Finance Task Harvard Case Solution & Analysis

Finance Task Case Solution

Q1

The variance and the standard deviation of the exchange rates

Ans

Type of currency

 

United States dollar

 

Swiss franc

 

Hong Kong dollar

 

European euro

 

Standard deviation

 

10.54%

 

7.28%

 

1.36%

 

5.56%

 

VARIANCE0.0111090.00530.0001850.003091

 The Canadian dollar faced highest deviation against the US dollar of about 10.54% and the lowest variation is against HK Dollar of about 1.36%.Similar is the case with variance, which is 0.111 for the US dollar and 0.000185 for Hong Kong Dollar.

 How is it computed?

 Following are the weights are applied to the CERI calculation from 1996 to the present:

U.S. dollar0.7618
Euro0.0931
Japanese yen0.0527
Chinese Yuan0.0329
Mexican peso0.0324
U.K. pound0.0271

The formula for the CERI is

  b) Examine the trend in CERI since May 2015

Ans: In May-15, the CERI was at 102.56 and it showed a decreasing trend in Jan-16. Currently,in Jan-16 its value is 88.86 which shows that the value of Canadian dollar has depreciated by 13.7%. (Canada)

 3a) in what sense has monetary policy in advanced countries diverged?

Ans:

 The monetary policy in advanced countries such as UK, Canada, and USA has diverged a lot due to globalization. The major challenge is to cope the difference in divergence in stance, stand and position taken by the US as compared to other advanced economies. It is expected that divergence creates differences between the US and the Euro. The conventional view is that no problems will be created for global economy.

The major reasons for divergence in monetary policy in advanced countries are due to four essential developments that global economy has observed over recent years......................

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