United States Dollar and Trading Plan

Topics: United States dollar, Foreign exchange market, Exchange rate Pages: 3 (354 words) Published: July 15, 2011
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Case 3.1 Foreign Exchange Trading at Baldwin Enterprises

1. Spread Sheet Model

CURRENCY| AMOUNT| CONSTRAINTS| TRADING PLAN|
USD| 4055972.522| 4055973| ≥| 250000| 111261.72087258300| EUR| 8000000| 7779200| ≥| 250000| |
GBP| 160328.3525| 250000| ≥| 250000| |
HKD| 1951295.66| 250000| ≥| 250000| |
JPY| 54000000| 455220| ≥| 250000| |
| | 4055973| ≥| 0| |
| | 8000000| ≥| 0| |
| | 160328.4| ≥| 0| |
| | 1951296| ≥| 0| |
| | 54000000| ≥| 0| |
| | 8000000| =| 8000000| |
| | 54000000| =| 54000000| |

2. Optimal Transactional Plan

Z =
As we have to find the optimal trading plan, hence we will “MINIMIZE” this objective function.

3. Optimal Transaction Cost

The transaction cost for each currency in equivalent USD’s are as follows:

CURRENCY| TRANSACTION COST|
USD| 0|
EUR| 0.009474|
GBP| 0.000645|
HKD| 0.000856|
JPY| 0.000625|

4.
CURRENCY| AMOUNT| CONSTRAINTS| TRADING PLAN|
USD| 4055972.522| 4055973| ≥| 50000| 109846.2437|
EUR| 8000000| 7779200| ≥| 50000| |
GBP| 32065.67049| 50000| ≥| 50000| |
HKD| 390259.1321| 50000| ≥| 50000| |
JPY| 54000000| 455220| ≥| 50000| |
| | 4055973| ≥| 0| |
| | 8000000| ≥| 0| |
| | 32065.67| ≥| 0| |
| | 390259.1| ≥| 0| |
| | 54000000| ≥| 0| |
| | 8000000| ≥| 8000000| |
| | 54000000| ≥| 54000000| |

As we solve the optimal trading plan by changing the constraint of minimum holding from $250000 to $50000, we see that the value of optimal solution changes from 111261.72087258300 to 109846.2437. No it does not help lower the transaction cost as the change in the trading plan is due to the fact that there is...
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