilize the market prices by using certain factors. Economic conditions and speculation have been seen while making the decision. In this week, the performance of the market was high as compared to week 1. The reason for increasing the performance can be the better understandings of the market behaviours and economic conditions (Breaban & Noussair, 2018 ).

Week 3:

In a week, interest rate behaviour was considered. It was noticed how the change in interest rates affects prices and profitability. Moreover, the factors were considered that were likely to affect the interest rate of the economy. So week 3 was the week of learning and examining. The change in interest has caused a change in prices and profitability. At the start of the week, the interest rate was 7.733%, but at the end of the week, the interest rate has changed to 7.7334%. The rise in interest has led to a decrease the profitability by 0.05% (Held, 2017 ).

Week 4:

In week four, most of the factors related to the pricing, market and economic behaviours were covered and interpreted their effects. The economy of the country was disturbed due to COVID 19, and this factor has affected the prices and profitability. But I was unable to analyze the effect of pandemic (Abdoh, Yusuf, & Mohd, 2017).

Week 5:

Week 5 was also affected by the pandemic, and prices in the markets were also affected. But if we do not consider the effect of the COVID 19, then I have gained the experience to analyze the behaviours of the company.

Week 6:

It is the last week, I have gained the last weeks, and many of the learning outcomes are elaborated. Overall all the weeks have proved fruitful. In this week, except for the effect of the pandemic, trading estimations have been done effectively, market conditions are focused and economic patterns are followed.

Equity Market:

In week 1, the relation of demand and supply was not monitored and not managed in effective ways. In week 2, I have focused on the forces of demand and supply and predicted it. In technical analysis, I have focused on the historical price trend. In week 3, while reading the article, I have considered the effect of the market player. Market players have the ability to change the profitability. So I tried to focus on the 3rd day of the week. But this effect was not common and did not happen throughout the trading. In week 4, I have focused on the forces on demand.

So I could the increasing demand, but the reason for increasing the demand cannot be identified. So, the equity market has been controlled by identifying the demand changes. The large-cap and small-cap stocks showed a positive trend in this week. In week 5, I have got the experience to deal with the trading. Trading on a daily basis in each of the markets has helped me to elaborate on the dealing differences in each market. In week 6, the equity market is relatively proved easier to handle and manage. Fundamental analysis has revealed the positive trends of growth except for weak 4 for both of the markets (Lehoczky & Schervish, 2018 ).

Part 2: A Reflection on Your Trading Activities

Question 1.1:

There are many factors that are likely to affect the pricing the both of the markets. Foreign exchange markets are affected by the condition of the economy. For example, if the economy is at the recession, then interest rates are likely to fall. The decreasing interest rates will demonstrate fewer capital investments. Interest rates also affect exchange rates. When the interest rate of the state changes, then there will be a change in the exchange rates and prices of the stocks. The increase in interest rates tends to appreciate the currency of the country. The appreciation will encourage the community to save and not to invest; that is the major reason for the increase in exchange rates. The exchange rates are changed if the inflation rates are unpredictable. Change in the rates of inflation tends to change the exchange rates of the market. So the prices are affected by the inflation of both or one of the countries (Shamsuddin, 2020).

Equity markets are affected by certain factors. I have also faced the factors that have affected the pricing of equity while performing the game. The political environment is the factor that is considered in analyzing the pricing. The type of political environment determines the price of the equity market. If the political leadership intervenes in the determination of price, then the prices are changed and do not follow the regular pattern. Further powerful investors can influence the price structure. The number of investors also affects pricing. The increasing number of investors will tend to increase the demand and increase in demands will tend to increase the price. Further, the forces of demands and supply affect the pricing strategy in free markets. In this market, the price will be at the point where demands and supply are equal. This point is known as market equilibrium (Leung, 2017 ).

Question 1.2:

a) In foreign exchange, there are many factors that were likely to affect the exchange rates. I have experienced these factors while playing the game. 1st factor is the interest rate. Internationally, if there are different interest rates, then exchange rates are adjusted according to the rate of interest. So interest rates affect the rates of exchange. 2nd factor is free-market policies. If the regulatory authorities try to change the prices of the shares, then exchange rates are affected. While reading the article written by W Abdoh and team members in 2016. Further, practically, while playing the game, I have experienced these factors (Abdoh, Yusuf, & Mohd, 2017).

b) In equity markets, certain factors contribute to the alteration of the exchange rates. The equity market is a free market, and based on the forces of demand and supply. Prices are determined by market conditions. Any fluctuation in the market will tend to affect exchange rates. The second factor is the behaviour of investors and market players. Market players try to intervene in the prices. Intervention in the market tends to change the prices and exchange rates. Prices are directly related to the exchange rates. I have read these factors in the article written by MD Chin (Chinn, 2016).

Question 1.3:

The common factors have found that affect the prices of both of the markets. The interest rate is the factor that affects both the markets. Exchange rates, as well as prices of the free market, are disturbed by fluctuation in the interest rates. In the article written by N Khan and N Ali, both of the markets are differentiated, and the same aspects of both of the markets have been discussed. They had compared the Asian Markets, and practically I have interpreted the factors according to the Australian market. I have found the different factors for Asian Countries and Australia. However, the interest rate has the same effect on both of the states (Khan, Ali, Kiran, & Mubeen, 2017 ).

Question 1.4:

I have made decisions on a weekly basis. The decisions were made by considering the various factors. The decision was based on the consideration of prices and analysis of future change of prices and exchange rates. A major factor was considered while the decision that can affect the prices. The equity market has found more comfortable while dealing and making the decision. The reason for ease may be based on the free and determinable forces of the market. In the foreign exchange market, I have faced different challenges. These challenges were based on the balance of payments and exchange rates. The reason for making a daily decision is to monitor the daily changes in pricing and other behaviours. Weekly decisions demonstrated the overall decisions of the project and the general trend of the market.

Further, the decisions were made on the basis of the prediction. Effective use of prediction can make a successful decision. So the information related to time series prediction has been used to make decisions on a weekly basis. On a daily basis, decision making has been done by analyzing the general trend. I have used the same strategy for decision making throughout the period. There was no change in the decision making ways. This game has provided me with a learning opportunity. I am able to make decisions more effectively in the financial markets. It has provided me with the opportunity to demonstrate the factors that are likely to affect the prices and decision making. I have learned to forecast market behaviours (Bashir, Yu, & Hussain, 2016).

Part 3: A Research Report

Question:

Sovereign bonds are the interest rates at which the national government borrows. Government, sometimes, needs to borrow to meet the national expenditures. Sovereign bonds provide the facility to raise the finance of the government. The sovereign yield curve on 28 February 2020 shows a yield of about 0.9. From 3 months to 1 year, in a period of about seven months, the yield has dropped to 0.7. In the next years, a further decrease can be seen in the curve. The lowest yield has been estimated at three years, which is about 0.3. After year 3, the yield starts to increase. In year 5, 1st increase after declination can be seen. After nine years, the yield has been increased to 0.85. The maximum yield can be gained after the 30 years, which is about 1.40. The curve on 6 March 2020 also shows the same trend as above. Its yield decreases to 3 years and after the starts to increase after three years. Most yield can be gained after 30 years. Irrespective of the trend, the overall decrease in the yield can be seen. At three months, the yield is about 0.61. However, for three years, the yield is about 0.3. After 30 years, the yield will be 1.25, which is lesser than the previous periods (Rios, Rodríguez, & Arellano, 2019).

The comparison shows that the overall decrease in the yield can be seen in the second curve. The decrease in the second serve shows that over time, there were severe economic and other conditions that have turned the decline in the yield. Now, there is a need to consider the factors that can affect the yield. By considering those factors, one can overcome the factors by proper planning and can enhance the yield. But there is a problem that economic conditions are not easy to control, so one can change the decision about the investment by seeing the variations.

The decrease shows that the economy is not growing, and interest rates do not support the growth in yield. Inflation can be the factor that can prevent the growth of the yield. Unexpected inflation shows the worse conditions of the economy. It can be seen that the general prices of commodities have been increased by increasing the demand due to COVID 19 pandemic. This increase in price was not expected, but the high demand has tended to increase the prices (Rios, Rodríguez, & Arellano, 2019).

References

Abdoh, W. M., Yusuf, N. H., & Mohd, S. A. (2017). MACROECONOMIC FACTORS THAT INFLUENCE EXCHANGE. International Academic Research Journal of Social Science, 89-94.

Bashir, U., Yu, Y., & Hussain, M. (2016). Do foreign exchange and equity markets co-move in the Latin American region? Detrended cross-correlation approach. Physica A: Statistical Mechanics and its Applications, 889-897.

Breaban, A., & Noussair, C. N. (2018 ). Emotional State and Market Behavior. Review of Finance, Volume 22 , 279-309.

Chinn, M. D. (2016). Purchasing Power Parity and Real Exchange Rates. Economics and Finance .

Held, D. (2017 ). Buffalo’s Agricultural Economy since the Great Recession. Economic Development.

Khan, N., Ali, K., Kiran, A., & Mubeen, R. (2017 ). Factors that Affect the Derivatives Usage of Non-Financial Listed Firms of Pakistan to Hedge Foreign Exchange Exposure. Journal of banking and financial dynamics .

Lehoczky, J., & Schervish, M. (2018 ). Overview and History of Statistics for Equity Markets. Department of Statistics.

Leung, H. (2017 ). Volatility spillovers and determinants of contagion: Exchange rate and equity markets during crises. Economic Modelling, 169-180.

Rios, A. O., Rodríguez, G., & Arellano, M. A. (2019). Estimation of Peru’s sovereign yield curve: the role of macroeconomic and latent factors. Journal of Economic Studies.

Shamsuddin, A. F. (2020). Interest Rate and Foreign Exchange Risk Exposures of Australian Banks: A Note. International Journal of Banking and Finance.

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