Exchange Rates Financial Planner 2

Introduction This applet permits the currencies; Yen, GB pounds, Deuchemarks (DM), Malaysian Ringgit (MR), Singapore Dollars, and US Dollars, to be graphed against any other of this set, on a daily basis. It also permits various calculations to be performed on the data for investment purposes. Below is a screen capture of the applet, which will be used to explain its features.

The Applet

The applet comprises twelve radio buttons at the top. The first set of six radio buttons comprises the base currency, Yen/100, GBP, DM, MR, SD or USD. Choosing the particular radio button activates which ever is the currency of interest. The second set of six radio buttons comprises the compared currency, ¥/100, £, dm, M$, S$ or us$. Choosing the particular radio button activates which ever is the currency that is to be compared against the base currency. Thus, there are two buttons to be chosen, that is the base currency, which is USD shown in the above diagram and the compared currency, which is DM in the above diagram. The six scrollbars are used to enter information for visual display of the calculations. The first scrollbar on the left permits the day of sale (of DM for USD) to be displayed in written detail for the currency chosen. In this example, day 98 will show the date of day 16 (31st September 1997), and the currency (DM) is indicated at an interbank rate of 1.7625 DM for 1 USD. The second scrollbar permits the horizontal day scale to be expanded or contracted to permit more day decades to be displayed across the screen. As the day decade numbers are stretched across the screen, the scale interval indicating the day decade number automatically follows. The horizontal scale units have no meaning as far as computing exchange rates. The third scrollbar permits the purchase day to be entered. This is the day on which DM was purchased for USD. In this example, day 54 shows the date as 4th October 1997, and the currency (DM) exchange rate is indicated at an interbank rate of 1.8639 DM for 1 USD. The vertical scale, on the left-hand side of the canvas, shows the compared currency under consideration (DM) and a figure of the percentage change between lines is indicated. In this case, it is approximately 1.471% change between any two horizontal lines. The first of the lower tier of scrollbars labelled IB/HKB allows the ratio of the interbank rate to the rate offered by your bank (in this case the HongKong Bank) to be entered. This figure represents the real rate that you would get from your bank, which is always less than the interbank rates. In this case it is shown as 1.0048, that is, you would receive a rate which is worse by approximately 0.48%. The fifth scrollbar allows you to enter the amount of money in thousands (100,000 USD in this case) that you sold on day 54, in order to purchase DM on the purchase day. This amount is used to calculate the real loss or gain incurred if you change currency on the sell date from DM back to USD. The amount of DM bought for 100,000 USD on day 54, is shown on the screen printout below the scrollbars as; "Amount of currency bought on day 54 = 185500 DM." Note that this amount is calculated from the HKB DM rate shown for day 54. The last scrollbar permits you to enter the interest rate for the currency under consideration for the month ahead. It is the interest rate per calendar month for a fixed monthly deposit of the currency under consideration (in this case DM) offered by the bank. The graph shows from day to day the variation of the currency under consideration. The file "rates.txt" is manually updated daily to obtain the latest exchange rates data. Below, is an example of how the data is entered in the "rates.txt" file. The limit on the number of days is due to the readability of the screen plot. All currency rates are those compared against the USD. The inter-currency rates of pairs of currencies not involving the USD, such as, the DM against the MR, etc. are calculated by the applet.
 
Day Date yen gbp dm mr sid
1 190597 116.1965 0.6103 1.7071 2.4969 1.4345
2 200597 113.6701 0.6076 1.6949 2.5000 1.4305
3 220597 115.9350 0.6118 1.6933 2.5025 1.4315
.            
.            

.

           
97 021097 121.6200 0.6187 1.7722 3.3285 1.5315
98 031097 122.2601 0.6204 1.7625 3.3625 1.5420

 

Calculations

The applet permits the calculation of the amount of foreign currency that can be bought for the amount of base currency to be sold. It takes account of the Interbank rate to the Hongkong bank rate (IB/HKB factor). In the example shown in the figure above, 100,000 USD is sold at a rate of 1.8639 DM per dollar, divided by the IB/HKB factor of 1.0048, giving 185,500 DM on day 54. The basic rule for not losing any money on currency change is to ensure that the currency changing back to USD from DM takes into account the buy and sell rates of the bank (in this case the Hongkong bank). If it is assumed that the conversion back to USD from DM is the same as the conversion rate from USD to DM (1.0048 in this case), then the conversion rate must be less than the rate from USD to DM divided by the square of the IB/HKB factor. That is, for this example, 1.8639/(1.0048)(1.0048) = 1.84613. This is shown as on the second line of the screen dump as "Sell DM when rate <1.84613." Changing the value of the first scrollbar changes the day on which DM is sold for USD. As the 'sell day' changes, the exchange rates will also change and so, the profit or loss changing back to USD from DM changes. The third line of the screen dump gives the amount realized in USD if DM is sold on a specific date. In this case, 185500 DM is sold at a rate of 1.7625 DM to 1 USD. This conversion, divided by the IB/HKB factor gives the amount realized in USD. For this case, the amount of USD obtained on day 98 is found to be (185500)/(1.7625 x 1.0048) = 104,745 USD. The screen dump third line gives this result in the form "If sell DM on day 98 get 104,745 USD before interest". The fourth line of the screen dump on the left-hand side of the screen gives the amount of real profit (that is profit after the IB/HKB factor has been taken into account) on the 'sell day' over the 'purchase day'. It is the difference in the exchange rates between the 'sell day' and the 'purchase day', divided by the IB/HKB factor and multiplied by the original amount of USD sold. Its purpose is to show how much foreign currency has been made (or lost) on the 'sell day'. For this calculation, it is (currency rate on day 54 - currency rate on day 98) x(USD sold)/ IB/HKB factor) = (1.8639-1.7625)(100,000)/1.0048 = 10,091.56 DM. This is shown on the fourth line of the screen dump as "Real profit on day 98 over day 54 = 10,091.56 DM. The next calculation is that of the amount of interest accrued over a one-month period. The calculations shown above have not been for one month but for about 3 months. Normally, for a fixed deposit you must wait for one calendar month before you can change. For this case, the above calculations must be worked for a one-month period and the decision whether to change currencies or not can be made on the outcome of these calculations as shown by the screen dumps. The interest is calculated by taking the "Bank ann. interest/calendar month" This means that the bank will offer an annual interest that is then divided by 12 to obtain the interest over a calendar month. In this case the bank offers 5 1/8th %. The amount of interest accrued over a month is the amount of foreign currency bought on day 54 multiplied by 41/800 and divided by 12 for a one month period. That is, 185500*41/(800 x 12) = 792.239 as shown by the fifth line of the screen dump as "Interest over 1 month from day 5 = 792.238 DM. The final line of the screen dump shows the amount of USD obtained if the DM is sold on day 98 after a period of one-month (assuming it is one month for this calculation, rather than the 3 months shown). The interest accrued, divided by the exchange rate on the 'sell day', divided by the IB/HKB factor will give the interest in USD. This amount added to the third line of the screen dump "If sell DM on day 98 get 105193 USD after interest" will give the total amount gained due to currency conversion at the right time and interest accrued over the period of a month from the 'purchase day'. That is, for this case, (185500+792.238)/(1.7625 x 1.0048) = 105,192.8 USD. Each of the other possible currency pairs follows the same calculations as given above.  The vertical red lines seen on the time axis represent the percentage change of the plot from the previous day. Each horizontal grid line represents 0.5%. For example, on day 91 there is shown a spike that is 2.7 divisions high in the positive direction. This means that between day 90 and day 91 the DM increased in value 2.7 x 0.5 = 1.35%. The plot indicates that there was in increase, but the amount is difficult to determine. The spikes overcome this indeterminacy. Also, running your eye along the time scale and looking at the spikes above and below the time axis, gives an indication of how the compared currency is behaving in the medium term. More spikes above the line indicate that the compared currency is strengthening.

The source code (version Rev.1 98/08/06) is available according to the GNU Public License.


Tony Townsend tonyart@ieee.org