1

Table of Contents
I. Executive summary..............................................................................................................................4
II. Introduction.........................................................................................................................................4
III. Discussions about the ‘market view’...............................................................................................5
1. Past FX market behavior..................................................................................................................5
1.1. EUR/AUD..................................................................................................................................5
1.2. GBP/USD...................................................................................................................................6
2. A market view forecast....................................................................................................................7
2.1. Research-based forecast..........................................................................................................7
2.2. Quantitative analysis-based forecast....................................................................................12
IV. Trading strategy explanation.........................................................................................................15
1. The primary task............................................................................................................................15
2. The second task.............................................................................................................................18
2.1. Short-term speculation.............................................................................................................18
2.2. Medium/Long-term speculation..............................................................................................20
V. Performance analysis.........................................................................................................................20
1. The primary task............................................................................................................................21
1.1. 105.027.500 USD acquisition..................................................................................................21
1.2. 60.000.000 GBP acquisition....................................................................................................21
1.3. 150.000.000 AUD acquisition.................................................................................................22
2. The secondary task........................................................................................................................23
3. Reflection.......................................................................................................................................23
VI. Conclusion.....................................................................................................................................23
VII. References.....................................................................................................................................24
BCC (2022) BCC Economic Forecast: Long road to recovery after over a year of recession, British
Chambers of Commerce, accessed 16 December 2022.
https://www.britishchambers.org.uk/news/2022/12/bcc-economic-forecast-long-road-to-recovery-
after-over-a-year-of-recession..................................................................................................................24
95950000000310754
VIII.
2023-04-10 12:59:57 APPENDIX......................................................................................................................................30
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2
 Task Allocation and Contribution Form

Mark given to Mark given to Mark given to Mark given

Name
Phuong Duong Quynh Anh to Chi
Marks given by Nghiem
100 (self) 100 100 100
Thu Phuong
Marks given by Le
100 100 (self) 100 100
Hoang Quynh Duong
Marks given by Nguyen
100 100 100 (self) 100
Quynh Anh
Marks given by Tran Bao
100 100 100 100 (self)
Chi
Signature Phuong Duong Quynh Anh Chi

Name Task allocation

Nghiem Thu Phuong
Le Hoang Quynh Duong
Nguyen Quynh Anh
Tran Bao Chi
1. Market view forecast
2. Explanation of the trading strategy
3. Conclusion
1. Past market behavior
2. Explanation of the trading strategy
3. Conclusion
1. Introduction
2. Past market behavior
3. Performance analysis
1. Executive summary
2. Market view forecast

3
 3. Performance analysis

I. Executive summary
This paper would give a thorough examination of the GBP/USD and EUR/AUD exchange rates,
in addition to offering trading tactics on FX market and also the performance analysis of the
trading session. Regarding historical performance, both EUR/AUD and GBP/USD experienced
great volatility in the last 5 years, with impacting factors are world events like Ukraina-Russia
war, US- China trade tension, coronavirus outbreak and Brexit. In terms of market forecast, by
applying both macroeconomic factors like inflation, interest rate, GDP and quantitative analysis,
it is predicted that both GBP/USD and EUR/AUD would depreciate in the next 3 to 6 months.
Next, the trading strategy of exchanging currencies using USD as intermediary and exchanging
in-hand depreciated currencies to appreciate currencies are explained. The effectiveness of the
strategy is then analyzed, proven by the total $542,500 profits.

II. Introduction
Our team is American-based entertainment and gambling corporation, just receiving 560,000,000
EUR and 400,000,000 USD from international gambling. We are required to complete two tasks:
raising 150,000,000 AUD and 60,000,000 GBP to fund projects, and also speculate the market to
earn extra profits.

In this report, past behaviors of 2 currency pairs: GBP/USD, EUR/AUD are first examined, prior
to explaining their 3-to-6-months market view forecasts. After that, our corporation’s trading
strategy is explained and trading performance is analyzed.

95950000000310754
2023-04-10 12:59:57
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sound good
source?

4
 III. Discussions about the ‘market view’
1. Past FX market behavior
1.1. EUR/AUD

Overall, after 5-year volatility, current EUR/AUD exchange-rate is relative to its 2018 figure.

In 2018-2019, EUR/AUD exchange rate increased slightly as AUD depreciated. Since Australia's
primary export industries including coal and iron ore, and defense industry depend mainly on
Chinese and US, respectively, trade war America-China damaged Australian economy heavily,
making value of AUD and its market drop $50bn in August 2019 (IMM Groups 2019).

In Q1/2020, EUR/AUD soared enormously, reaching historic peak of 1.8552. This volatility is
attributed to AUD’s depreciation, caused by China's coronavirus outbreak (Heath 2022).
Specifically, Chinese’s, Australian biggest two-way trading partner, prolonged lockdown in early
2020 caused concern for Australian sectors that depends on Chinese production (Bourke and
Ransley 2022). However, as trade war and Chinese pandemic situation was soon eased,
EUR/AUD fell to its original level in late 2020 (Figure 1).

EUR/AUD’s 2022 exchange rate dropped owing to Ukraine-Russia conflict. Due to Europe's
profound dependence on Russian gas, suspension of Russia's natural gas supplies to
Europe resulted in 255% increase in energy prices, 10.6% increase in inflation, and 13%
decrease in currency value (Mai 2022, Wilkes and Ranasinghe 2022). Meanwhile, Australian
economic growth decreased from 3.8% in Q4/2021 to 0.4% in Q1/2022 due conflict, soaring
commodity
5
 prices and living cost (ABS 2022), but AUD still remained more positive than EUR situation due
to enormous export (ABS 2022).

1.2. GBP/USD

During 2018-2019, pound depreciated against dollars because of Brexit. This happened as
financial institutions were afraid of trade tension scenario between UK and partners besides
political instability, thus retreating from pound, leading to GBP’s depreciation (CNBC 2022).
Following that driving-down trend, GBP was hit hard to a 34-year low in August 2019 since
fallout From Salzburg which made no-deal Brexit become a possibility, discouraging forex
traders due to UK’s uncertain future trading (Debnath 2018).

No longer than 8 months since the positive sign of GBP due to British and EU’s agreement in
principle governing Brexit (FXCM 2020), GBP/USD, because of the pandemic, plummeted to
1.15 in March 2020. As Covid-19 crashed, dollars, known as the world’s most liquid currency,
were in high demand by traders as safe haven, thus depreciating GBP against USD in this period
(CNBC 2020). GBP/USD then increased with the arrival of vaccine together with the British
economy’s recovery (Partridge 2021).

However, GBP/USD started to decrease from June 2021 and reach a historic low of 1.07 in
September 2022. This was attributed to UK’s inflation resulting from Ukrainian war and rising
95950000000310754global energy price, declining demand for GBP, whereas USD, as safe haven, was again turned
2023-04-10 12:59:57
to by traders (Pabari 2022).
--------------------------------------------
IT's good in general. But you should also
emphasize in the export-import/ cash flow out-in
between these countries.

6
 2. A market view forecast
2.1. Research-based forecast
a. EUR/AUD
In response to the supply shortage from Russia-Ukraine war and evolution of Australian labour
cost, which has raised the economy’s inflationary expectation, Australian Reserve Bank has
acted to raise interest rate to control inflation (Bowes 2022). Thus, Australia's interest rate is
expected to be higher in 2023, hitting 3.85%, compared to EU’s 3.5%. (Trading Economics
2022) (Figure 3,4).

7
Because monetary policy tightening in 2022 will began to take effect in 2023, Eurozone's
inflation rate is expected to decline to 9.2% in Q1/2023 and continue decreasing to 5.4% and
3.2% in Q2/2023 and Q3/2023, respectively (Trading Economics 2022) (Figure 5). However,
Europe’s inflation rate will still be higher than Australia's since Australia's inflation rate is
expected to diminish to lower-than-8% in 2023 (RBA 2022) (Figure 6).

8
Europe's economy, due to the supply chain disruptions and economic sanctions following
Russian- Ukrainian war, is experiencing difficulties as GDP annual growth rate has fallen to
2.3% after rising from 3.9% to 5.5% in early 2022, and could not soon recover (EIB 2022,
Trading economics 2022). Meanwhile, Australia's output growth is likely to normalise to 2¾%,
in line with the average gain recorded over decade preceding the COVID-19 crisis (McCully
2022).

b. GBP/USD
GBP/USD is anticipated to depreciate in next 3-and-6-months (Trading Economy 2022) (Figure
7).

9
UK’s current inflation rate is currently high due to rising commodity price driven from supply-
chain disruption and resources and raw-materials shortage resulted from Ukraine-Russia conflict
(EIU 2022). Besides, current impacts of Brexit, pandemic, and mini-tax Budget's cuts is also
decreasing consumer confidence and causing UK’s high inflation (CNBC 2022, PWC 2022).
Thus, in near future, when war is eased and government can resolve issue by restricting home
energy bills, UK’s CPI rate could decline substantially to 9.5% in Q1/2023 and average of 5.5%
in 2023 (EY 2022, Wulandari 2022). Meanwhile, US with limited trade with Ukraine-Russia, in
addition to 30% increase in US’s energy production and container ships to partially offset
deficits and prevent rising prices, US’s inflation rate is forecasted to reach 5% in Q1/2023 and
fall to 4.5% in mid-2023 (Gagnon and Rose 2022, Winck 2022). Although both nations are
experiencing a fall in inflation, UK’s inflation rate is located at higher levels than that of USD.

To minimize US’s inflation rate to 2% target, Fed has lifted its benchmark rate six times in 2022
and boosted interest rate to a range of 4.5% to 4.7% in November, predicted to drive borrowing
rates to their highest level since 2008 (Rugaber 2022) (Figure 8). Furthermore, Bank of England
(BoE) also follows similar pattern in Fed’s rate increase. UK’s interest rate is predicted to
advance to 3.5% in December, consecutively raise above 4% in early 2023, and hit highest rate
of 4.75% in Q2/2023 (Fitch Ratings 2022) (Figure 9).

1
Cost-of-living crisis by rising food-and-energy prices has driven 0,1% contraction in UK’s GDP
growth in late 2022 (ICAEW 2022). BoE has forecasted that this recession will continue until
Q1/2024 (Jolly 2022). Particularly, the yearly GDP growth forecast for 2023 is currently -1.3%,
with authorities’ intervention on energy bills (BCC 2022) (Figure 10). With tightening real
incomes due to decrease in high inflation, effectiveness of tax cuts, and increase of 1.5% in net
exports as cheap sterling, GDP could rebound to increase in Q2/2023 (Cosgrove and O’brien
2022, OECD 2022). Meanwhile, in next quarter, US’s GDP, after 0.6% decrease due to
termination of federal stimulus program and hyper-inflation triggered by Russia-Ukraine conflict
in Q2/2022, surged at pace of 2,6% with strong consumer spending and 14.4% of exports despite
rising inflation (Smart 2022, CNBC 2022, Wallace 2022). In 2023, GDP is estimated to grow
slowly by 0,8% with contribution of significant expansion of disposable income and increase in
national energy production to become greatest LNG exporter in the world (Goldman Sachs 2022)
(Figure 11).

1
Overall, with high interest rate, economic growth and decreasing inflation rate in USD, GDP/USD
is predicted to depreciate in the future.

2.2. Quantitative analysis-based forecast

Firstly, information on prices regarding GBP/USD and EUR/AUD is collected monthly from
January/2018 to December/2022 to make predictions about exchange rate of those currencies.

1
Moreover, time series including linear, quadratic, and exponential models will be applied and
operated on excel.

a. EUR/AUD
For EUR/AUD, all 3 models are significant (P-value<0.05). However, quadratic model is most
suitable since it has highest adjusted R-square (0.054) of 3 models (Figure 12, Appendix 1,2).

From figure 12, following quadratic formula is formed:

1
Table indicates that EUR/AUD exchange rate will decrease over next six months, confirming
result of research-based forecast.

b. GBP/USD
Result illustrates that both linear and exponential models are significant (P-values<0.05) (Figure
13, Appendix 3,4). However, since adjusted R-square of exponential model obtains higher
outcome (0.0564) than that of linear model (0.0508), exponential model is best appropriate for
forecasting GBP/USD exchange rate.

1
𝛽1 = 0.9993. Thus, (0.9993- 1) *100% = -0.07% illustrates estimated monthly decrease in
GBP/USD by -0.07%.

Moreover, Table 2 also signifies forecasted GBP/USD exchange rate would decline gradually
downward trend in upcoming six months, which is similar to above market research.

IV. Trading strategy explanation

1. The primary task
For primary goal, our trading strategy to reach profit maximisation is to buy 150 million AUD
and 60 million GBP with least amount of capital (EUR and USD). This strategy involves using
medium-term currency as intermediaries for forex trading, which suggests that AUD can be
bought with fewer EUR when using USD as medium for example. To test which currency could
be used
1
as medium to exchange AUD and GBP with least amount of EUR and USD, we came to
investing.com three hours before trading session, accumulating real-time exchange rate and
simulate transaction for 10,000,000 AUD as below:

Through simulation, USD is predicted to be medium currency to use up least amount of EUR to
buy AUD. Specifically, our team would trade certain amount of EUR into USD, and use that
exchanged USD to buy AUD. Two exchange pairs AUD/USD, EUR/USD would be used.
Similarly, applying simulation, GBP should be bought directly from USD for cheapest
acquisition, so we use exchange pair GBP/USD.

Then, our team, three hours before trading session, looked at short-term trend of AUD/USD,
EUR/USD and GBP/USD in investing.com. This trend is predicted to reflect in-session trend of
those pairs

1
EUR is predicted to depreciate against USD, so this pair should be chosen for first transactions
as over time, USD would be more expensive to buy in EUR. For acquisition of 150,000,000
AUD, based on previous calculation, roughly 95 million EUR is needed. Thus, our team chooses
first transactions for trading 100,000,000 EUR into USD. With given maximum deal amount, our
team get first 7 transactions selling 10,000,000-15,000,000 EUR/transaction to purchase USD.
Meanwhile, AUD/USD is predicted to decline most (0.22%), so this pair should be last
transactions because over time AUD is cheaper to buy in USD. With given maximum amount
and 150,000,000 AUD objective, our team intended to make 7 transactions for purchase of
20,000,000 AUD/deal, and 8th transaction to buy remaining 10,000,000 AUD with USD.
GBP/USD exchange is thus middle transactions. For acquisition of 60,000,000 GBP, 5
transactions would be made, selling USD to purchase 10,000,000-15,000,000 GBP/transaction.

Besides, table 3 showed that USD is appreciating against other currencies in short-term. As our
corporation is possessing EUR and USD as capital, we would, in scenario that EUR is losing its
value against USD, trade as much EUR as possible into USD.

Phases of transaction are thus identified as follows:

1
 2. The second task
FOREX market will be analyzed with short-term and long-term speculation to generate strategy
that helps corporations buy currency with profit maximization.

2.1. Short-term speculation

Before real trading session, we inspect and analyze volatility of EUR/USD, GBP/USD, and
AUD/USD by reading news and follow current events which affects movement of currency
pairings. Observations from Investing and Forex Street websites indicated that EUR, GBP, and
AUD were depreciating while USD was appreciating against other currencies (Figure 14-16).
Hence, our local currency (USD) was used to exchange for other currencies as EUR/GBP/USD
will require less USD to purchase it. To maximize profits, team’s plan includes purchasing
appreciated currency – USD at low rate and selling depreciated currency – EUR at high rate.
Furthermore, due to depreciation of EUR/USD at beginning of trading session, team adhered to
predetermined strategy. Nonetheless, as trading session neared its end, we recognized that EUR
received appreciating tendency with positive rate of 0.08% against USD (Figure 17). Hence,
since profit would be calculated based on two-hour trading session, with last 5 transactions, team
decided to concentrate on latest patterns by buying EUR and selling USD to gain higher profit.

1
1
 2.2. Medium/Long-term speculation
From above market research about four currencies, AUD, EUR, and GBP are anticipated to
experience depreciation since greater consumer demand and shortage of resources caused by
Russia-Ukraine war drives up commodity prices especially oil and natural gas, leading to high
inflation pressure and weak GDP growth (ECB 2022, Leggatt 2022, OECD 2022). In contrast,
USD is predicted to increase in value since high interest rate attracts large foreign investment
and US raises its energy output and exports mainly to Europe and UK, making demand for USD
advance substantially (Daly 2022, Freitas 2022). Therefore, in long-term trading strategy,
redundant EUR should be exchanged for USD reserves to generate larger profit providing that no
unexpected events occur to alter anticipated currency movements.

V. Performance analysis
Before starting transaction, we would divide into 2 groups: 2 people message banks via teams
and 2 people would apply strategy, evaluate and choose most reasonable offer in each
transaction. Overall, there were 28 transactions totally.

2
 1. The primary task
1.1. 105.027.500 USD acquisition
As we mentioned above, we decided to trade EUR to AUD indirectly by using USD as a
intermediary currency. Thus, we had trade EUR/USD in our first seven transactions. We decided
to sell 10,000,000-15,000,000 EUR/transaction, with exception of seventh transaction, in which
only 10.000.000 EUR were sold. Based on these seven transactions, a rating system was
developed to determine which bank offered best exchange rate. Bank 2 tended to give best rate
with 3 transactions, while there were only one and two transactions trading with banks 1 and 4,
and 3 (Figure 18).

EUR/USD rate at the time also declined with each transaction, indicating that forecast was
accurate. This also suggested that purchasing of medium currency was less expensive. After 7
transactions, we purchased total of 105.027.500 USD by 100.000.000 EUR

1.2. 60.000.000 GBP acquisition

Regarding acquisition of GBP, USD was traded directly to GBP since using USD to buy requires
lower amount than other currencies. The purchase was executed with 5 transactions, and
60.000.000 GBP was traded by 73.173.000 USD (Figure 19). However, during this phase, we
still asked bank for EUR/USD’s exchange rate until there was appreciating trend in EUR,
making us perform 3 more transactions (Figure 20). After these 8 transactions, we gained
60.000.000 GBP, and 47.260.500 USD by selling 73.173.000 USD and 45.000.000 EUR,
respectively.

2
Through 15 transactions, we had completed half of primary task which was to raise at least
60.000.000 GBP. Next 8 transactions were to finish rest of this task: to raise 150.000.000 AUD.

1.3. 150.000.000 AUD acquisition

After successfully accumulating USD, currency was arbitrarily exchanged for AUD. With
AUD/USD exchange rate, banks provided to our team with new quotations, modifying ranking
system. Figure 21 illustrated that banks 2 and 3 gave lower rates than bank 1 and 4. Therefore,
when purchasing AUD, three transactions were conducted with these banks while just two
transactions were conducted with other banks. After 23 transactions, we had achieved entirely
primary task with trading 150.000.000 AUD for 100.997.000 USD.

Since there was still time remaining in trading session, we perceived that EUR/USD was
appreciating contrasted to prior strategy. Therefore, our team attempts to trade as much USD for
EUR as possible. Ending trading session, we successfully sold 78,885,000 USD and bought
75,000,000 EUR to maximize profits (Figure 22).

2
Overall, we completed primary task with good communication among members. Moreover, by
quickly adapting to forex market changes regarding EUR/USD, out team also gained profit of
543.500 USD.

2. The secondary task

Following the speculation, first approach is to sell EUR to acquire the largest quantity of USD
due to belief that this currency would continue to appreciate. However, USD depreciated
unexpectedly against EUR at the end of trading session, then we intended to sell the USD in
hand to buy more EUR for short-term profit, therefore 75,000,000 USD were sold to purchase
EUR.

3. Reflection
Overall, primary task was completed as expected. Mission was accomplished with purchase of
two required currencies. Trading session, with closing rate given, ended up with a profit of USD
$542,500. This is based upon strategic planning established prior to trading session, as well as
adaptability to sell USD to purchase EU when EU unexpectedly appreciated at the end of the
session.

VI. Conclusion
Paper featured general analysis of FX market, corporation’s trading strategy and performance
analysis. First, historical performance of GBP/USD, EUR/AUD, and their movement drivers, is
examined. Then according to papers and qualitative analysis of FX rate factors, both currency
2
pairs

2
are predicted to depreciate in coming three-to-six-months. Then, a thorough strategy was applied
with use of medium currency and rate-volatility-based phase classification, in addition to
speculating appreciated currencies to buy, prepared, assigned tasks were accomplished with
$542,500 profit.

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2
EY (2022) UK economy expected to be in recession until summer 2023, says latest EY ITEM
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2
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VIII. APPENDIX

Appendix 1: Summary of the output of EUR/AUD’s linear trend model

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Appendix 2: Summary of the output of EUR/AUD’s exponential trend model

Appendix 3: Summary of the output of GBP/USD’s quadratic trend model

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Appendix 4: Summary of the output of GBP/USD’s linear trend model