FINC5090 - Finance in the Global Economy

FINC5090 - Finance in the Global Economy Individual Assignment Outline Semester 2, 2024 1 Instructions 1. Read the instructions carefully. 2. This assignment is worth 25% of total marks for FINC5090. 3. The DUE DATE is 6 SEPTEMBER 2024. The submission link will stop accepting submissions at 23:59 on the submission date. Do not send your work via email if you miss the deadline. Submissions after the deadline will not be accepted. 4. Plagiarism is a serious academic offense that will result in receiving zero marks and possible disciplinary action. 5. Ensure that you write your correct Student ID at the top of each page. This is important so that the marker knows who the author of the assignment is. 6. Submit your assignment in PDF format only. 2 Task 1. In this task, you will analyze monthly banking statistics data to answer specific questions about the Australian banking sector. You are provided with data on monthly banking statistics from the this website. For this assignment, you must focus from March 2019 to May 2024. 2. In these data, you will see monthly statistics for each bank operating in Australia. For this assignment, we are only interested in commercial banks, i.e., banks that, in addition to other activities, also take deposits from and make loans to house- holds. 3. Using these data, you are required to answer the following five questions: (a) (3 Marks) The first task relates to the composition of banks’ loan portfolios. Here, you must determine the share of households’ real-estate loans in the overall loan portfolio of banks. Technically, this corresponds to a ratio: Share = Real estate loans to households Total Assets Please note that the dataset is a panel dataset, meaning it provides time- series information for multiple banks. As you work with the data, you can estimate this ratio at the bank level and then present a time-series plot of the mean with 95 percent confidence intervals.1 OR, you can aggregate the data across all banks, estimate this ratio for each month, and present a time-series of this estimate. Your interpretation will differ slightly depending on which of the two you choose. What are the potential factors driving the fluctuations in the time-series? (b) (10 Marks) The next task relates to a core activity performed by banks: tak- ing deposits and making loans. We are interested in deposits (from all sec- tors). You are required to estimate the Loan-To-Deposit ratio that is esti- mated as: Loan-To-Deposits Ratio = Total Loans Total Deposits This ratio generally tells how much of the loan volume is funded by de- posits. For instance, a ratio of 1 means that a bank has originated a dollar of loan for each dollar of deposit. A very high or very low Loan-To-Deposit ratio is not ideal. A very high ratio implies excessive risk due to liquidity, funding, and credit risk. A very low ratio indicates low profitability, idle funds, and low competitiveness. Based on average values over the sample period for each bank, rank the big 4 Australian banks, i.e., ANZ Banking Group, Commonwealth Bank, NAB, and Westpac. Next, from Yahoo Finance, download time-series of monthly returns for these four banks. From these data, estimate a stock’s monthly return as 1A time-series plot is a graphical representation of data points in a time sequence. It displays how a variable changes over time, allowing you to observe trends, patterns, and fluctuations. 3 {( Adj. Closet−Adj. Closet−1 Adj. Closet−1 ) × 100 } . From Ken French’s Data Library, click on ‘International Research Returns’ and download file named ‘Fama/French Asia Pacific ex Japan 5 Factors’. This zipped folder contains monthly returns for factors known to systematically affect stock returns. We are interested in the sum of Mkt_Rf and RF, which will yield a monthly return series for the market. Next, subtract this sum from each stock’s return for each period, which yields a market-adjusted return. We do this operation to subtract fac- tors affecting all stocks in a given month. The output for this task should include a 2x2 panel of figures: one figure for each bank. Each figure will contain a time series of a bank’s Loan-To-Deposit Ratio and market-adjusted stock returns based on adjusted closing price. In your write-up, explain how you think the market perceived changes in this ratio. (c) (5 Marks) The next task relates to the competitiveness of the Australian banking sector. Your main task is determining the evolution of the bank- ing sector’s competition between March 2019 and May 2024. In finance, a measure of market concentration and competition is Herfindahl–Hirschman Index (HHI). A higher HHI indicates a less competitive market. The HHI is defined as: HHI = S21 + S 2 2 + S 2 3 + · · ·+ S2n where Si = Xi∑ iXi Here, Xi equals either total loans (for loan markets) or total deposits (for deposit markets) for bank i. When you repeat this calculation for each time period, you will end up with two time-series for HHI based on loan and deposit markets. Based on this information, you are required to understand and interpret the competition dynamics in the Australian banking sector. For example, in market there are total deposits of 4 dollars, and Bank A and B has deposits of 3 dollars and 1 dollar, respectively. Thus, Bank A and B have a deposit market share of 75 ( = 3/4) and 25 ( = 1/4) percent. Then, HHI for this market is 752 +252 = 6, 250. In your judgment, whether competition is high or low, you should use the following classification: Value Classification HHI <= 100 Highly competitive industry HHI <= 1500 Unconcentrated markets 1500 < HHI <= 2500 Moderately concentrated markets HHI > 2500 Concentrated markets (d) (5Marks) In June 2022, ANZ Banking Group Limited announced the takeover of Suncorp-Metway Group. In August 2023, the Australian Competition and Consumer Commission (ACCC) blocked the deal, stating that this deal would further entrench the banking oligopoly. Evaluate how substantial is 4 ACCC’s claim. To do so, you may assume ANZ and Suncorp as one bank, repeat the steps that you took in part (c) above, and contrast the results. (e) (2 Marks) What is (are) the key caveat(s) of your analysis in (a)-(d)? 4. The word limit for this project is 2,000 words. This word limit includes your write-up only and excludes all other sections like references, section headings/sub- headings, and figure descriptions, et cetera. Write on A4 sized page, single- spaced, 2.5cm margins (top, bottom, left, and right) with the Times New Roman font with size 12. 5. Refrain from writing stories. Make your point as quickly as possible. A suc- cinct write-up of analysis is always appreciated by the readers. Note that this is academic work. You must substantiate your claim either by your analysis or by providing a reference from an academic journal (not random websites or blogs). The referenced work must be peer-reviewed (academic journals) or reputable (the Australian Financial Review, the Economist, the Time, Wall Street Journal, et cetera). You have access to all sources via the University’s library. Follow APA citation style. 6. We will discuss these questions in detail in the first three tutorials (Weeks 2, 3, and 4). Please make sure you attend these tutorials. 5 Rubric Criteria High Distinction Distinction Credit Pass Fail Percentage of Marks Allo- cated to criteria Relevance Critically chooses informa- tion and integrates well to support the points being made. Good evidence of critical consideration of relevant information, and well inte- grated. Good evidence of critical consideration of relevant information, but may re- quire better integration. Some evidence of critical consideration of relevant information, but could be better integrated. Irrelevant information. No evidence of critical consid- eration. 20% Knowledge and under- standing Knowledge based on inde- pendent reading and high- level synthesis Conceptually sound, wide- ranging knowledge and understanding Adequate knowledge and understanding, errors bal- anced by sound work Limited knowledge with serious errors or omissions Major errors, little knowl- edge or reading 30% Critical, analytical and in- tegrative thinking Excellent level of critical, analytical and integrative analysis Good level of critical, analytical and integrative analysis Sound argument with evi- dence of analysis and rea- soning, more description than analysis Little evidence of critical or analytical abilities No evidence of critical or analytical abilities 20% Evidence of the use of ap- propriate materials Excellent use and evalua- tion of evidence Good use of evidence, wide reading, generally well digested Some use of evidence, fair amount of reading, over- reliance on one or two au- thorities Little use of evidence, lim- ited reading, references of an inadequate standard Very little evidence of hav- ing read relevant material 20% Structure and presenta- tion Excellent in-text citation, paraphrasing and refer- ence list. Good in-text citation, para- phrasing and reference list, with only minor errors. Satisfactory in-text cita- tion, paraphrasing and reference list, possibly with a few errors. Reasonable attempt to ref- erence correctly but in-text citation and/or paraphras- ing and/or reference list have a number of errors. No in-text citation and paraphrasing and ref- erence list missing or substantially incomplete. 10%6 Sample Assignment Format Note: The text below is a dummy text to highlight a sample format for the assignment. Question 1 TimeSeriesPlotQuestion1.pdf Figure 1: Insert brief description of this figure here. Lorem ipsum dolor sit amet, consectetuer adipiscing elit. Ut purus elit, vestibulum ut, placerat ac, adipiscing vitae, felis. Curabitur dictum gravida mauris. Nam arcu libero, nonummy eget, consectetuer id, vulputate a, magna. Donec vehicula augue eu neque. Pellentesque habitant morbi tristique senectus et netus et malesuada fames ac turpis egestas. Mauris ut leo. Cras viverra metus rhoncus sem. Nulla et lectus vestibulum urna fringilla ultrices. Phasellus eu tellus sit amet tortor gravida placerat. Integer sapien est, iaculis in, pretium quis, viverra ac, nunc. Praesent eget sem vel leo ultrices bibendum. Aenean faucibus. Morbi dolor nulla, malesuada eu, pulvinar at, 7 mollis ac, nulla. Curabitur auctor semper nulla. Donec varius orci eget risus. Duis nibh mi, congue eu, accumsan eleifend, sagittis quis, diam. Duis eget orci sit amet orci dignissim rutrum. Nam dui ligula, fringilla a, euismod sodales, sollicitudin vel, wisi. Morbi auctor lorem non justo. Nam lacus libero, pretium at, lobortis vitae, ultricies et, tellus. Donec aliquet, tortor sed accumsan bibendum, erat ligula aliquet magna, vitae ornare odio metus a mi. Morbi ac orci et nisl hendrerit mollis. Suspendisse ut massa. Cras nec ante. Pellentesque a nulla. Cum sociis natoque penatibus et magnis dis parturient montes, nascetur ridiculus mus. Aliquam tincidunt urna. Nulla ullamcorper vestibulum turpis. Pellentesque cursus luctus mauris. 8 Question 2 bank1.pdf (a) Bank 1 bank2.pdf (b) Bank 2 bank3.pdf (c) Bank 3 bank4.pdf (d) Bank 4 Figure 2: Insert brief description of this figure here. Nulla malesuada porttitor diam. Donec felis erat, congue non, volutpat at, tinci- dunt tristique, libero. Vivamus viverra fermentum felis. Donec nonummy pellentes- que ante. Phasellus adipiscing semper elit. Proin fermentum massa ac quam. Sed diam turpis, molestie vitae, placerat a, molestie nec, leo. Maecenas lacinia. Nam ip- sum ligula, eleifend at, accumsan nec, suscipit a, ipsum. Morbi blandit ligula feugiat magna. Nunc eleifend consequat lorem. Sed lacinia nulla vitae enim. Pellentesque tin- cidunt purus vel magna. Integer non enim. Praesent euismod nunc eu purus. Donec bibendum quam in tellus. Nullam cursus pulvinar lectus. Donec et mi. Nam vulputate metus eu enim. Vestibulum pellentesque felis eu massa. Quisque ullamcorper placerat ipsum. Cras nibh. Morbi vel justo vitae lacus tinci- 9 dunt ultrices. Lorem ipsum dolor sit amet, consectetuer adipiscing elit. In hac habi- tasse platea dictumst. Integer tempus convallis augue. Etiam facilisis. Nunc elemen- tum fermentum wisi. Aenean placerat. Ut imperdiet, enim sed gravida sollicitudin, felis odio placerat quam, ac pulvinar elit purus eget enim. Nunc vitae tortor. Proin tempus nibh sit amet nisl. Vivamus quis tortor vitae risus porta vehicula. 10 Question 3 TimeSeriesPlotQuestion3.pdf Figure 3: Insert brief description of this figure here. Fusce mauris. Vestibulum luctus nibh at lectus. Sed bibendum, nulla a faucibus semper, leo velit ultricies tellus, ac venenatis arcu wisi vel nisl. Vestibulum diam. Ali- quam pellentesque, augue quis sagittis posuere, turpis lacus congue quam, in hendrerit risus eros eget felis. Maecenas eget erat in sapien mattis porttitor. Vestibulum portti- tor. Nulla facilisi. Sed a turpis eu lacus commodo facilisis. Morbi fringilla, wisi in dignissim interdum, justo lectus sagittis dui, et vehicula libero dui cursus dui. Mauris tempor ligula sed lacus. Duis cursus enim ut augue. Cras ac magna. Cras nulla. Nulla egestas. Curabitur a leo. Quisque egestas wisi eget nunc. Nam feugiat lacus vel est. Curabitur consectetuer. Suspendisse vel felis. Ut lorem lorem, interdum eu, tincidunt sit amet, laoreet vi- tae, arcu. Aenean faucibus pede eu ante. Praesent enim elit, rutrum at, molestie non, nonummy vel, nisl. Ut lectus eros, malesuada sit amet, fermentum eu, sodales cur- sus, magna. Donec eu purus. Quisque vehicula, urna sed ultricies auctor, pede lorem 11 egestas dui, et convallis elit erat sed nulla. Donec luctus. Curabitur et nunc. Aliquam dolor odio, commodo pretium, ultricies non, pharetra in, velit. Integer arcu est, no- nummy in, fermentum faucibus, egestas vel, odio. 12 Question 4 HHILoanMarkets.pdf (a) HHI based on loan markets HHIDepositMarkets.pdf (b) HHI based on loan markets Figure 4: Insert brief description of this figure here. Sed commodo posuere pede. Mauris ut est. Ut quis purus. Sed ac odio. Sed vehi- cula hendrerit sem. Duis non odio. Morbi ut dui. Sed accumsan risus eget odio. In hac habitasse platea dictumst. Pellentesque non elit. Fusce sed justo eu urna porta tinci- dunt. Mauris felis odio, sollicitudin sed, volutpat a, ornare ac, erat. Morbi quis dolor. Donec pellentesque, erat ac sagittis semper, nunc dui lobortis purus, quis congue pu- rus metus ultricies tellus. Proin et quam. Class aptent taciti sociosqu ad litora torquent per conubia nostra, per inceptos hymenaeos. Praesent sapien turpis, fermentum vel, eleifend faucibus, vehicula eu, lacus. Pellentesque habitant morbi tristique senectus et netus et malesuada fames ac tur- pis egestas. Donec odio elit, dictum in, hendrerit sit amet, egestas sed, leo. Praesent feugiat sapien aliquet odio. Integer vitae justo. Aliquam vestibulum fringilla lorem. Sed neque lectus, consectetuer at, consectetuer sed, eleifend ac, lectus. Nulla facilisi. Pellentesque eget lectus. Proin eu metus. Sed porttitor. In hac habitasse platea dictu- mst. Suspendisse eu lectus. Ut mi mi, lacinia sit amet, placerat et, mollis vitae, dui. Sed ante tellus, tristique ut, iaculis eu, malesuada ac, dui. Mauris nibh leo, facilisis non, adipiscing quis, ultrices a, dui. 13 Question 5 Morbi luctus, wisi viverra faucibus pretium, nibh est placerat odio, nec commodo wisi enim eget quam. Quisque libero justo, consectetuer a, feugiat vitae, porttitor eu, libero. Suspendisse sed mauris vitae elit sollicitudin malesuada. Maecenas ultricies eros sit amet ante. Ut venenatis velit. Maecenas sed mi eget dui varius euismod. Pha- sellus aliquet volutpat odio. Vestibulum ante ipsum primis in faucibus orci luctus et ultrices posuere cubilia Curae; Pellentesque sit amet pede ac sem eleifend consectetuer. Nullam elementum, urna vel imperdiet sodales, elit ipsum pharetra ligula, ac pretium ante justo a nulla. Curabitur tristique arcu eu metus. Vestibulum lectus. Proin mau- ris. Proin eu nunc eu urna hendrerit faucibus. Aliquam auctor, pede consequat laoreet varius, eros tellus scelerisque quam, pellentesque hendrerit ipsum dolor sed augue. Nulla nec lacus. 14 References Citations must be in an APA format. Example: Rajan, R. G., & Zingales, L. (2001). The influence of the financial revolution on the nature of firms. American Economic Review, 91(2), 206-211. 15 Frequently Asked Questions General Questions 1. When is the assignment due? A: The assignment is due on 6 September 2024. The submission link will stop accepting sub- missions at 23:59 on the due date. Late submissions will not be accepted without appropriate and prior approvals from the University. 2: How much is this assignment worth? A: This assignment is worth 25% of the total marks for the course FINC5090. 3: In what format should I submit my assignment? A: You must submit your assignment in PDF format only. 4: What happens if I miss the submission deadline? A: Do not send your work via email if you miss the deadline. Submissions after the deadline will not be accepted. 5: What is the word limit for this assignment? A: The word limit for this project is 2,000 words. This limit includes only your write-up and excludes other sections like references, section headings/sub-headings, and figures’ descriptions. 6: How should I present my findings? A: Present your findings using clear and concise analysis. Include relevant graphs and charts to support your arguments. Ensure that your write-up is based on your analysis and provide references from academic journals or reputable sources where necessary. 7: Are there any specific formatting requirements for the assignment? A: Yes, write your assignment on an A4-sized page, single-spaced, with 2.5 cm margins (top, bottom, left, and right). Use Times New Roman font size 12. 8: What should I do if I need help understanding the data or the tasks? A: Attend the first three tutorials (Weeks 2, 3, and 4), where we will discuss these questions in detail and go through sample solutions. Additionally, you can reach out to your instructor during office hours for further assistance. 9: Which software should I use to analyze the data for this assignment? A: You can use software such as Microsoft Excel, Stata, R, Python, or any other data analysis tools you are comfortable with. If you are unfamiliar with any of these statistical tools, MS Excel would probably be easier to start with. It is widely used for such tasks due to its ease of use and powerful data analysis features. 10: Do I need to provide codes or Excel files? A: No. 11: How do I download and analyze time-series data from Yahoo Finance? A: Go to Yahoo Finance and search for the bank using its ticker/name. Click on ‘historical data’, adjust dates, change frequency to ‘monthly’, and click download. Attend tutorials where we will learn how to do this live. 12: What are formatting requirements/sections to include in the assignment? 16 A: Refer to Sample Assignment Format. There is no requirement for a section. Answer five questions, followed by references. Make sure you start the answer to a question on a fresh page; all pages must be numbered, and make sure you write your student ID on each page (in the header or footer of the page). If you do not like the Sample Assignment Format, you may use your own, but remember, “Brevity is the soul of wit” (From Shakespeare’s Hamlet).