Question No. 1: Strategies for a Global Macro Hedge Fund

(a)

Currency CT Strategy

CT (Carry Trade) Strategy is currently one of the most common and popular strategies that are being used by currency traders. Carry trade strategy involves the buying and selling, i.e. exchange of two different currencies at different interest rates. Traders use a carry trade strategy for the borrowing of a currency at a lower interest rate and then they use this currency to buy another currency that generates a higher interest rate. When traders are involved in a carry trade strategy, they don’t only look at the difference between the interest rates but they also want the currency that they have purchased to be appreciated.

In order to be successful in a carry trade strategy, the trader must exchange the currency that has a higher interest rate with the one having a lower interest rate. A carry trade strategy does not simply depend upon the timing of trade but also the difference between the currencies, i.e. spread. An ideal trade would be the one in which, the trader would take a long position for the currency that is expected to expand against the currency whose interest rate is stationary. The reason behind this because when the interest rate on a currency increases, the overall value of the currency also increases.  (Taylor, 2011)

As mentioned above, superior performance can be produced by pairing acurrency with the one that would provide a greater interest rate and is also likely to be appreciated in the near future. This strategy would only prove to be successful in the following two conditions.

• If we have taken a long position, then it is required that the Central Bank of the country would increase the interest rate.
• If we have taken a short position, then in order to succeed, it is required that the Central Bank would decrease the interest rate.

Currency PPP Strategy

Purchasing Power Parity (PPP) is a theory that is focused on determining the required modifications that are needed in order to bring two currencies at par. In simple words, it can be explained as that, the value of a commodity must be the same in two different currencies. This theory is based on the concept of law of one price, i.e. same goods should have the same price in different markets in the absence of transaction cost. It is obvious that the consumption of goods is different in different countries, but currency PPP strategy is used in order to compare different countries on this basis and to find out which country is more expensive in terms of living. (Vogel, 2018)

Alternate Investments Harvard Case Solution & Analysis

If we analyze the historical data that we have taken from the year 1990 to 2008, it can be seen that PPP performs better than any other strategy. Research also shows that when there is a downturn in the economy, PPP performs well in such times of crisis as well.

Additionally, with respect to the PPP strategy, we have observed the returns and it can be seen that,the more the difference exists in short term interest rates of the countries, the more it would be effective.................

This is just a sample partical work. Please place the order on the website to get your own originally done case solution.

Related Case Solutions & Analyses:

Porto Adriatico Administrative Data Project (B) Emerging Giants: Building World-Class Companies in Emerging Markets Greeley Hard Copy: Portable Scanner Initiative (B) So You Think You Can Innovate? Swedish Lottery Bonds .Renesas Electronics And The Automotive Microcontroller Supply Chain CHINA: THE NEW NORMAL. MICRO-ELECTRONIC PRODUCT DIVISION (MEPD) Al Dunlop at Sunbeam