Trading Project Information

Trading Project Information
The goal is to place you in the position of portfolio managers who invest
in companies linked to international trade. Students should form groups
consisting of at least five people, though you may form larger groups. Each
group will manage an imaginary amount of capital which will be invested
in stocks. You may invest in Canadian or foreign companies. Make sure
the companies you buy have profits linked to international trade A
number of sites for obtaining free stock quotes are found below. If you invest
in foreign companies you will need to convert Canadian dollars to a foreign
currency to make your purchase. An internet site for exchange rate quotes
as well as information on converting currencies is found below.
Using microeconomic models taught in the course as well as current events
you must analyze the economy and financial markets to derive trading strategies for stocks. The amount of capital to be invested is one million Canadian
dollars. Stock prices respond to expected profits. If something happens that
may raise a company’s profits its share price rises immediately. Likewise, If
something happens that may lower a company’s profits its share price falls
immediately. For example, if oil prices rise the oil companies will have greater
profits so their share prices rise. Microeconomic events like product development and changes in demand or costs an↵ect profits and therefore stock
prices. Your task is to link microeconomics with investment decisions. You
do not need any financial background to make sound trades.
A report must be submitted at the end of the term describing the overall
strategy and reasons for key trades. It should include statements of trading
profits/losses in Canadian dollars. The package should be approximately 10-
15 pages in length. It is possible to obtain capital gains by trading stocks
at a high frequency. The goal is to keep informed of price movements in financial
markets and current events such as the US-China trade war to ensure the
best possible trades. To make the project manageable write up the reasons
for trades and the results as they occur instead of waiting until the end of the
course to compile results.
Every student in the group will receive the same grade. The
grade will be determined by the quality of analysis rather than
overall profitability. The point is to apply the economic models
taught in the course to motivate the purchase of companies heavily
involved in international trade. Using current events and microeconomic analysis predict stock price movements. Microeconomics
1
Note this is a group project Of 5 people and each person will analyze
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a↵ects asset prices so the objective of the project is to use Microeconomics models to construct investment portfolios. When a trade
generates a loss the goal is to explain why it happened using the
models. For instance, suppose the release of economic data causes
depreciation of a stock you are holding. Explain why the data
caused the price fall and why this did not conform to previously
held expectations. High quality analysis will generate a high grade.
A sample of the kind of analysis required is found on Quercus in
the sample trade file.
Stock and Foreign Exchange Quotes: There are several websites
useful for accessing financial quotes free of charge.
1. Exchange Rate quotes are accessed via The Bank of Canada (bankofcanada.ca/rates/exchange/). Select the Daily Currency Converter. Select
the foreign currency in the box marked ”From”. Select the Canadian dollar
in the box marked ”To” and press the box marked ”Convert” to obtain the
Canadian dollar price of the foreign currency.
2. Stock quotes:
a. Nasdaq quotes (www.nasdaq.com/): Select ”quotes” and key in the
stock symbol or company name in the seach box to access a quote.
b. finance.yahoo.com. Type the stock symbol or company name into the
”search finance” box to access a quote. This can be used for NYSE stocks.
c. Toronto Stocks (Get Quotes-TMXmoney): There is a box where you
can enter the company name or stock symbol to access a quote.
d. London stock quotes: londonstockexchange.com lists companies quoted
on the London Stock Exchange alphabetically and provides price quotes free
of charge.
Possible Companies
1. Major companies are posting their corporate reports on their websites. You can use these as a source for earnings data, especially from export
oriented operations.
2. All major Canadian banks have US operations so could be used in the
project. You might also look at foreign banks or brokerage houses with large
international operations. Examples are JP Morgan, Chase, Merrill Lynch,
CitiBank, Deuchbank, Royal Bank, TD Bank, CIBC.
2
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3. Mining, railway, airline and oil companies are involved in trade in one
way or another. You might consider Barrick Gold, Vale, Exxon, BP, Royal
Dutch Shell, CP Rail, Amtrack, Air Canada, American Airways.
4. Luxury goods, fashion companies and cosmetic companies have great
interests in trade. You might look at Moet-Hennessy, Chanel or major distillers.
5. Agricultural or consumer products firms like Coca-Cola, PepsiCo,
Monsanto, Procter and Gamble, Merck, Pfizer, MacDonald’s have strong
interests in international trade or operate in many markets. MacDonald’s
produces locally in many countries; in e↵ect this US firm has exported its
product by producing it locally worldwide.
6. You might look at car companies such as GM, Ford and Chrysler but
emphasize their export potential.
7. Hotel chains such as Hyatt and Hilton can be viewed as being involved
in international trade since they support tourism.
8. You should rely on sources other than the internet for current events
and analysis of these events. Try The Wall Street Journal, The Economist,
The Financial Times or The Report on Business in The Globe and Mail. The
reason is that there’s more analysis in these periodicals than internet sites.
But the internet is good for stats on corporate earnings etc.
General Points
1. Provided you can obtain information and price quotes for companies
traded on Continental European and Asian stock exchanges you are welcome
to include those in the project. Using North American or UK companies
is fine as well. Report profits and losses Canadian dollars. If you buy a
foreign company you need to buy the currency in which it is priced first.
The exchange rate is the Canadian dollar (CAD) price of 1 unit of foreign
currency. For example, suppose you need 100,000 US dollars (USD) to buy
some shares on the NYSE. If the exchange rate is 1.3 CAD per USD you will
spend 130,000 CAD to get the 100,000 USD. Consider reporting profits in
CAD. Multiply your total portfolio value in foreign currency by the exchange
rate after closing out your position. So if you sell your stocks for 105,000
USD and the exchange rate is 1.32 CAD you receive 105,000⇥ 1.32 CAD as
a total return.
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2. Cite all sources of corporate earnings. inflation rates, GDP statistics
etc. Sources for lesser known facts about corporate strategies should be
cited as well. The sample trade shows you one method of citation though
any method is fine. Also you can use the style in the sample trade for the
bibliography. Note when presenting stats in the body of the paper you must
cite the source there. Essentially you note the source for the stats which
appears in the bibliography directly in the body. Failure to cite sources for
stats and facts that are not widely known in the body of the text is a form
of plagiarism.
3. Be creative in your choice of companies. Make sure they are linked to
international trade.
4. Do not direct most of your presentation to motivating trades. Instead,
spend time discussing why the trades succeeded or failed. When analyzing
these reasons pay attention to current events linked to trade. Using macroeconomic as well as microeconomic factors is fine but keep the emphasis on
trade based micro analysis.
5. Comparative advantage, the notion that some countries are better at
producing some goods or services than others, underlies many trade models.
While competitive advantage cannot explain actual trade patterns it is useful
for motivating purchasing a company’s shares. For example, the quality
of French products can be used to motivate buying Moet-Hennessy. Coca
Cola owns Tropicana orange juice. The US has a comparative advantage in
producing certain agricultural products such as oranges. Not all countries
can produce oranges. This fact could motivate buying Coca Cola shares,
especially if you can cite earnings from that segment of Coca Cola’s business.
6 Certain companies have been analyzed too often in eco365. Try to
avoid the following companies: Toyota, Samsung, Tesla, Amazon.
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