FX Summary Report

BFF5260 Money Market Dealing
Foreign Exchange Summary Report

Semester 1 2015
Name of Bank: CIMB Group
Day of Class: Thursday
Date: 23 April 2015
Individual student contribution to this trading report
Name of student
Li Chen
Number of Hours
36
Total Percentage contribution

1/3
Chenyang Jiang
36
1/3
Danlin Wang
36
1/3
Total Hours
108
HONOUR STATEMENT
I affirm that I have neither provided nor received any assistance during the
completion of this assessment task other than that approved by the Chief
Examiner.
.
Executive summary
The report focuses on the overall financial performance, summary of economic scenario, entire
adjusting strategies, effects and influences of changing foreign exchange market price, wrong
actions, the numerical performance of each role and what we have learned from the trading
sessions.
This report measures the financial performance by demonstrating the budget and actual
performance based on several financial indicators. The comparison to the market is also given in
addition to that in this part. The overall performance of CIMB Group is assessed as the average
level of market in terms of profitability. Then, pre-trading strategies and contingency strategies are
established according to the analysis of the economic scenario and expectation of the market. In
addition, the strategies we used and didnt use during the two trading sessions are discussed.
Meanwhile, the contribution of each strategy to our total profit is calculated to show the usefulness
of the strategies. Moreover, the market price movement indicates the market is fundamentally
inefficient. The performance of each role is also measured; suggesting that each member
performed well whilst further improvement is still needed since we also made several mistakes
during the trading sessions.
Highlights
Researching the economic scenario before each trading is useful to set a proper opening price
when the market opens.
In the first trading session, most profit came from trailing the market and finding arbitrage
opportunities and corporate tenders. When the market was contractive, contingency strategy
helped us outperform in this situation.
In the second trading session, most profit came from corporate tenders and contingency
strategy in contractive market.
Paying attention to the market news and trailed the market before changing our banks quoting
price in order not to be hit by our counterparties.
Table of Contents
1 Financial performance......................................................................................................................1
1.1
Financial performance indicators..................................................................................1
1.2
Financial Performance...................................................................................................1
1.3
Comparison to the market...............................................................................................2
2 Economic Scenarios.........................................................................................................................6
3 Overall strategies developed including contingency strategies.......................................................7
3.1 First formal trading session..................................................................................................7
3.1.1 Primary strategy................................................................................................................7
3.1.2 Second Strategy..................................................................................................................8
3.1.3 Contingency strategy.........................................................................................................9
3.2 Second formal trading session..............................................................................................9
3.2.1 Primary strategy..............................................................................................................10
3.2.2 Secondary strategy...........................................................................................................10
3.2.3 Contingency strategy........................................................................................................11
4 Strategies actually used during the trading sessions......................................................................11
4.1 First trading session............................................................................................................11
4.2 Second trading session........................................................................................................14
5 Analysis of Foreign Exchange Market price changes...................................................................17
5.1 Market price movement in trading session 1......................................................................17
5.2 Market price movement in trading session 2......................................................................18
6 What you did wrong and remedial action EACH WEEK.............................................................20
6.1 Practice trading..................................................................................................................20
6.2 First trading........................................................................................................................21
6.3 Second trading....................................................................................................................23
7 Overall performance measures of each role..................................................................................23

8 What you learned from EACH trading session.............................................................................25
Appendix 1.........................................................................................................................................27
Appendix 2.........................................................................................................................................34
Appendix 3.........................................................................................................................................41
Appendix 4.........................................................................................................................................49
Appendix 5.........................................................................................................................................49
1 Financial performance
1.1 Financial performance indicators
Financial performance indicators focus on two aspects: Return and risk. In terms of
the return, the profitability comprises two measurements that are dollar profit and
profit margin. The dollar profit is how much money we make at the end of each
trading session; The profit margin, which is also called the basis points or number of
pips, is calculated by the formula [profit/(volume/2)]*10000.
Regarding the risk estimation, we monitored our maximum transaction amount and
extreme long/short position. The larger transaction amount could increase the
operation risk but it is also a key point to get more profitability. Additionally, the
extreme long/short position represents the top amount that would remind us to deal in
an adverse direction.
1.2 Financial Performance
The overall budget and performance of CIMB group is demonstrated in the following
table:
Financial indicators
Return
Dollar Profit
Profit Margin
Maximum
transaction
amount (AUD)
Trading Session 1
Budget
Reality
0.8M
0.038M
20
1.5
50M
30M
Trading Session 2
Budget
Reality
0.2M
0.056M
5.7
1.6
200M
150M
Risk
Extreme
Long/Short
position (AUD)
100M
80M
100M
100M
Total Turnover
800M
520M
700M
700M
Table1: Overall budget and performance of CIMB group
From the table it can be seen that the differences between the budget and actual are
big although our profitability has been improved in the second trading session. The
variance mainly stems from our overly optimistic expectation for the market condition
and our conservative operation.
In the first trading session, we set out profit margin up to 20, which was unrealistic
given the market situation. The market didnt react to the news efficiently and the
price quoted stayed in a relatively stable level as a result, hence it was difficult to
make large profit from this constrictive market. And we didnt achieve our
presupposed turnover target. In addition, we lost several opportunities to expand our
gain due to our conservative trading strategy. For example, we adopted a strategy by
bidding a higher price and asking a lower price than the market when we found the
market was constrictive, which was proved useful, but still we failed to magnify our
profit since we tried to control risk by reducing transaction amount.
In the second trading session, we did better than the first one in term of achieving the
budget. We kept our risk target successfully; nevertheless, our profit margin was still
overestimated. In fact, the overall profit margin had been smaller than the first
trading session, suggesting the market became more constrictive than the first time.
Apart from this, we made several mistakes such as filling the wrong number in the
tender sheet. The specific details related to this issue will be discussed in the 3 rd and
4th part involving strategies of this report.
1.3 Comparison to the market
The statistical financial data of the market in terms of profit and risk is shown as
below:
Financial Indicators
Trading Session Trading

1
Session 2
Overall
Highest dollar profit

Lowest dollar profit
Highest profit margin
Lowest profit margin
Market Average dollar
$671,000
-$302,000
14.91
-3.60
$87,857
$144,000
-$49,000
1.76
-3.06
$30,619
$706,000
-$302,000
8.83
-2.85
$118,476
profit
Market average margin
Market average turnover
Dollar profit (CIMB)
Profit Margin (CIMB)
Turnover (CIMB)
2.90
639,047,619
$38,000
1.46
520,000,000
0.59
802,857,142
$56,000
1.60
700,000,000
1.59
1,441,904,761
$94,000
1.54
1,220,000,000
Table 2: Statistical financial data of the market
From the statistical data of the market, we can see that both dollar profit and profit
margin are little less than the market average, suggesting our bank has a average
profitability in the market.
The data of dollar profit is shown as below:
$800,000.00
$600,000.00
$400,000.00
Session 2
$200,000.00
Session 1
$$(200,000.00)
$(400,000.00)
Figure 1: Dollar Profit
From figure 1 we can clearly see that the overall profitability of our bank (CIMB
GROUP) lies on the middle level among the 21 banks. An interesting phenomenon is
that only 5 banks made more profit in the second trading session than the first, the
proportion is only 24%, as shown in chart 1. Our bank is one of the 5 banks that
enhanced their dollar profit.
Banks that
improved dollar
profit
5.00; 24%
Banks that didnt

improve dollar
profit
16.00; 76%
Chart 1: Dollar profit
One potential explanation is people became more sophisticated in the second trading
session, pushing the market towards more constrictive direction, hence the profit
margin shrunk considerably. This explanation can be supported by the profit margin
figure:
20.00
15.00
10.00
Session 2
5.00
0.00
DEUTSCHE BNI
-5.00
Session 1
ICBC
CIMB BARCLAYS NAB
HONG
-10.00
Figure 2: Profit Margin
Figure 2 explicitly demonstrates the trend of profit margin changes during the two
trading sessions. Only 4 banks gained larger profit margin in the second trading
session, the proportion of which is less than 20%. Compare this to figure 1, it can be
found that 4/5 of the banks that enhanced their dollar profit achieved higher profit
margin. Still, our bank is one of the 4 banks that promoted their profit margin.
Banks that improved dollar profit
1; 5%
4; 19%
16; 76%
Banks that improved profit margin
Chart 2: Profit margin
In addition to profit margin, turnover is another consideration when measuring

performance.
3,000,000,000.00
2,500,000,000.00
2,000,000,000.00
1,500,000,000.00
Session 2
1,000,000,000.00
Session 1
500,000,000.00
0.00
Figure 3: Turnover of Banks
Turnover data indicates another aspect of the each banks performance. The situation
of turnover is just opposite to profit margin. Only 5 banks reduced their turnover in
the second trading session whilst 16 banks chose to expand their turnover, suggesting
the majority of the banks tended to enhance their profitability by magnifying their
turnover. However, since the constrict market, the increases in turnover were
insufficient to offset the loss in profit margin for most banks, which is why 76% banks
failed to expand their dollar profit.
2 Economic Scenarios
As is shown in the economic scenario, the Australian financial market has been
bearish for several weeks, and this trend will continue to affect the economy of
Australian. Apart from that, with the decreasing of the foreign investment in Australia,
the demand of Aussie dollar will drop. In this situation, the Aussie dollar will continue
depreciating in the near future.
1. With the falling of business confidence level, the average number of investment
trading will drop. It means that the demand of Aussie dollar will decrease and this
results in the depreciation of the AUD.
2. Although the retail expenditure has been steadily reducing over the past 15 months,
the consumers regain the confidence in the economy. As the confidence of consumers
rises, the Aussie dollar will appreciate accordingly.
3. The rate of unemployment has increased by 1.25% despite of the high level of job
creation. It will result in the depreciation of Aussie dollar and bearish share market.
4. Since the Australian's economy mainly depends on the export of its commodity, the
decreasing commodity price leads to the high demand of Aussie dollar, theoretically,
this will result in the appreciation of Aussie dollar. However, China has become the
largest commodity import country from the Australia. If the demand of commodity
decreases in China, which means that China wants to relieve its economic growth and
does not need so much iron ore or coppers etc., then the Aussie dollar will continue
depreciating despite the price of the commodity drops down.
5. Worldwide terrorist activity results in negative influences and serious situation. The
global economy will drop down and Australia certainly cannot avoid the negative
influences on its economy. It is no longer a safe paradise where investors can invest
without any doubts. As a result, the Aussie dollar will depreciate.
6. The high-priced property market means that there exist many economic bubbles in
the property. And investors do not want to invest those risky properties. Therefore, the
demand of Aussie dollar declines with the depreciation of the Aussie dollar.
In summary, based on the analysis of the economic scenarios, we expect the Aussie
dollar will depreciate in the near future.
3 Overall strategies developed including contingency strategies

Before each trading session starts, we discuss how to set a proper opening quoting
price according to the economic scenario and closed AUD/USD market rate in New
York. Setting the opening price is quite important for that if someone sets a low
opening price which has arbitrage opportunity, and then this bank will suffer huge
losses at the beginning of the trading session. For example, if the market average
selling price is 0.8500, and we set our selling price at 0.8495, then other banks will
buy from us at 0.8495. Meanwhile, if the AUD appreciated in the market, then we had
no opportunity to buy back these AUD at the price lower than 0.8495 and hit by other
banks at the beginning. Therefore, setting a proper opening price is critical for us to
implement our strategies successfully in the period of trading session.
3.1 First formal trading session
According to economic scenario, with the falling business confidence level, reducing
retail expenditure, increasing unemployment rate and falling commodity prices which
all infers that the Australian dollar will depreciate when the market opens. The closed
AUD/USD market rate is 0.8500, thus we planned to set our opening price lower than
0.8500 at the beginning and trailing the market average opening price in order not to
hit by other banks.
3.1.1 Primary strategy
Our primary strategy is to change the quoting price according to the market events
assuming that all events are efficient to the market. Meanwhile, find any arbitrage
opportunities in the market under the code of conduct. Certainly, buying AUD at a
lower price and selling AUD at a higher price is the most principal way to help us to
make profit. At the first trading stage (9:15--10:15), there existed two market events,
the first one is balance of payments surplus of $5 billion which indicated that the
AUD would appreciate when the announcement released. And the second one is
concerning the economy slowed down which indicated that the AUD would
depreciate when news was announced. According to two market events, we planned to
long about $50 million Australian dollar before the first news announcement at the
market average selling price or buy from those banks with selling price lower than the
average price. After the first announcement released, we observed the market average
selling price at that time, and changed our quoting price a little bit higher to attract
other banks to buy in order to reduce our risk exposure. After second news
announced, the AUD depreciated, and we changed our price lower than previous rate
but still set the price above the break-even rate in order to make profit. At the second
stage(10:35--11:30), two market events also indicted that the AUD would continue to
depreciate, thus we decided to short about $100 million AUD before 10:55, and we
could buy back these amount at lower price from other banks with the depreciating of
the Australian dollar. At this stage finding arbitrage mispricing also helped us to make
more profit.
3.1.2 Second Strategy
If the market events had little effect in the market, or most of banks did not change
their quoting price after announcements, then the market would become very
contractive. It means that little arbitrage opportunities could be found in such market.
If we held too much AUD at the beginning of trading session, we could not sell these
amounts at a good price in the contractive market. Hence, we should use our second
strategy which takes advantage of corporate tenders to make profit in the contractive
market. There were two corporate tenders in the trading session. The first one is that
BHP wishes to buy AUD1 billion, and the second one is that AMP wishes to buy 100
million. Using tenders would help us to make more profit. If we had a 100M AUD
long position at 0.8495 in the contractive market, we could sell this amount to BHP or
AMP at 0.8499 or 0.8500 rather than attract other banks to buy from us at 0.8496.
Therefore, we would set our selling price little bit higher than market average selling
price to win the tender and make more profit.
3.1.3 Contingency strategy
The contingency strategy should be used when our tender did not be accepted by the
corporate and the market went the opposite way which we could not predict. For
example, when the market showed the slowing of growth of consumer credit, the
normal market movement should make AUD depreciate. When we long 50 million
AUD at 0.8495 at that point, and all other banks rise their quoting rate, how to deal
with? We planned to raise our bid price to attract other banks to sell. If the market
average price is 0.8489/0.8499, we can set our bid price at 0.8491 to buy from other
banks. In this way, we buy at a lower price and decrease our previous cost below
0.8495. Then in order to attract other banks to buy from us, we changed our selling
price below 0.8499, such as 0.8497 to make profit because our cost is just below
0.8495! Hence, this strategy can be used in emergency situation and also give us
opportunity to make profit.
3.2 Second formal trading session
According to the economic scenario which is the same as the first trading session, the
Australian dollar would depreciate when the market opened. Apart from that, the cash
rate in Australia reduced to 2% while the US cash rate increased to 0.75%, this also
inferred that the AUD would continue depreciating. The closed market AUD/USD
rate is 0.8495. After last week trading, we found that the market events and scenario
seem to have little effect in the market. Thus, we decided to follow the other banks'
quoting price to set our opening price in order not to be hit by other banks at the
beginning.
3.2.1 Primary strategy
We changed our primary strategy to fully take advantage of corporate tender in this
week transaction because most banks did not change their price when announcements
released. Thus, winning the corporate tenders means more profit we could make.
There existed two tenders during this trading period. Toll holding wish to buy AUD 2
billion and BHP want to sell AUD 2 billion. We found the tender amount was much
greater than previous trading, and gave us good opportunity to make money. Thus
before the first tender closed, we should long as much as we could( e.g. 100M) in the
market at a relative low selling price by discovering any mispricing in the market and
buy more from them. Meanwhile, we filled the tender at the selling price at the market
average level to win the tender. Although setting a lower selling price may more
attractive to the corporate, this also eroded our profit margin. Before the second tender
closed, we should short about 60--80M AUD at a market average selling rate, if the
market average selling price is 0.8500, we can set 0.8498 or 99 to attract other banks
to buy, and we could fill the tender at the market average buying price such as 0.8494
or 95 to buy back these amount of AUD and make profit.
3.2.2 Secondary strategy
Since the economic scenario and market event were almost the same as previous
trading session, and we concluded that the overall tendency of AUD is depreciating.
All banks should change the quoting price when the news released. However, the
market seemed to be not efficient in the last trading session, thus we decided to trail
the market average quoting price when market news released and tried our best to find
arbitrage mispricing opportunities during the trading session. For example, when the
news of bearish economy released, one bank change their price first at a lower selling
rate while other banks did not change, then this bank would be hit but it was a good
opportunity for us. (Assuming the market average selling price is 0.8500 and this
bank change its selling price at 0.8495)
3.2.3 Contingency strategy
According to the experience from last trading session, we found that the contingency
strategy which was used was quite effective to make profit in the contractive market.
And we also predicted that other banks might also find this strategy and used it in this
week trading session. Thus, we regarded that the profit margin may decrease when
using this strategy this week. Assuming that the market average quoting price is
0.8496/0.8501, and many banks would set their buying price at 0.8496-98, and selling
price at 0.8499-00. In this case, the lowest profit could be earned only AUD 1000 per
10M transaction. But we still reckoned that this strategy can make profit even if in
such tight market.
4 Strategies actually used during the trading sessions

4.1 First trading session
When the market opened, we set our opening price at 0.8490/00 according to closed
AUD/USD market rate in a conservative way. Meanwhile, we tried our best to find
any arbitrage opportunities. After observing the market, we found the most attractive
price to buy is at 0.8495 from Sunway, thus we long 30 million AUD. However, in
order to attract more banks to sell us AUD we change our price at 0.8497/03, and
CITI bank and Bendigo bank sold us 20 million in total which indicated that our
buying cost increased to 0.8498. Then we sold 20 million at 0.8497 to Barclays and
made $2400 profit at that time. After that we found that we still had 30M AUD
exposure, and we wanted to square the account before the first news released.
Although we just found Westpac bid price was the most attractive in the market at
0.8495, this mean that we would lose all profit made previous if we made this
transaction. In order to decrease our risk exposure, we finally made this transaction
and our profit was still zero. After the first news released which would make AUD
depreciate, we changed our price at 0.8488/98 according to the news. Then SACOM
and Sunway totally bought 30M at 0.8498 from us. Then we found that other banks
all decreased their selling price, and some of them such as Bankwest, BNI and ANZ
adjusted a lot in their selling price. We grabbed this arbitrage opportunity and bought
20M at 0.8497 from BNI, while bought 30M in total from ANZ and Bankwest at
0.8495. After that, we adjusted our quoting price at 0.8490/00.Surprisely, Bendigo
bank still wanted to buy 20M from us at 0.8500, we accepted this transaction happily
and squared the account with $15000 profit. At 10:03a.m, we suddenly found the
selling price of ANZ was just 0.8492, we called them immediately and wanted to buy
about 30M, but they rejected and just sold us 10M at 0.8492. This was still a good
price for us, and ANZ then called us to buy 10M at 0.8498 from us, finally we made
$21000 profit after this transaction. At the first trading stage(9:15--10:15), we had
used our primary strategy by finding arbitrage opportunities and trailing the market
quoting price, but we still did not used tender and contingency strategy at this
moment. In fact, BHP wanted to buy AUD 1billion, but we unintentionally ignored
this tender and missed opportunity to make more profit.
Chart 3: source of profit
Figure 4: Contributions of each strategy
At the second trading stage( 10:35--11:30), AMP wanted to buy 100M from market,
this time we filled the tender and planned to sell 30M at 0.8496. At 10:28 the US cash
rate increased to 0.75%, and we found that the Bangkok bank adjusted their price at
0.8495 and we immediately bought 20M from them. After this transaction,
unexpected situation happened; almost all banks raised their selling price from 0.8497
to 0.8501 and set their buying rate from 0.8487 to 0.8490. If we still set the rate at
0.8488/98 we would have no advantage in this market. We found the market average
buying price is 0.8489 and we used contingency strategy which set our buying price at
0.8491 to attract sellers and decreased our buying cost simultaneously. When we just
changed our bid price, UBS sold us 30M at 0.8491 and our long position cost was
only 0.84926. Then we sold 20M to Barclays at 0.8494 and made $2800 profit. After
using this contingency strategy we totally made $38000 profit ($21000 from primary
strategy, $16087.5 from secondary strategy and $912.5 from contingency strategy).
During using contingency strategy, we also made some mistakes and lost $7612.5
potential profit due to not record our cost in time.
Market Average Buy Rate

Market Average Sell Rate
CIMB GROUP Buy Rate
CIMB GROUP Sell Rate
Figure 5: Contingency strategy by changing bid/ask price to attract buyers and sellers
4.2 Second trading session

Although the economic scenario and expected events indicated that the opening price
of AUD/USD should be lower than the first trading session because of cutting cash
rate in Australia and rising cash rate in U.S, we just wanted to follow the market
opening price, and set the opening price at 0.8490/00. According to the trading
experience last week, we found that when the news released, those banks changed
their quoting price first may suffer loss because others could catch arbitrage
opportunities from them. Apart from that, we predicted that the market would be more
contractive than previous trading session because no one wants to change the price
first. When the trading started, the market average price was about 0.8492/01. And
this price lasted nearly 15 minutes, in order to make the first transaction; we set our
buying price at 0.8497. Then, Bendigo bank and Sunway sold us 30M in total at this
rate. When the first news released, all banks almost had no reaction about this event.
There existed a tender which should be handed in before 10:20. Thus, we planned to
sell 50M to Toll Holding at 0.8499 and made profit from this tender. Using tender to
make profit was our primary strategy in this week. At 10:17, we suddenly found the
selling rate of ANZ was only 0.8495 and we bought 10M from them. Simultaneously,
we changed our selling price at 0.8496 and Sunway bought 10M from us at this rate.
This transaction helped us to make $1000 profit, and this was the only arbitrage
transaction we made during the whole trading session. After that we continued to find
relative lower price in the market in order to decrease our buying cost. We bought
50M in total from OCBC, NAB and Deutschebank at 0.8496, 0.8495, and 0.8495
respectively. When the tender handed out, we successfully sold the Toll Holding at
0.8499 and made $15000 profit. However, at this time we still had 30M long position,
and we made mistakes when sold these amounts. The cost of selling rate was 0.8496,
but we sold them at 0.8495 and suffered a $3000 loss in two transactions. When
several announcements released, which all indicted the depreciation of the Australian
dollar, all banks still did not change the quoting price effectively. The market was still
in the contractive situation. At 10:52, Novin Corporation wanted to buy 10M at
0.8505; we filled the selling amount and rate, and then handed in. When this
transaction completed, we set our bid price at 0.8496. Barclays immediately sold us
10M and we made $9000 profit after trading with corporation. When the second
trading stage started, the market average price stayed stable at 0.8495/02 from 11:28
to 11:51, and we had to use our contingency strategy again during this period. We set
our bid price at 0.8498 and long 90M in total from Deutschebank, SACOM and
LLOYDS and sold at 0.8499 to other banks. Finally we made $9000 profit from
contingency strategy. At the end of the trading session, BHP wished to sell 2 billion
AUD by tender, and we filled 150M at 0.8495 in tender. After handed in the tender,
we sold 80M at 0.8497 to BEAR, WELLS FARGO and BARCLAYS. We won the
tender after these transactions and buy 150M at 0.8495, and made $20000 profit, but
we still have 60M long position at 0.8495. The Deutschebank then bought 40M from
us at 0.8497 and helped us make additional $8000 profit. Unfortunately, we did not
realize that there still existed one unconfirmed transaction with Bankbook bank, thus
we had to buy 10M at 0.8498 which increased our cost to 0.8496. In order to square
our position in time, we had no choice but sell 30M at 0.8495 to BARCLAYS, and we
suffered $3000 in this transaction.
Figure 6: Source of Profit
Chart 4: Contributions of each strategy
5 Analysis of Foreign Exchange Market price changes

5.1 Market price movement in trading session 1
Adjusted FX Market Price Movement

0.86
0.85
0.85
0.85
0.85
0.85
0.84

Figure 7: Adjusted Market Price Movement in Trading Session 1
Figure 4 represents the market price movement with outliers removed in trading
session 1. From this figure we can directly find that the market price stayed in a
relatively steady level with several slight fluctuations. The trading started with an
average 0.8488-0.8502 bid-ask spread, reflecting the previous closing rate of 0.8500.
Although the pre-trading news should have indicated a depreciating trend in Aussie
dollar, the market didnt react to that news at all. Then the market price moved to an
unreasonable position that the buying price is high than the selling price from 9:26 to
9: 33. The reason is that BankWest mispriced its selling price. This situation didnt
last long and the price level returned back to normal soon. After a stable period, the
market witnessed a short term downside which followed by some fluctuations. During
the fluctuating period, the phenomenon of buying price higher than the selling price
appeared again. From that we can deduce that the market experienced a short term
chaos before the trading halted for the mid-session break. After the mid-session break
the market price entered into a long term flat phase and the market didnt react to any
news since then. In summary, the market showed fundamentally inefficiency in term
of reacting to the market events and the price lied in a relatively steady level during
the first trading session.
Compared to the market, the price movement of our bank is shown as below:
Price movement of CIMB Group
0.86
0.85
0.85
0.85
0.85
0.85
0.84

CIMB GROUP Buy Rate
Figure 8: Price movement of CIMB group
The overall price trend of our bank was consistent with the market price movement
except the abnormal period, suggesting that we stuck to our trading strategies of
following the market.
5.2 Market price movement in trading session 2
Adjusted Market price movement

0.85
0.85
0.85
0.85
0.85
0.85
0.85

Figure 9: Adjusted market price movement in trading session 2
After deducting the outliers and abnormal data, the market price movement
demonstrates a stable tendency during the trading session with slight fluctuations. The
market turned out to be fundamentally inefficient since it didnt respond to the market
news correctly. Meanwhile, there were several banks mispriced their quotes which
dragged the market to abnormal situation. However, we cannot take advantage of
these banks according to the code of ethics. By the end of the trading session, the
bidding and asking prices tended to move towards a certain level since banks were
squaring their position.
Compared to the market, the price movement of our bank is shown as below:
Price movement of CIMB Group

0.85
0.85
0.85
0.85
0.85
CIMB GROUP Buy Rate
0.85
0.85
Figure 10: Price movement of CIMB Group
From this figure it can be seen that the price fluctuation of our bank is more severe
than the market. The reason is that we adopted a strategy of buying higher than the
market and selling lower than the market. In addition, we controlled our each
transaction amount for risk management, which explains the waves in our price
movement curves.
To conclude the market in the two trading sessions, we can say the market was
fundamentally inefficient since it didnt respond to the market events correctly. As a
result, the market became considerably constrictive and the profit margin was very
small. Especially in the second session, people had been more sophisticated in trading
tricks, so corporate tenders became the major source of profit for many banks.
Meanwhile, mispricing happened during both of sessions, some of which might
provide arbitrage opportunities for other banks. Nevertheless, banks should take care
of the code of ethics when grabbing these opportunities.
6 What you did wrong and remedial action EACH WEEK
6.1 Practice trading

No.
Wrong Actions
Reason
Remedial Actions
Effects
The dealer accepted Not clear about the

traction
of
15M trading policy that 5
buying.
million is not accepted
due to its complexity
11
2
2
2
The dealer refused to Because it was the first

buy 100M.
time we traded FX, the
dealer was hesitated to
make decision and he
thought there were
risks to sell them at
lower prices than our
buying price that could
lead to losses.
The position keeper The position keeper

typed
the
wrong was not familiar with
33 transaction
the recording system in
information.
the
first
time.
Therefore,
the
mistakes exist when
the recording data of
trading counterparties
did
not
match.
Sometimes, the dealer
gave
wrong
information to the
position keeper as
dealer answered too
many calls.
First, the dealer tried

to sell the 15M to
other
banks
but
ignored it was wrong
and cannot be accepted
by them as well.
Second, all three
individuals
remembered the rule
and why it cannot be
accepted.
First, the dealer and
risk manager discussed
to adjust our trading
strategies
more
aggressive to accept
relatively
large
amount. Second, just
acceptance big amount
is not enough, we have
to keep the initiative to
buy or sell.
When the dealer was
busy to answer phone
calls
and
quoted
prices,
the
risk
manager can help and
communicate
with
position keeper to
record accurately.
Well done. We
keep the rule
mind to trade a
rejected other on
who want to buy
sell 5M to us.
Not so good
expected. It w
hard to trade at
large amount due
the consideration
market risk in ter
of quoting change
Well done. The r

manager can he
both the dealer a
position
keep
when
reco
transactions
a
adjust strategies.
Table 3: Wrong operations in the practice session
6.2 First trading

No.
Wrong Actions
4
4
Reason
The dealer became When it was busy to

emotional during the answer phone calls,
trading time.
the dealer cannot
focus on looking
through
price
Remedial Actions
First, communicating
with the risk manager
in advance about how
to cooperate with each
other.
Effects
Keep calm is a go
way to obtain mo
information.
E
and eyes are go
friends to coordin
changes of other
banks and she needed
the risk manager to
fully concentrate on
the market changes.
However, the risk
manager did not
concern
changes
carefully
and
consistently.
5
5
The dealer did not

change the 0.849 bid
price to a lower level
0.8488 as soon as
possible
to
crab
arbitrage changes when
answering phone calls.
The reaction of dealer

and
risk
manager
should be enhanced to
quote and look for
arbitrage opportunities.
When the risk manager

was trying to decrease
our bid price, the dealer
rejected to trade with
other banks.
Answering the calls

when we changed our
quoting prices. The
dealer told them we
had already changed
our bid price but we
were asked to sell at
former
price.
Therefore,
we
rejected to deal with
them.
Our reaction of
market prices was not
good as we expected.
The dealer cannot
answer phones and
change prices at the
same time. The risk
manager did not react
quickly as well.
We are not so
familiar with the
strategies when we
changed our quoting
prices. We need time
to
consider
the
possible profit and
loss.
Second, to find out

what I did wrong and
why I cannot focus on
two different things
although it is not
compulsory normally.
Third, calm down.
Fourth, using ears to
listen phone calls and
using eyes to see
market changes. It is
little
hard
to
concentrate at the same
time.
When we changed our
prices, we should
answer calls a little
latter to give them
some time to react.
Explaining well to
other banks about
changes of our prices.
in order to compl
one thing.
Strength
the
cooperation between
the dealer and the risk
manager. When dealer
answer calls, risk
manager should focus
on the market price
changes and released
news all the time.
To keep the principle
buy low and sell high
in mind. Consider
clearly about the how
to change prices and
make strategies.
Well
don
communication a
cooperation
a
good ways to sol
problems.
It is useful to w
for a moment
answer phone ca
without conflicts.
Effective.
Ea
dealer remember
that we need to
more practice
have quick a
accurate reactions
Table 4: Wrong operations in the first session
No.
Wrong Actions
1 The dealer and the risk

1 manager discussed to
sell a large part of the
tender of corporate
Reason
The dealer and risk
manager were not
sensitive
about
numbers. They did
Remedial Actions
First, to be careful
when looking through
the corporates tenders.
Second, when there are
Effects
It
should
effective to co
with this kind
situation.
500,000,000 but make a

mistake to sell an
undesirable
amount
50,000,000.
9 The dealer intended to
type an ask price of
0.8500 but has a
9
technological mistake to
type 0.8490.
not react that it is an

extremely big amount
but we just take a
little amount to sell.
Thought a wrong way
to quote but altered
the price immediately
without trading at this
price and explained
well to other banks.
tenders, the dealer and

risk manager should
discuss
about
the
amount to buy or sell.
Before we change
prices, we need to
think whether the price
should be increased or
reduced.
1 The
position
keep
recorded a wrong bank
name and the bank
called her to change but
10
unfortunately it did not
work
since
she
misunderstand that the
counterparty bank
(Barclays) is the
broker.
First, the dealer told

the position keeper
some
wrong
information about the
bank. Second, the
position keeper is not
clear about which
bank tended to trade
with
us
and
misunderstood it was
the broker. Third,
their
abbreviations
are very similar, thus
the keeper did not
realize the mistake.
The dealer should

clearly ask names of
other
banks
and
explicitly
tell
the
keeper
about
our
trading
information.
Moreover, the risk
manager can help the
other two coordinate
all
transaction
conflicts.
One
quoti
mistake would let
check and thi
about our tradi
strategies. If we ta
the wrong directio
we
may
suf
losses.
Finally well don
When it is very bu
to answer calls, O
risk manager d
very well to moni
all the transactio
and help che
inappropriate
recordings.
Table 5: Wrong operations in the second session
6.3 Second trading

It is accurate that more mistakes we made more things that we could learn. What we
did wrong could finally help us to improve. Additionally, reviewing mistakes is also
very useful and helpful to learn, to experience and to harvest.
7 Overall performance measures of each role
The performance of our dealer, risk manager and position keeper are numerically
described as below:
Role
Responsibility Indicators
Quickly answering phones from
other banks.
Target
Performance
Measure
Immediately
Actual
Performance
Measure
Almost
Immediately, while
several
times
Dealer
Position
keeper
dealers hesitated for

a while to answer.
Almost completed
in 1 minute but
sometimes dealers
needed more 20
seconds.
Clearly trade with other banks and

ask their bank name, whether to
buy or sell, trading amount, and
transaction number.
About 1 minute
Dialling phones to buy and sell

AUD when there is arbitrage
profits that can be obtained.
Communicating with the position
keeper about details of trading
information including bank name,
trading quantity, reference number
in time.
Closely watching the price changes
of other banks.
Immediately
Immediately,
Match well.
About 30 seconds
About 20-25
seconds.
Discussing trading strategies with

the risk manager according to the
various market and policy changes.
Each time 20-30

seconds and during
the whole trading
process
30-40 seconds and

during the whole
trading process.
Change quoting prices
30-40 seconds each

time
20-30 seconds each

time
Grabbing arbitrage opportunities.
Immediately each
time
Immediately.
Communicating with dealer and

recording transactions.
Around 30 seconds
Around 30 seconds
to record each
transaction.
Checking accepted transactions in

time.
10-20 seconds
10-20 seconds.
Match well.
Recording accurately.
About 20 seconds
About 20 seconds.
Discovering trading mismatches

with our counterparties. If there
exists mistakes, the keeper needs to
dial the counterparty bank as soon
as possible.
Keeping in touch with the risk
manager to ensure correct buying
and selling quantity.
Within 1 minute
Almost within 1
minute. Sometimes
exceed 2 or more
minutes.
Within 30 seconds
Within 30 seconds.
Match well.
Tracking the quantity traded and

the net position. Identifying
About 20 seconds
About 20 seconds
each time. Match
well.
and
During the whole During the whole

trading process
trading process.
Risk
manager
Discussing contingency strategies

with dealer.
Around 20-30
seconds
Around 30-40
seconds each time.
Continuously noticing all the

market announcements and
observing the market fluctuation.
About 30 seconds
About 30 seconds
after news
announcement.
Continuously checking price

changes and immediately giving
suggestions to the dealer.
During the whole

trading process
During the whole

trading process
Table 6: Overall performance measures of each role
The performance of each role is numerically measured to summarize our trading

process. We can see that measurements of target are always equal of less than them of
actual situations. In sum, we almost did well and possess a medium level
performance. Although there were some inappropriate actions and mistakes we made,
each role has taken their responsibilities and tried their best to finish trading.
8 What you learned from EACH trading session
No.
Key points
What we have learned
1.
Risks
2.
Preparation
3.
Reaction
The first thing we learned is to understand two important risks that are
market risk and operational risk. The market risk is about changes of
monetary policies, inflation rate, interest rate, and foreign exchange
rate. These indicators would affect the depreciation or appreciation of
AUD.
In addition, the operational risk is related to trading actions of the
dealer, risk manager and position keeper. If the dealer receipts some
large volume transactions, we have to bear the risk that the volume is
difficult to be balanced and we may suffer losses when the market
prices change unexpectedly.
However, our trading amount is always small that we lose the initiative
and become passive to compete with other banks. If the dealer quotes to
an opposite direction, the risk that we have to accept some transactions
resulting in our losses and more seriously the losses would be expanded
if we do not take actions to prevent.
Preparation is extremely important for each bank before the market
becomes active. The dealer has to be very clear about the trading
principles, quoting strategies, cooperation with our risk manager, and
how to balance our trading position.
Moreover, the risk manager also has to understand the trading process
and cooperation with both our dealer and position keeper. The position
keeper has relatively mild burden but the recording accuracy is related
to our ultimate results of trading. Therefore, each position has to keep
calm and prepare well before trading starts.
Our reaction is required to be strengthened in the later trading sessions.
It is essential to react all market price changes and other banks quoting
prices to adjust our strategies. One ways to enhance is to learn and to
understand and the other way is to practice until we could react bid/ask
prices, short/long positions and adjusting strategies quickly and
accurately.
4.
Quoting
Initially, we are so nervous to make very attractive bid and ask prices,
thus we all stand in the middle to observe others actions. When we
tend to attract other banks to sell, we could increase a little of bid price.
While our ask price is attractive when we decrease a bit. Therefore, we
could gain the spread of the bid and ask price. We also have to consider
the effects after we change our quoting prices in terms of other banks
reaction to reply and their expected trading intention and amount.
5.
Strategy
Our strategies could be more aggressive. As we can see that

conventional strategy cannot help us gain large amount of profit but can
be easy balanced and reduce operational risks. Hence, different types of
strategies possess advantages and disadvantages. Once choosing one
type, what we need to do is to find a suitable way to adopt and crab
6.
Job
allocation
Job allocation is vital to complete our trading successfully. Each role

has to cooperate well to cope with all abnormal situations. An important
thing is that risk manager has the responsibilities to monitor and
analyze the entire market when there are economic events releasing.
Moreover, the manager also has to help our dealer noticing price
changes and position keeper checking inappropriate recordings.
7.
Gap
between
expectation
and reality
There are always undesired results that we cannot change by ourselves.

It is about the future trend of price changes after news releasing, the
tight market spread to arbitrage and conventional of aggressive
strategies. Our intention to expand trading amount is always affected by
quoting prices of other banks and our initial is always weakened by our
fear to loss. Therefore, what we need to improve is to diverge our mind
to figure out solutions when dealing with all transactions and abnormal
situations. Finally, we remember that our ultimate goal is to obtain
profits by complying with the code of conduct.
Table 7: What we have learned
Our desire to improve does not stop when just finish the foreign exchange trading
sessions. Learning and possessing good attitudes are more important things to
continue our next part of trading.
Appendix 1
Chenyang JiangTeam Member responsible for the Report
a. Financial Performance.
Financial performance indicators include two aspects: Return and risk.

In terms of return, we adopt the formula profit / (volume/2) to measure our
profitability. This formula tells how much profit we earn for per dollar of
trade. We set our profit budget at least 0.25% since the USD case rate is
0.25%. This formula is used since our original position is zero for both AUD
and USD which means we cannot use return on investment to measure our
profitability.
From our perspective of risk, we decide to measure risks by controlling the
maximum transaction quantity and extreme long/short position. Specific data
of the performance indicators is shown as follow:
Return
Indicators
Rate of return
Budget
0.25%
Reality
0.095%
2.5M
104,000
Maximum
transaction
amount (AUD)
50M
30M
Extreme
long/short
position (AUD)
100M
80M
1Billion
220M
Dollar profit
(USD)
Risk
Total Turnover
(USD)
Table 1. Financial Performance Indicators in Budget and Reality
As it can be seen from the Table 1, there is a large distance between our
budget and the reality. The major reason causing the variance is that we
operated our trading too conservatively. For instance, we set the maximum
transaction amount target as 50M, but we only achieve 30M. Our average
transaction amount is even 118M, which is less risky but diminishes our profit
obviously. In addition, our actual extreme position is lower than the target as
well. In fact, we tried to keep our position as small as possible to minimise
risk exposure. As a result, we lost several opportunities to expand our profit.
b.
According to the economic scenario, we expect that the AUD will depreciate.
Generally, the Australian financial market has been bearish in the past few
weeks. As a result, the demand of AUD will fall since foreign investment will
reduce, implying a depreciation in AUD. The specific reasons will be
demonstrated as follow:
1. A fall in business confidence level suggests investors willingness to invest

in Australia will fall, so the demand of AUD falls accordingly.
2. The growth of consumers confidence suggests the economy will recover,
so the AUD shall appreciate.
3. Unemployment increased 1.25% while the job creation is in a high level.
4. Australia is highly reliant on the commodity export. On one hand, the
decrease in commodity price could stimulate exports since the price is
cheaper, which might push the AUD going up. On the other hand, if we
assume the exports remain the same or even lower, which is the scenario in
this case, the demand of AUD will reduce and AUD will depreciate as a
result.
5. Worldwide terrorist activities deliver information that Australia is no
longer seen as a safe heaven. Some investors might lose confidence in the
circumstance and reduce investment in Australia. This will lower the
demand of AUD.
6. The concern of international analysts is able to undermine investors
confidence with no doubt. Consequently, the AUD will depreciate.
c.
The overall strategy we developed is buying at lower price and selling at

higher price. Due to the expectation of depreciation in AUD, we decided to
short AUD at the beginning and long AUD when the price falls. However,
considering this is the first trading session, chaos might happen and the price
trend could go without following the fundamental expectations, we decided
operate more conservatively by observing the market reactions first. If the
market reacts to news effectively, then we will follow our fundamental
analysis. Otherwise we will try to take arbitrage opportunities from mispriced
quotes.
Given the expected events schedule, we construct our pre-trading strategies
accordingly:
1. Balance of payments due; expected surplus of $5 Billion
The surplus of BOP implies that the capital inflow is higher than capital
outflow. That suggests the demand of AUD is higher than the supply of
AUD, hence AUD shall appreciate. Therefore, we should long AUD after
the event.
2. Central banks quarterly Statement of Monetary Policy due; expected to
reflect concerns that economy is overheating.
Concerns of economy overheating will force CBA to adopt tight monetary
policy, such as increasing the interest rate. High interest rate will attract
international capital to invest in Australian financial market, pushing the
AUD going up. Therefore, we should long AUD after the event.
3. Consumer credit figures due. Expected to show continued growth.
The growth of consumer credit figures show increased confidence towards
future economy, which will lead to AUD appreciation. Therefore, we
should long AUD after the event.
4. Consumer Price Index figures due. Expected Annual Inflation Rate = 3%.
The 3% of inflation stays in the acceptable level. However, the inflation

rate of US is unaware, the change in exchange rate is unknown. We should
wait and see the movement of the market.
d.
Although we had established our trading strategies to cover as many as market

possibilities, the reality is still quite different from the expectation.
Overall, we kept the strategy of buying at lower price and selling at higher
price. However, the fundamental analysis seems to be not significantly related
to our actual trading strategy, because the market did not move effectively
after the events released. In fact, we started as price taker and set our quotes in
a medium level to ensure we will not lose money immediately. Then we found
mispriced quotes and tried to grab them, because of which we made our first
profit.
As the trades proceeding, some banks began to dial us. Since our price was the
middle level of the market, we could make profit as long as others took our
price. On one hand, due to our conservatism of our strategy, the average
transaction amount of our bank is relatively low, because of which we lost
several opportunities to expand our profit. On the other hand, we did not suffer
any lose during the trading session.
e.
1.0500
1.0300
1.0100
0.9900
0.9700
0.9500
0.9300
0.9100
0.8900
0.8700
0.8500
0.8300
Market Average Buy

Rate
Market Average Sell
Rate
Graph 1. Original Market FX Movement
From this graph, it can be observed clearly that the market movement is
extremely abnormal. The sell rate of AUD even reached up to 1.05. By
analysing the original data, we find that the reason is some banks mispriced
their quotes, which pulled the sell rate to an abnormal level. Obviously, the
extremely abnormal data should be deducted in order to find the real
movement of the market. After deducting the extremely abnormal data, we get
the graph as follow:

0.8530
0.8520
0.8510
0.8500
0.8490
0.8480
0.8470
0.8460
0.8450
0.8440
0.8430
0.8420

Graph 2. Addressed Original Market FX Movement
At 10:01:53, news is released regarding the USD cash rate. Federal Reserve
announces the cash rate increased to 0.5%, which shall fundamentally lead to
AUD depreciation. Then, BHP state it wanted to buy AUD 100M at 0.8494.
This announcement could be able to give us a hint to set our quotes higher
than 0.8494. However, the sell rate rises sharply while the buy rate remains in
the same level without significant news being released. It is very likely that
this movement is caused by mispricing.
At 10:15:00, the price falls dramatically and the sell price is even lower than
the buy price. The reasonable explanation is that the actual BOP surplus is
lower than the expectation, causing the depreciation of AUD. Meanwhile,
there are still some banks might misprice their price since the abnormal
quotes. After that the price quotes return to the normal level.
From 10:24:43, there are three continuous news released which have negative
impact on AUD. After that the market price goes down slightly as response to
the news. But the following appreciation of AUD is unexplainable except
mispricing. Then the market price stays in a relatively stable level since no
vital information is released.
Overall, the market is not sufficiently efficient since the changes in price are
always delayed and mispricing happens frequently. The major reason is that
people are not familiar enough with the trading system and the foreign
exchange quoting mechanism.
f. What you did wrong and remedial action.
Wrong Actions
Reason
Remedial Actions
Agreed
15M
to
buy Forget the principle Try to sell 15M to another bank

of 10M interval
Refuse to buy Conservative

100M at 0.8488
strategy
Record the wrong Not

familiar Alter the wrong records
information
in enough with the
position keeping
trading system
The reaction to Not

familiar Try to be more concentrative
arbitrage
enough with the
opportunities is trading system
too slow
Try to expand our transaction amount

afterwards
Table 2. Wrong and Remedial action
g. Depth and quality of operational performance measures of each role.

Role
Dealer
Responsibility
Performance
Quickly and clearly answer and dial About 1 minute
phones when banks tend to trade and we tend to
buy.
Communicate with the position keeper About 20 seconds
about details of trading information including bank
name, trading quantity, trading number in time and
ensure accurate recordings.
Discuss and change trading strategy with During the whole
the risk manager to decide what role they are and trading process
whether they need to buy or sell.
Closely notice the price changes of price Immediately
and
makers. If there are arbitrage opportunities, follow almost at any time
them and capture them.
Position
keeper
Communicate with the dealer and record Around 20 seconds,

but little transactions
trading details.
are time-consuming
to record and more
than 2 minutes are
used.
Check transactions are accepted in time 10-20 seconds
and recorded accurately.
Discover trading mismatches with their Within 1 minute

counterparties. If there are mistakes, the keeper
needs to dial the trading bank as soon as possible.
Keep in touch with the risk manager to Within 30 seconds
ensure buying and selling quantity.
Risk
Know the quantity traded and their net During the whole
manager position. Take chances to arbitrage and estimate trading process
their risks.
Discuss strategies with the dealer.
Around 30 seconds
each time
Continuously notice all the news and 30 seconds after
news announcement
analyse their affects.
Continuously check price changes and During the whole
trading process
immediately give suggestions to the dealer.
Table 3. Operational Performance Measures of Each Role
h.
What you learned from the trading session.
The first thing we have learned is that there are always discrepancies between
expectation and reality. It is difficult to stick to our pre-established strategies during
the real trading. One reason is our strategies do not take every possibility into account.
More importantly, we failed to adjust our strategies swiftly to respond the market
movement. For instance, we should be more aggressive when realising we were able
to take advantage of the inefficiency and chaos of market.
In terms of job descriptions of each role, the risk manager should be more
concentrative in monitoring the market movement and giving the rational expectation
of the price movement based on the news released. The position keeper should be
more careful in recording the transactions and notify the dealer and risk manager
about the mismatched transactions in time. The dealer should concentrate on
discovering desired quotes in the market and place reasonable quotes that comply
with our strategy. Moreover, the dealer should be unambiguous in expressing the
trading details when dealing with other banks in case mismatched transaction
happens.
In summary, we have learned a lot in this trading session and been better prepared for
the next session.
Appendix 2
Danlin Wang Team Member responsible for the Report
a. Financial Performance.
Financial performance indicators focus on two aspects: Return and risk.
In terms of the return rate, we use the formula profit / (volume/2) to calculate
our profitability. Since our first budget was aiming to high, we change our
target of profit to a more practical and reliable level, which is 0.1%. Although
the US Federal Funds Rate is 0.25%, it is a little higher rate for us to achieve
according to the market limitations and small spread between market buying
rates and selling rates.
Regarding the risk estimation, we monitored our maximum transaction amount
and extreme long/short position. The larger transaction amount could increase
the operation risk but it is also a key point to get more profitability.
Additionally, the extreme long/short position represents the top amount that
would remind us to deal in an adverse direction.
Return
Indicators
Rate of return
Dollar
(USD)
Risk
Budget
0.25%
profit 2.5M
0.1%
Reality
0.095%
0.8M
0.038M
Maximum
transaction
amount (AUD)
50M
50M
30M
Extreme
long/short
position (AUD)
100M
100
M
80M
Total Turnover 1Billion

(USD)
800
M
520M
It can be discovered that there is also a big difference between the budget and
reality. We reset a new budget with lower profitability but the real dealing is
not good as we expected. Our strategy was conservative in order to reduce
risks last time and we tend to expand our transaction amount. However, it is
not so easy to reach a higher level like 80-100 million each transaction.
b.
Summary of the economic scenario and your banks view on the foreign
exchange price prior to the trading session
Based on the economic scenario, the Australian financial market would
experience a falling trend since it has already been bearish a few weeks ago.
In addition, the demand of AUD would decrease due to the gradually reducing
foreign investment. Therefore, AUD would depreciate in the future.
1. The falling business confidence level represents decreasing average of
trading and probability percentage. At the same time, the demand of AUD
investment would decline as well.
2. Reducing retail expenditure leads to higher confidence, thus the
Australian financial market will recover and AUD will appreciate
correspondingly.
3. Although the job creation is at a high level, the unemployment rate has
increased 1.25% which is affected by the recession of economy.
4. Since the Australian economy is largely depending on the commodity
exports, the reducing commodity price would increase its demand, which
could help AUDs appreciation. However, if the quantity of exports is not
large to stimulate the entire economy, there will be little effects on AUDs
fluctuation.
5. Worldwide terrorist activity would result in some bad influences and
serious results. The world economy would go down and Australia would
no longer safe paradise to invest. As a result, the value of AUD will
depreciate.
6. High-priced property would weaken the investors willingness and
confidence to invest. Hence, demand of AUD would decline with the
depreciation of AUD.
c.
Strategies developed for the trading session, including contingency strategies

prior to the trading session..
The overall dealing strategy has remained to buy at lower price and to sell at
higher price. It is the most important principle to trade through banks. Based
on the economy scenarios, AUD will depreciate. Hence, we need to short first
at a higher price and then long at a lower price. However, during the whole
trading process, the market reaction is slow that the buying and selling spread
is very small to get profit.

We first analyse these news and then set different pre-trading strategies to
face these situations to crab arbitrage opportunities.
Balance of payments due and AUD dollars have an expected surplus of $5
Billion. The great surplus of BOP represents that the capital inflow is
larger than the capital outflow in Australia. It indicates that the demand of
AUD has increased in terms of international trading and business. This will
lead to the appreciation of AUD and we need to long AUD to react
(9.25am).
Central bank quarterly statement of monetary policy due and the economy
is expected to be slow. Thus, the demand of AUD would be reducing and
the AUD would depreciate. Then what we need to do is to short our AUD
(9.35am).
Consumer credit figures due and the economy would go down. The
consumer credit figures indicate the benchmark of interest rates. If the
economy slows down, we can see that the interest rate would witness a
downside trend. Therefore, foreign investors would decrease investment in
AUD. The value of AUD would depreciate accordingly and we should
short AUD (10.55am).
Reduction in Australian cash rate by 0.5% would slightly decrease the
demand of AUD. Therefore, we need to short the AUD after the event
(11.20am). In addition, at the same time, the inflation rate reduced to 2.5%.
There may be slight fluctuations but not big changes so that we can first
observe the market tendency.
CPI provides the information that the Australian annual inflation rate
equals 3%. It is a normal rate but the US inflation rate and changes of
interest rates are unknown. Hence, we were waiting for the movement of
the market (11.55am).
d.
Strategies actually used during the trading session

The fundamental strategy is to buy at lower price and sell at higher price.
At the beginning, we play as a price taker and wait other banks quoting.
Based on their quoting, we choose to maintain in the middle level.
However, this conservative action makes us sinking into a passive situation
and can only be affected by other active banks. In addition, we can hardly
averse our situation in a short time.
Quoting price is critical to occupy a favorable position to trade. When
there are arbitrage opportunities and other banks selling prices are almost
at a same level, we increase just several pips based on their quoting but not
change our selling price. Therefore, there are banks tending to sell us their
AUD dollars. It does work but the amount is not large. Then we decreased
our selling price to a normal middle price and at the same time we reduced
our buying price as well to attract buyers of AUD but the price would be a
little higher than our increasing selling price. Hence, we could get the
profit of the spread.
However, we did not suffer any lose in the whole trading process. Our
selling prices are always a little higher than our buying prices. Although
the selling and buying amount is not large, we understand the principles of
FX trading. We tend to increase risk tolerance and return expectation in the
next trading session.
e.
Analysis of how and why the foreign exchange market price changed
FX Market Price Movement

0.8650
0.8600
0.8550
0.8500
0.8450
0.8400
0.8350
Graph 1. Original Market FX Movement
FX market price should change with the releasing news. At 9.25am, there was
a downward trend of sell rate but it did not match the releasing event that the
AUD would appreciate. The market may have a time lag or mismatch to
reflect the effects of the surplus of BOP. However, the buy rate retained as the
same level compared with the former performance.
At 11.12am, the market witnessed an excessive reaction of the news that the
economy would go down. During this period, there were no arbitrage
opportunities because of the market mispricing. Therefore, this trend misleads
the selling price far away from the normal level.
Adjusted FX Market Price Movement

0.8650
0.8600
0.8550
0.8500
0.8450
0.8400
0.8350
Graph 2. Adjusted Market FX Movement
When the abnormal data was deducted, the selling price trend recovered to the
normal level. The continuous events have slight impacts on both the sell and
buy price fluctuation. Overall, the market is not efficient enough to reflect and
indicate all the influences of events. Price takers and makers may sometimes
misunderstood and mismatch their quoting that result in some mispricing
satiations.
f.
What you did wrong and remedial action.

Wrong Actions
Have emotional
reactions
to
others.
Reason
When
the
counterparty bank
confused
about
their buying price
and selling price
Reject
other We changed our
bands requests prices at the same
twice.
time answered the
phone. The other
rejection is that we
closed our quoting
and there are also a
bank wanted to
take our price.
Not
change We need to change
quoting in time.
our quoting to get
larger
arbitrage
spread but our
quoting
plan
delayed because of
Remedial Actions
Clearly talk to them about their prices
and raise their attention to understand
the principles of quoting and trading.
Tell them to pay attention to the

market changes. When we tend to
change prices, we should be as quick
as possible to prevent some
misunderstanding of our situation.
To ask the risk manager for help to

change our prices when the dealer is
busy to answer phones.
answering phones.
The reaction to Not react quickly

arbitrage
with the requests of
opportunities is our customers and
too slow.
their buying and
selling rate.
g.
Prepare in advance to remember and

understand the buying and selling of
price takers and price makers. Tend to
be more concentrative but actually
always passive trade.
Depth and quality of operational performance measures of each role.
Role
Dealer
Responsibility
Performance
Quickly and clearly answer and dial About 1 minute
phones when banks tend to trade and we tend to
buy.
Communicate with the position keeper About 25 seconds
name, trading quantity, trading number in time and
ensure accurate recordings.
Discuss and change trading strategy with During the whole
the risk manager to decide what role they are and trading process
whether they need to buy or sell.
Closely notice the price changes of price Immediately
and
makers. If there are arbitrage opportunities, follow almost at any time
them and capture them.
Position
keeper
Communicate with the dealer and record Around 30 seconds,

but little transactions
trading details.
are time-consuming
to record and more
than 2 minutes are
used.
Check transactions are accepted in time 10-20 seconds
and recorded accurately.
Discover trading mismatches with their Within 1 minute
counterparties. If there are mistakes, the keeper
needs to dial the trading bank as soon as possible.
Keep in touch with the risk manager to Within 30 seconds

ensure buying and selling quantity.
Risk
Know the quantity traded and their net During the whole
manager position. Take chances to arbitrage and estimate trading process
their risks.
Discuss strategies with the dealer.
Around 30 seconds
each time
Continuously notice all the news and 30 seconds after
news announcement
analyse their affects.
Continuously check price changes and During the whole
trading process
immediately give suggestions to the dealer.
h. What you learned from the trading session.

First, the dealer must prepare well and understand the principles deeply.
To clearly consider what role s/he is and what rate s/he needs to take. If there is an
appreciation, what can s/he does to react and whether s/he needs to buy or sell.
To understand there are gaps between reality and expectation. The market trend
may exceed your expectations and sometime may experience an adverse direction.
Our strategy is too conventional to deal and the trading amount was always not
large as we imagine. We need to be more aggressive next time to take advantages
of price spreads.
We need to quickly adjust and quote at appreciate time. When the news is
releasing, we have to think about their influences and results to re-establish and
alter our strategies.
A good job distribution is required to allocate our tasks. The risk manager needs to
observe the market trend and monitor the abnormal situations continuously. In
addition, the position keeper has to keep our transactions accurately and quickly.
Communications among each other are necessary to help us trade successfully.
In summary, we learned so much again in the second trading process. We know
what we did not well and how we can improve. We will prepare better to crab
arbitrage chances and get profit in the third FX trading session.
Appendix 3
Li Chen Team Member responsible for the Report
a. Financial Performance
Return
Indicators
Week4Budget
Return on Equity
0.03%
Dollar
(USD)
Risk
profit 0.8M
Week 5 Budget
Reality
0.05%
0.056%
0.2M
0.056M
Maximum
transaction
amount (AUD)
50M
200
M
150M
Extreme
long/short
position (AUD)
100M
100
M
100M
Total Turnover 800M

(USD)
700
M
700M
Financial performance indicators mainly focus on two aspects: Risk and Return.
We have earned $56000 profit in this week's trading simulation. The ROE equals total
profit divided by total equity, which equals 100 million. The profit of our bank still
ranked 5th in this week although the market is very tight.
Graph1: Profit earned by each bank
Regarding the risk control, we monitored our maximum transaction amount and
extreme long/short position. Although more turnovers mean more potential profit
we could earn, it also includes more risk. The extreme long/short position reminds
us to square the account in time. It also can be found that there is a little difference
between budget and reality. The reason is that the bid-ask spread is very tight, and
we cannot make much profit from other banks except dealing with corporate. Apart
from that, we made a mistake to fill the tender, and this made us miss a lot of
profit.
b. Summary of the economic scenario and your banks view on the foreign exchange
price prior to the trading session.
As is shown in the economic scenario, the Australian financial market has been
bearish for several weeks, and this trend will continue to affect the economy of
Australian. Apart from that, with the decreasing of the foreign investment in
Australia, the demand of Aussie dollar will drop. In this situation, the Aussie dollar
will continue depreciating in the near future.
1. With the falling of business confidence level, the average number of investment
trading will drop. It means that the demand of Aussie dollar will decrease and this
results in the depreciation of the AUD.
2. Although the retail expenditure has been steadily reducing over the past 15 months,
the consumers regain the confidence in the economy. As the confidence of
consumers rises, the Aussie dollar will appreciate accordingly.
3. The rate of unemployment has increased by 1.25% despite of the high level of job
creation. It will result in the depreciation of Aussie dollar and bearish share market.
4. Since the Australian's economy mainly depends on the export of its commodity, the
decreasing commodity price leads to the high demand of Aussie dollar,
theoretically, this will result in the appreciation of Aussie dollar. However, China
has become the largest commodity import country from the Australia. If the
demand of commodity decreases in China, which means that China wants to relieve
its economic growth and does not need so much iron ore or coppers etc., then the
Aussie dollar will continue depreciating despite the price of the commodity drops
down.
5. Worldwide terrorist activity results in negative influences and serious situation. The
global economy will drop down and Australia certainly cannot avoid the negative
influences on its economy. It is no longer a safe paradise where investors can invest
without any doubts. As a result, the Aussie dollar will depreciate.
6. The high-priced property market means that there exist many economic bubbles in
the property. And investors do not want to invest those risky properties. Therefore,
the demand of Aussie dollar declines with the depreciation of the Aussie dollar.
c. Strategies developed for the trading session, including contingency strategies prior
to the trading session.
The principal trading strategy should always be kept in mind that is buying at a
lower price and selling at a higher price. Only in this way can we make profit in the
foreign exchange market. According to the economic scenario, we predict that the
Aussie dollar will depreciate. Therefore, when the market opens we should short
Aussie dollar at a higher price and then buy back at a lower price. Nevertheless,
this is only a theoretical strategy and it may not be achieved when the market
opens. This is because every market competitor is familiar with this basic method,
and no one wants to give other competitors to make profit in such simple way.
Hence, we set some contingency strategies to cope with the situation of the market
contraction. First of all, we can make transaction with corporate to make profit, for
example, we set an appropriate ask price according to the market condition to win
the tender from the corporate (toll holdings) and then we get the initiative to reset
our bid price to attract other banks to sell their Aussie dollar. Consequently, we can
make profit through this strategy. Apart from that, we predict that other banks may
make no sense about the market news. If this situation happens, the chance to make
profit is very difficult. Thus, we still need to observe other banks bid price and ask
price and change our price according to attract buyers and sellers. Although this
method helps us to make little profit in the market, this is the most effective way to
win in the tight market.
After setting these special strategies, we analyze the market news and anticipate the
market is inefficient, so we can find some mispricing to make profit.
Balance of payments due. Expected surplus of AUD 1 billion. The surplus of
BOP indicates that the total export is greater than the total import. This also
indicates that overseas buyers need more Aussie dollar to pay the commodity
charge, thus the demand of AUD increases with the appreciation of the Aussie
dollar(10:10 a.m.). If the market is efficient, we should long AUD at this time.
Central banks quarterly Statement of Monetary Policy due. Expected to reflect
concerns that economy is slowing. When this announcement is released, the AUD
will depreciate for that the demand of AUD from investors declines (10:30 a.m.).
In this point, we should short our Aussie dollar.
Consumer credit figures due. Expected to show continued slowdown. This
indicates that the AUD will depreciate (11:30 a.m.). Since investors reckon that
the return of investing in Australia financial market is not attractive, thus the
demand of AUD drops down. In this point, we should short AUD.
Consumer Price Index figures due. Expected Annual Inflation Rate expected to be
2.50% (11:40 a.m.). The inflation rate in Australia is about 2% to 3%, and 2.5% is
a proper inflation rate in the whole economy. Thus, the exchange rate of AUD
may not change, and we should do nothing but observe the market movement to
find some arbitrage opportunities.
d. Strategies actually used during the trading session
As is predicted by us, the market is too contracting to make profit easily when the
markets open. Each bank's quoting rate is almost the same. At the first time, we pick
some banks with relative lower ask price and buy some AUD. After that, the market is
moving upward, all banks rise their ask price and bid price. And at that time we
change the ask price at a lower level according to other banks in order to attract
potential buyers. Finally we sold all AUD successfully, although the profit is not very
large at the beginning phase.
In the trading session, we also make transactions with corporate such as Toll Holdings
and BHP Billiton, and these transactions is a good opportunities for us to make a
promising profit. However, when we fill the tender of Toll Holdings we make a
mistake. We do not see the tender amount clearly, 2 billion is equals 2000 million, but
we just regard that this company want to buy 200 million and we fill 50million at
0.8499. So we missed a good opportunity to enlarge out profit.
Overall, the strategies which we have prepared are all being implemented in the
trading session, and we predict the market correctly. Consequently, these strategies
help us to make a good profit.
e. Analysis of how and why the foreign exchange market price changed
Graph 2: FX market movement
If the foreign exchange market is efficient, the price movement should always keep in
step with market announcements. In fact, when the surplus of BOP news released, the
bid and ask price also moved in contrary direction. After analyzing the market data,
we found that the Westpac had mispricing, they set the bid price at 0.843 and ask
price at 0.81! They have totally run out of the market. However, according to the code
of ethics, we could not make illegal profit from the Westpac.
When the news of cutting interest rate released, the market overreact this news and
the ask price dropped dramatically while the bid price did not change. There also
exists mispricing when the news spread out. The ANZ bank set the ask price at 0.8102
while the bid price at 0.8489! However, according to the code of ethics, we could not
make illegal profit from the ANZ.
During the period from 11:09 to 11:25, OCBC had mispricing in the FX market, they
set the bid price at 0.8490 and ask price at 0.8130! This mispricing made the market
average ask price slump although there was no news in this time period.
When the news of fallen of consumer credit released, the market suddenly moved into
adverse direction. The exchange rate increased!
Graph 3: adjusted Foreign Exchange price movement
When the factors of mispricing have been deducted, the market average selling price
tends to be stable. Although the overall tendency of the exchange rate is depreciating,
there also exists some abnormal fluctuations after the market announcements. Above
all, the market is not very efficient according to the market announcements.
Meanwhile, some mispricing also exists in the market, but we cannot make theses
illegal profit according to the code of ethics.
f. What you did wrong and remedial action.
Wrong Actions
Filling the tender
of Toll Holdings
with too little
selling amount
Reason
Not sensitive about
the number, do not
make
sense
2
billion equals 2000
million
Typing wrong ask Unintentionally
price
touch the keyboard
button
Buying the AUD Answering too much
calling and does not make
high and selling it sense the AUD account
at lower price
has 30M surplus
Remedial Actions
Using another BHP tender to make
profit to compensate the loss of profit
in this tender.
Change the ask price properly, and

explain to those who want to make
transaction with you at that time.
Let the risk manager to concentrate on
the account position and tell the dealer
in time.
g. Depth and quality of operational performance measures of each role.

Role
Responsibility
Performance
Dealer
Quickly and clearly answering and dialling About 1 minute

phones when other banks tend to trade with us and
we tend to buy.
Communicating with the position keeper About 25 seconds
name, trading quantity, reference number in time
Discussing and setting different trading During the whole

strategies with the risk manager according to the trading process
various market situations.
Closely watching the price changes of Immediately
and
almost
at
any
time
other banks. If there exists arbitrage opportunities,
grabbing those opportunities.
Position
keeper
Communicating with dealer and recording Around 30 seconds

to
record
each
transactions.
transaction.
Checking accepted transactions in time and 10-20 seconds
recorded accurately.
Discovering trading mismatches with our Within 1 minute
counterparties. If there exists mistakes, the keeper
needs to dial the counterparty bank as soon as
possible.
Keeping in touch with the risk manager to Within 30 seconds
ensure correct buying and selling quantity.
Risk
Tracking the quantity traded and the net During the whole
manager position. Identifying arbitrage opportunities.
trading process
Discussing contingency strategies with
dealer.
Continuously noticing all the market
announcements and observing the market
fluctuation.
Continuously checking price changes and
immediately giving suggestions to the dealer.
h.
What you learned from the trading session.
Around 30 seconds
each time
30 seconds after
news announcement
During the whole
trading process
The dealer must set an appropriate bid and ask price during the trading in order to
make profit during the tight foreign exchange market.
Each role in the bank group is equally important. The dealer, position keeper and
risk manager should contribute to help the group make more profit.
Understanding the difference between reality and expectations during the trading
session. The market may sometimes move to adverse direction according to the
news, thus it is important to dealer and risk manager to watch and analyze the
market and use a proper strategy to deal with it.
When there is little opportunity to make profit in the tight market, dealing with
corporate is a good strategy to break the deadlock. If you can sell at a high price
to corporate, then you can take initiatives to set an attracting bid price to attract
potential sellers. In this way, you can make more profit than just making
transaction with other banks.
Quickly adjusting price and changing strategy according to the various market
situations are also important. If you find your price can be done arbitrage by other
banks, then the risk manager should help dealer to change price when dealer is
being called in order to decrease the potential loss if mispricing exists.
In conclusion, we have learned a lot of skills to make profit and find arbitrage
opportunities in the foreign exchange trading session. And we hope to put these
methods into practice.
Appendix 4
Foreign exchange policy
During each trading session, we try our best to find any arbitrage opportunities to
make profit under the code of conduct. Overall, we chose a conservative trading
policy. In the first trading session, we made efforts to reduce our risk exposure and
just wanted to make small profit margin from each transaction. Apart from that, we
used tenders to increase our profit. In the second trading session we changed our
policy to aggressive and we crabbed every transaction opportunity with corporate and
made profit.
Appendix 5
The job of each role is well allocated and each group member is responsible for when
s/he needs to do. The dealers job is all about trading with other banks by dialing and
answering phone calls. All the information including the trading bank, trading
amount, buying or selling, and reference number is required to be recorded by the
position keeper. The dealer also has to closely watch the price changes of other banks
and quote bid and ask prices.
The risk manager is a key role to dominate the operation of our whole bank. The
manager needs to monitor the entire economic and market environment and discusses
strategies with the dealer. Continuously checking price changes and immediately
giving suggestions to the dealer are also necessary for the manager.
The position keeper should communicating with dealer and recording transactions
accurately. The keeper has to discover trading mismatches with our counterparties. If
there exists mistakes, it is required to dial the counterparty bank as soon as possible.
Finally, all of the members have to comply the code of conduct.

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BFF5260 Money Market Dealing

Foreign Exchange Summary Report

Total Percentage contribution

7 Overall performance measures of each role..................................................................................23

Table1: Overall budget and performance of CIMB group

Trading Session Trading

Highest dollar profit

Table 2: Statistical financial data of the market

Figure 1: Dollar Profit

Banks that didnt

Chart 1: Dollar profit

CIMB BARCLAYS NAB

Figure 2: Profit Margin

Chart 2: Profit margin

In addition to profit margin, turnover is another consideration when measuring

Figure 3: Turnover of Banks

depreciating in the near future.

3 Overall strategies developed including contingency strategies

4 Strategies actually used during the trading sessions

Chart 3: source of profit

Figure 4: Contributions of each strategy

Market Average Buy Rate

4.2 Second trading session

Figure 6: Source of Profit

Chart 4: Contributions of each strategy

5 Analysis of Foreign Exchange Market price changes

Adjusted FX Market Price Movement

Market Average Buy Rate

Figure 7: Adjusted Market Price Movement in Trading Session 1

Market Average Buy Rate

Figure 8: Price movement of CIMB group

5.2 Market price movement in trading session 2

Adjusted Market price movement

Market Average Buy Rate

Figure 9: Adjusted market price movement in trading session 2

Price movement of CIMB Group

Market Average Buy Rate

Market Average Sell Rate

CIMB GROUP Buy Rate

CIMB GROUP Sell Rate

Figure 10: Price movement of CIMB Group

6.1 Practice trading

The dealer accepted Not clear about the

The dealer refused to Because it was the first

The position keeper The position keeper

First, the dealer tried

Well done. The r

Table 3: Wrong operations in the practice session

6.2 First trading

The dealer became When it was busy to

The dealer did not

The reaction of dealer

When the risk manager

Answering the calls

Second, to find out

Table 4: Wrong operations in the first session

1 The dealer and the risk

500,000,000 but make a

not react that it is an

tenders, the dealer and

First, the dealer told

The dealer should

Table 5: Wrong operations in the second session

6.3 Second trading