Part 1
In this part of the assignment, you will be investigating the cryptocurrency market.
a. Choose a cryptocurrency other than Bitcoin. What is the bid and ask price of your chosen currency? Provide the quotes relative to two different currencies. (Note: you may need to calculate these as cross-rates.) The quotes must be indirect from the perspective of the cryptocurrency. These currencies tend to be volatile, so you will need to provide a screenshot of the quote you have found as part of your answer. (2 marks)
b. Would a cryptocurrency be an ideal currency? In answering this question, refer to how a cryptocurrency sits with respect to the “impossible trinity” (i.e. each of the three attributes of an ideal currency). (3 marks) Word limit: 500 words
c. Using daily close data, plot the exchange rate between bitcoin and USD from 1 October 2017 to 30 March 2018 on a line graph. Indicate TWO specific points on the line where the trend changes. Indicate both these points with arrows on your line graph. There is an example chart below which demonstrates what your graph should look like. (2 marks) You must also upload the Excel file showing your workings for part 1 c
NOTE: You are required to download the exchange rate data and create your own graph. It is not acceptable to copy a chart from another source. You must indicate the source of the exchange rate data from. You must also upload your raw data to Blackboard using the submission folder provided.
Example graph
Note: you should put the actual date and exchange rate figures on the axes.
d. Bitcoin is said to have “crashed” multiple times. Discuss some of the reasons that have been given for the crash in January 2018. In your answer, you should reference any statements using reputable financial news media (Note: Wikipedia is not an appropriate source). Ensure you provide a reference list of any sources you have used. (2 marks) Word limit: 500 words
Part 2
a. Explain the implications of this paper’s findings for an investor who would like to invest internationally. (2 marks) Word limit: 250 words
b. You would like to verify the findings of Cotter et al.’s paper. The file Returns data provides monthly returns (in USD) for a number of global indexes, as well as the risk-free rate. Calculate the correlation coefficients between the global index series, the mean, standard deviation and Sharpe ratios. Provide two tables. One table for the years prior to and including 2000, the second table for post-2000. (4 marks)
c. Do your results corroborate those of Cotter et al.’s paper? Explain. (1 mark) Word limit: 250 words
d. Your friend Sarah currently has a portfolio comprising 100% Australian stocks She has approached you to help her decide whether she should invest internationally. Given part (a) and part (b) of this question, what would you advise her to do? Justify your answer (2 marks) Word limit: 500 words
Note: 2 marks will be allocated for correct grammar and clear and logical writing.
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