FX Dealing Report – Submission Guillaume GALANOS Dealing

Posted: August 25th, 2021

Stage 2: FX Dealing Report – Submission Guillaume GALANOS Dealing Groups by

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Introduction

Guillaume Galanos Dealings Group is an organization based in New South Wales, Australia. The corporation is a multinational business that trades in shares and forex products. Recently, it issued 90-day bank bills, and due to favorable lending conditions, it managed to raise a significant sum of Australian dollars having a face value of AUD 950 million and a yield of 3%. As a result, the primary objective of the organization is to use the acquired funds to purchase electronic software equipment and partially pay for raw materials outsourced recently from Turkey, whose payment is due in 2 days. In this case, it the funds to cater for these costs will be obtained through forex trading in the cheapest way where the organization plans to purchase USD 350 million to pay for the equipment and raise EUR 250 million to pay for raw materials. The secondary objective is for the organization to invest AUD 400 million into the US dollar at the best exchange rate possible before trading. It facilitates the raising of preferred amounts. Even though business in the financial market is risky, it is prudent to take a view on the pair of currency that is involved in the trading with regard to its exchange rates just to understand its trend and patterns.

 To effectively attain the set objectives, the organization plans to trade AUD 20 million per transaction for all currencies except the Japanese Yen (JPY) and trade with a maximum of AUD 2 billion per transaction for JPY. Besides, the organization’s objectives are influenced by various factors in the foreign exchange market (Du, Lin, & Han, 2018). Most factors of keen interest include the trading relationship between countries, the nature of particular country internal economies, and their current political environment. The factors will ferment the trading decisions and critically influence earnings on the investment.

The US versus European Market View

Trading Currency Pair

The trading pair of currency is the USD and the EUR. First, the organization bought EUR amount equivalent to Australian Dollar (AUD) four hundred (400) million that for use in trading with the aim of ensuring maximum profitability for every transaction made between EUR and USD (Alim & Connolly, 2018, p.16). Before the beginning of trading, it is important to have a view of the foreign exchange market with clear concertation on the factors that are critical in influencing the currency performance between EUR and USD.

Currency Pair Market View

While examining the EUR versus USD performance, it was realized that currently, the performance of the EUR against the USD has been dwindling. The trend is attributed to a variety of factors, both in the European Union and the United States. For example, the performance of the US economy has been increasing gradually and steadily since the inception of the President Donald Trump era in January 2017 (Park, 2018, p.76). However, for the year 2019, US economic performance has appeared to slump with major sectors projected to experience economic deflation. For instance, the gross domestic product is projected to reduce to about 2.1% from the previous 3.0% in late 2018, and by the year 2020, it is likely to reach 2.0%. Further, the unemployment rate is expected to reach 3.6% by the last quarter of 2019 and slightly increase towards the end of the same year (Carpenter, Lu, & Whitelaw, 2015, p.34). The current economic fortunes are being highly influenced by the trade wars been the US and China as well as increasing the protectionist approach by President Trump. On the other hand, the European Union market has had challenges, too, especially due to ongoing Brexit politics between Great Britain and its associates in the EU market. However, economic performance has expanded drastically across the year 2018-2019 from 1.4 to 1.6 percent, respectively. The trends in the two markets are critical in influencing interest rates, which is used as a main trading component in the second session.

Summary of Market View

The growing economic performance of European implies that Turkey is likely to experience favorable interest rates than the US if other factors such as politics and surrounding economy performance remain constant. High-interest rates imply that it is likely to have a favorable exchange rate with attendant positive impacts on attractive lending rates, higher returns on loans and hence, an attractive investment market (Koepke, 2019, p.520). The country can easily attract foreign capital flow, thus higher exchange rates. This is unlike the US, which is undergoing a transformation in international trade with a focus on embracing protectionism, a factor likely to undermine its economic performance and, therefore, the exchange rate in the short-run. Based on these assessments, the Euro has a high chance of experiencing a steady increase in its exchange rates while the US dollar exchange rates are likely to slump, particularly in the short-run. The following figure displays the performance between the EUR versus the USD over a period of six months from March to September 2019.

Figure 1: Euro versus US Dollar, April – Sept. 2019

Source: Bloomberg

Conclusion

The objectives of the organization are only possible if the trading patterns are considered carefully. Turkey, a European Union nation, has an advantage in terms of better and steady growth in the exchange rate compared to the US dollar that is currently facing challenges in the international market. Coupled with other factors, trading the AUD through a pair of EURO and USD and distributing risks across other currencies such as the JPY is key for the organization to attain its objectives.

Reference List

Alim, S., and Connolly, E., 2018. Interest rate benchmarks for the Australian dollar. Reserve Bank of Australia, Bulletin, September.

Carpenter, J.N., Lu, F., and Whitelaw, R.F., 2015. The real value of China’s stock market (No. w20957). National Bureau of Economic Research.

Connolly, Michael B., and Alexander K. Swoboda. International trade and money. Routledge, 2018.

Du, S., Lin, X. and Han, X., 2018. Advantages and Disadvantages of Continued Growth in Foreign Exchange Reserves. Financial Statistical Journal, 1(1).

Koepke, R., 2019. What drives capital flows to emerge markets? A survey of the empirical literature. Journal of Economic Surveys, 33(2), pp.516-540.

Park, S 2018, ‘U.S. protectionism and trade imbalance between the U.S. and Northeast Asian countries. International Organizations Research Journal, vol. 13 no. 2, pp.76-100.

Appendix

Appendix 1: Foreign Exchange Position Summary

Appendix 2: Portfolio Summary Report

Appendix 3: Foreign Exchange Transaction Log