The EuroMorgan Stanley Financial Training Program Spring 2015Group 5:Margie Vinogradova, Tianyi Zhou, Evan Jun Shum, Bryan Zhao, Waqas, German Cueva

Intro● 12-year low against Dollar● Dollar increasing value against world’s major currencies● Divergent Monetary Policy: ECB vs. US Federal Reserve● Possible factors:

o likelihood of increasing US interest rateo Crisis in Greeceo And the Quantitative Easing program

● Exports boost

QE by the ECB● The ECB has lowered interest rates to near zero.

● Banks took the money and invested in safe ventures.o Afraid of lending to investors looking for a loan. o They’re being very careful = stagnate in the economy.o Combating deflation.

● Quantitative Easing will have the ECB buy up toxic loans and bonds bringing interest rates down on bonds. o Makes Gov’t bonds look less lucrative and force the banks to loan

their money to others.

Weakening of the Euro ● Why is the Euro Falling?

○ European Central Bank’s (ECB) quantitative easing

■ 1 Trillion Euros will be pumped into economy

■ Will continue to weaken Euro but will boost exports and ease inflation

○ Strong Dollar■ Rose 13% in 2014 and 5% in

2015■ Strong economy and improving

Trade Balance

-possible topics: strong $, European QE, Greece issues (CNN Money)-Grexit http://www.eubusiness.com/topics/fx/currency-daily

● As of April 27th, E= 1.09 USD/Euro

Exchange Rate Between Dollar and Euro

Weakening of the Euro● Why is the Euro falling?

○ ECB’s record low interest rates■ Program includes buying government

bonds back; Investors will look to invest overseas where interest is higher

○ Crisis in Greece■ Concerns regarding “Grexit”■ Adds downward pressure on Euro

● If Greece goes bankrupt or decides to leave the 19-nation eurozone, the situation could create instability in the region and reverberate around the globe

The Euro’s Impact on Imports/Exports

● What happens to our economy based on strength of euro?● Stronger euro → dollar depreciates → more purchasing power for

European consumerso American companies that rely on exports gain more

revenue (foodstuffs, chemicals, textiles) Signals good financial health to investors Drives up demand for shares

o Tradeoff with companies in industries that rely on importso Overall result in our economy: trade surplus - exports rise,

imports fall

The Euro’s Impact on Imports/Exports

● In contrast, depreciation of the euro → stronger dollar → increased financial performance for US companies inimportso Higher demand for American goodso Opposite trade-off occurs for companies

here in the US Harms US companies that rely on exports, beneficial

for those that rely on imports (automobiles, machinery)

o Overall result: trade-deficit in our economy

The Euro’s Impact on Imports/Exports

● Exactly how much of an impact?

The Euro’s Impact on Imports/Exports

● Exactly how much of an impact?● Estimated 20% consumption of US exports

by Europeo Carnegie Endowment

for International Peace (policyresearchers)

o Significant impact on investment choices

(Zepal Corp.) →

The Euro’s Impact on Imports/Exports

● Example of magnitude and frequency of fluctuationo US investors must take into consideration

Strategy Investment - Forex

Forex- “Foreign Exchange”

- Similar to a stock, holding onto an asset that will appreciate in value

- Profits contingent to speculation on when Euro may reach parity with USD

- CurrencyShares EuroTrust - Ticker - FXE

Example ETF (Exchange Trade Fund)

- PowerShares DB Fund - Ticker - UUP

ETF’s that closely tracks EURO/USD relationship

Industry Correlates Winners -

- European Exports- A weaker euro makes exports

more attractive, as most of the global trade is denominated in US dollars.

Losers - - Airlines

- Even though the price of crude is falling, airliners need to buy jet fuel in dollars

Divestment to Asia

Euro Losing to SGP, RMB, IND

● In the face of Eurozone volatility, the Singapore, Chinese, and Indian economies continue to grow

● invest in the SGP, RMB, IND

US Outlook

Strategic Investing in The UK

● Bank of England to pursue Credit Easing

● stopped QE in 2013

Company city ticker annual growth %Sales in North America

Jazz Pharmaceuticals Dublin JAZZ, 29% 90%.

GW Pharmaceuticals Salisbury, UK GWPH 63% 81.3%

In Conclusion● QE in the Eurozone and PIGS will continue to keep the Euro weak,

● Weak Euro benefits European exporters, mainly manufacturing companies

● Forex Trading to capitalize on Euro fluctuations

● Invest in stable growth currency: SGD, RMB, INR

● Invest in Asian and UK Export sector; non-durable, non-cyclical goods (Pharma)

Sourceshttp://www.theguardian.com/business/2015/mar/11/euro-12-year-low-gainst-the-dollarhttp://money.cnn.com/2015/01/05/investing/euro-slump-deepens/http://www.ft.com/intl/cms/s/0/aedf6a66-a231-11e4-bbb8-00144feab7de.html#axzz3YTzMgftrhttp://time.com/money/3654721/investing-strategies-2015/

Questions?