International Finance. Currency Momentum Strategies

International Finance. Currency Momentum Strategies Essay example
Masters
Essay
Finance & Accounting
Pages 6 (1506 words)
Download 0
International Finance: Currency Momentum Strategies October 08, 2012 1. Introduction This paper analyses an article on foreign currency FX momentum strategies written by Menkhoff et al (2011) who have studied the currency movements and trends for 48 currencies1…

Introduction

2. Summary of the article Using time series data of more than 34 years, the paper has examined some important aspects of FX momentum. The article provides an in-depth analysis of the unsystematic and systematic risks, comparing different momentum strategies, describing the importance of transaction costs, sources for non-standard momentum, over and under reaction and the arbitrage limits. The paper has also researched in effect of business cycle risks on currency momentum. 2.1. Fundamentals According to Menkhoff et al (2011, p. 5-8), momentum strategy refers to the trading strategy where an investor seizes an opportunity to ride a rising or a falling trend of the currency market. The basic idea is that an investor will take a long position for a basket of currency that shows an increasing trending price or a short position that sees a decreasing price. Momentum trading is done with the belief that once a trend is established, it will continue in the same direction for some time before stabilising and then reducing. If one sells when the prices are showing a decreasing trend, then the trader is taking a short position and he wants to reduce the losses and exit the currency before it reaches the bottom. ...
Download paper
Not exactly what you need?

Related papers

International Finance Airbus and Boeing
Boeing Company is the largest aerospace company of US. Its operations are in more than 90 countries. The commercial airplane division is the most prominent of all divisions. The company is headquartered in Illinois and known as premier US aircraft manufacturer. Boeing's revenue in the year 2010 was $64.31 billion and first-half revenue in 2011 was $31.45 billion. The company is subject to foreign…
Finance and Accounting Essay: International Financial Strategies
Many of the economists strongly hold the view that a global approach is necessary to regulate corporate governance in order to prevent such corporate failures in future. This paper will critically analyse whether or not a global approach to regulate corporate governance would be effective. It will also discuss the effects and benefits that this strategy may cause on multi-national companies.…
International Finance
For example a company that wishes to go long in forward contract agrees to buy the asset or good at a specific future date i.e. maturity date for a forward price determined at the initiation of the contract. At the maturity the forward price should equal the spot price of the underlying asset because the equilibrium forward price continually changes during the contract period in such a manner that…
International Finance
According to the interest rate parity, the relationship between the forward premium or discount and interest rate differential is given by (Wang, 2009, p.51) The Forward rate and spot rate are in ? and Ih is the interest rate in UK and If is the interest rate in Switzerland. Therefore, if the interest rate parity holds, then the interest rate in Switzerland is lower than interest rate in UK…
International finance
Engaging in International trade is important for the economies of the two or more countries involved; because there is an exchange of foreign currencies, creation of jobs and enhancement of revenues through taxation of the business profits. For multi-national organizations to survive in this import and export trade, they have to employ financial tools in their assessments, and this includes…
International Finance : Forward Contrats, Currency Futures
In the current scenario, a UK-based corporation namely as Mega Company is exporting a machine to the US-based corporation, Bestway Enterprises for a sum of $500,000. This receipt is going to be received by Mega Corporation after around 3 months. So, Mega Corporation here faces a risk of strengthening the domestic currency which is Pound Sterling against US Dollars. If Pound Sterling appreciates,…
International Bond and Currency Markets
In precise, it also helps in pre-determining the fluctuation of the currency appreciation or depreciation in respect to countries and influenced cross border trade prospects by a substantial extent. It is noteworthy that the volatility of exchange rate, in the short run and also in the long run depends on multiple factors such as the demand and supply prospects in the financial market. Arguably,…