Page 115 - DMGT549_INTERNATIONAL_FINANCIAL_MANAGEMENT

International Financial Management

Notes respective authorities were taking down their exchange rates. “That made it smart to be
long on dollars and short on yen,” says Mr Stopford.
The decisions are harder now, “The US dollar no longer looks that cheap and the DM and
yen no longer look that expensive. The Italian lira and the Swedish krona have moved
from being undervalued. We remain long of the dollar but we have reduced our positions
gradually. We have also reduced positions in peripheral currencies.”
Source: International Financial Management, Madhu Vij, Excel Books.

7.5 Currency Volatility Over Time

The volatility of a currency is a measure of the change in price over a given time period and will
not necessarily remain consistent from one time period to another. The MNCs assessment of a
currency’s future volatility will not be accurate when a previous time period is used as an
indicator since currency volatility levels change over time. However the MNC can benefit
significantly from information even though the MNC may not be able to predict a currency’s
future volatility with perfect accuracy. It can identify currencies like the Canadian dollar or the
British pound whose values are most likely to remain stable vis-à-vis highly volatile currencies
like the Italian lira or the South Korean won in the near future.

Table 7.3: Volatility in Indian Rupee

Change %
Currency INR per Per INR 1 Day 3 Month 1 Year HLP1
Australian dollar 25.038665 0.039938 – 0.13 +4.80 – 5.51 61.2
British pound 68.640693 0.014569 – 0.01 +3.03 +2.98 73.4
Canadian dollar 30.470037 0.032819 – 0.11 – 0.59 – 2.31 49.9
Dutch guilder 19.525347 0.051215 – 0.01 +7.56 +5.44 73.8
Euro 43.028176 0.023241 – 0.01 +7.56 +5.44 73.8
Finnish markka 7.236823 0.138182 – 0.01 +7.56 +5.44 73.8
French franc 6.559606 0.152448 – 0.01 +7.56 +5.44 73.8
German mark 21.999963 0.045455 – 0.01 +7.56 +5.44 73.8
Greek drachma 0.126275 7.919226 – 0.01 +7.56 +4.53 72.9
Hong Kong dollar 6.046309 0.165390 +0.00 +0.26 +2.70 98.0
Italian lira 0.022222 4.000027 – 0.01 +7.56 +5.44 73.8
Japanese yen 0.396803 2.520144 +0..57 +0.76 – 8.11 44.2
Mexican peso 5.121911 0.195240 – 0.20 – 0.49 +2.63 78.8
South Africa rand 5.603113 0.178472 – 0.60 – 4.61 – 16.07 0.0
Spanish peseta 0.258605 3.866906 – 0.01 +7.56 +5.44 72.8
Swedish krona 4.522440 0.221120 – 0.29 4.89 – 7.19 32.8
Swiss franc 28.377159 0.035240 +0.10 +8.06 +7.44 77.8
US dollar 47.160000 0.021204 +0.00 +0.25 +2.71 98.1

Table 7.3 illustrates the movement of a few important currencies with respect to the Indian
rupee. It discusses the one day, three month and one year change in the currencies. The percentage
change in the value of one foreign currency unit measured in local currency is calculated. A plus
sign (+) in front of the value means that the foreign currency has appreciated and hence the local
currency has depreciated. If the value is preceded by a minus sign ( – ), the local currency has
appreciated and foreign currency has depreciated.

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