Value-oriented strategy: An approach to currency investing July 1997-April 1998

• Main Authors: Donggay, Philline, Gutierrez, Vincent, Hao, Giselle
• Format: text
• Language: English
• Published: Animo Repository 1998
• Subjects: Currency exchanges (Domestic); Foreign exchange; Investors; Investments, Foreign; Financial institutions; Trading rooms (Finance)
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/16477
• Institution: De La Salle University

Trading and investing in foreign currencies are as risky as they are without having to consider sudden economic crises. Halfway through 1997, the Philippines began to feel the effects of the Asian Currency crisis where the Philippine Peso depreciated from a high of approximately P 26 to a low of P 45 to the US dollar. This adversely affected many businesses and as for foreign exchange trading and investing, the Peso's condition made it more risky. Most successful currency investors are known to have guiding approaches or strategies, usually based on some framework or a theory for exchange rate forecasting and estimation, helping them to derive profits from their transactions. But, whether or not the risk can be greatly eliminated with the use of specific approaches, there is no sure answer. This Paper uses a strategy to currency investing, the Value-Oriented Approach, and tests it within a ten-month investment period: July 1997 to April 1998-the height of the currency crisis. The approach embraces a regression procedure to arrive at estimated coefficients that is material, in order to arrive at estimates for the exchange rate. The test of the strategy is then finalized with a comparison of Expected Returns for the approach against Actual Returns during that period. The determination of Returns based on the strategy's model, includes variables such as the Price levels, inflation rates, interest rates and the Exchange rate for the two countries investigated: the Philippines and the US. This paper's results lead the researchers to conclude that with the use of the Value-Oriented Approach, an investment on the dollar during the said ten-month investment period would have been profitable. The profits, however, fail to be very significant. From this, the researchers recommend further, that the approach be tested through a longer investment horizon and that a portfolio of multi-foreign currency investment be set up, in order to take utmost advantage of the strategy through its portfolio optimization procedure.