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    Coursework
    The coursework is to analyze the profitability of the carry trade and write an essay about it with
    a word limit of 2,000.
    You will have to collect data on a low interest rate country and a high interest rate country. You
    have to calculate the total return on your carry trade strategy for every month starting in
    January 2009 and ending in December 2017. You are encouraged to present your result both
    numerically and graphically. For more information, please read the case study in KOM Chapter
    14 about the carry trade.
    Your essay should describe: (i) what the carry trade strategy is; (ii) introduce your dataset; (iii)
    explain how you have constructed your carry trade portfolio; (iv) interpret your results; (v)
    conclude how your results relate to the literature on the profitability of the carry trade.
    Data
    Data on exchange rates and interest rates can be found on the IMF International Financial
    Statistics (IFS), which are available via the IMF on http://data.imf.org/IFS 1
    For the interest rate, use the money market rate (financial, interest rate, money market,
    percent per annum)
    For the exchange rate, use the domestic currency per us dollar, end of period (exchange
    rates, domestic currency per US dollar, end of period, line DE in the IFS)
    Literature
    Krugman, Obstfeld & Melitz, International Economics, Chapter 14 Introduction to Exchange
    Rates and the Foreign Exchange Market.
    A good coursework
    has a clear introduction, with a short overview of the carry trade and an introduction of the
    research question at hand;
    clearly explains the data collected and the methodology used;
    presents the results in a clear and intuitive way and provides a good interpretation of the
    results;
    should be readable by an intelligent non-expert with a grounding in economics/finance;
    is written in an academic style, with a clear structure.
    You are required to submit both your essay and the data you collected (in excel) via the links
    provided on Moodle.

    Appendix A: Country Suggestions
    Examples of low interest rate countries between 2009 and 2017 are
    Denmark, Finland, Germany, Hong Kong, Japan, Netherlands, Sweden, Switzerland, United
    Kingdom, United States
    Examples of high interest rate countries between 2009 and 2017 are
    Argentina, Brazil, India, South Korea, Mexico, Pakistan, Poland, Thailand
    Note: obviously, your results will vary (substantially) depending on which currency pair you choose

    Appendix B: Help with the database
    The data can be found on the IMF Data Portal http://data.imf.org/IFS
    To find the data, go to the Query tab, as seen in the screenshot below.

    Select the correct countries by using the Country filter and clicking on the countries you want to include
    (Ive selected the UK and Turkey here as an example) (note that Turkey does not actually have Money
    market rates available, so is probably not the best country to include in your sample).

    (4) Equations: Make sure to edit and outline your equations properly, and number them. For
    example:
    ?? = ? + ??? + ??
    . (1)
    For a tutorial on how to outline, number and cross-reference to your equations see the
    following tutorial: https://www.youtube.com/watch?v=JcB4nQ2AYts
    General hints on how to typeset maths in word are given in this tutorial:
    https://www.youtube.com/watch?v=SRGaW3maK38
    (5) Tables: If you use tables, your tables should be numbered and have a title. Make sure to
    explain the contents of your table in the caption below the title. Each table should be selfcontained and require no materials from other sources to be understood. Tables should be
    10
    referenced to in the text. Main results should be contained in the main text, auxiliary results
    can be put in an appendix.
    For a tutorial on how to format a table in word according to the APA style guide, see:
    https://www.youtube.com/watch?v=Gwj9vA1ey0I
    (6) Figures: Each figure should be numbered and have a title. If the figure is not original, then a
    source should be provided. Also make sure to properly label your figure: explain what is on
    each of the axis, ensure that the units of measurement on the axis makes sense and that
    each line is identifiable. It often helps to explain the contents of the figure in a caption
    underneath the title. Figures should be referenced to in the text.
    (7) Appendices: Appendices should be lettered A, B, etc.
    (8) Footnotes: Footnotes should be numbered and appear at the bottom of each page.

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