Bobby Financial Associates: The Australian Dollar

By K. Chandrashekhar & D. G. Allampalli

Abstract

The case presents the predicament of an investor and day trader who speculates in the global currency markets. It also illustrates the popular stock market maxim - timing is the essence of investing. However, no investor has an unfailing skill in prediction. Bobby, anticipating a cut in the interest rate, entered the currency spot market in Australia and punted with a short position of A$200,000, a day before the Reserve Bank of Australia (RBA) was scheduled to meet to discuss the economic and monetary policy in July 2003. While Bobby thought he had timed the entry into the Australian dollar spot market, the anticipated interest rate cut by the RBA on the following day did not occur. As a result, the Australian dollar appreciated against the US dollar. Wrong-footed, Bobby faced a 'paper loss' of A$1,971. What are his options?

Issues: Investment Risk Analysis & Management

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