Quantitative Methods: Individual Assignment:
MCom 2022 Class
March 2022
Topic: The Reserve Bank’s Dilemma
A lot can be said about the stability of a country by examining the stability
of its currency. Factors contributing to the strength of a country’s currency
might include the long-term stability of the currency’s purchasing power,
the associated country’s political and fiscal condition and outlook, and the
policy posture of the issuing central bank. Conversely, a weak
currency indicates a currency which is expected to fluctuate erratically or
depreciate against other currencies. Such weakness (softness) is typically
the result of political or fiscal instability within the associated country.
As member of the BRICS, the South African government believes that the
South African Reserve Bank (SARB) should increase its reserve portion of
Chinese Yuan. The reason provided by government is that China is now the
largest trading partner and it, therefore, makes sense to increase the Yuan
reserves to reflect the increase in trade between the two countries. The
Research Director at the South African Reserve Bank is not convinced that
an increase in the Yuan reserve proportion is necessary. She cited lack of
transparency in the Chinese economy as a major concern which, according
to her, has the potential to frequently increase the volatility of Yuan
compared to USD and EUR reserves held at the bank. The Director further
concluded that, in the medium to long-term, the USD and Euro are less
risky compared to the Yuan.
To test her ideas, the Director provides you with historical monthly dollar,
euro and yuan exchange rates of the South African rand from 31 January
2000 to 28 February 2015. You are required to analyse the data and advise
the Research Director.
Important Information:
1. This assignment accounts for 40% of the total marks for the
quantitative methods;
2. You are required to use ONLY what you have learnt in class for this
assignments- restrict methodologies to Keller (that is the prescribed
textbook);
3. Assignment should be structured as follows:
a. Summary (not more than half a page);
b. Introduction;
c. Literature review;
d. Analysis and interpretation of results;
e. Conclusion and recommendations;
f. References
g. Appendices (if available);
4. The entire assignment should not be more than 4000 words
(including figures, tables etc.); This excludes references section.
5. Please note that this is an individual assignment and should,
therefore, not be discussed in groups.