...International Journal of Applied Business and Economic Research, Vol. 9, No. 2, (2011): 145-165 STUDY ON DYNAMIC RELATIONSHIP AMONG GOLD PRICE, OIL PRICE, EXCHANGE RATE AND STOCK MARKET RETURNS K. S. Sujit1 and B. Rajesh Kumar2 Abstract: The dynamic and complex relationship among economic variables has attracted the researchers, policy makers and business people alike. This study is an attempt to test the dynamic relationship among gold price, stock returns, exchange rate and oil price. All these variables have witnessed significant changes over time and hence, it is absolutely necessary to validate the relationship periodically. This study takes daily data from 2nd January 1998 to 5th June 2011, constituting 3485 observations. Using techniques of time series the study tried to capture dynamic and stable relationship among these variables using vector autoregressive and cointegration technique. The results show that exchange rate is highly affected by changes in other variables. However, stock market has fewer roles in affecting the exchange rate. In this study we tested two models and one model suggests that there is weak long term relationship among variables. JEL classification: C22; E3; Keywords: Unit root tests; granger causality test, Cointegration; Vector auto regression (VAR) INTRODUCTION Gold was one of the first metals humans excavated. Gold as an asset has a hybrid nature: it is a commodity used in many industries but also it has maintained throughout history...
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...the high price of jet fuel at the end of 2011, JetBlue should hedge its fuel costs for 2012. JetBlue’s approach to fuel hedging was to enter into hedges on a discretionary basis without a specific targets. As you can see from Exhibit 1 in the Appendix, it hedged less in 2009 when oil prices were low and increased the percentage hedged again in 2010 and 2011. Dynamic strategies were based on the idea that oil prices followed a mean-reverting process. Ideally, airlines wanted to lock in prices at the low point in the cycle while capping prices at the high end but take advantage of eventual price declines. Besides, the hedge value H is given by the relationship, H = ρ * σ [spot] / σ [futures] where ρ is the correlation between the spot jet fuel price and selected futures contract, σ is the standard deviation, or volatility, of each respective contract. If the price of jet fuel price increases, the hedge ratio will also increase, which means the percentage hedged should be increased. 2. Looking back from 2007 through 2011, heating oil moved closely with the price of jet fuel. The results from question 3 shows that the price of jet fuel moved more closely with price of heating oil than other two fuels. 3. JetBlue should switch to Brent. From Exhibit 2 in the case, given the spot price of all the fuels, the calculated fuel price correlation coefficient values with price of jet fuel are 0.95851154, 0.97416331186, and 0.99729595278 for WTI crude oil, Brent crude oil and heating...
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...Group J Aman Doharey (PGP30244) Mahesh Raja R (ABM11045) Prerna Pal (PGP30265) Rohit Mandappalli (PGP29341) Shradhha MeryllinePanna (PGP30280) Swagata Das Chowdhury (PGP30419) Tanuj Kumar Lodhi (PGP30420) Table of Contents Introduction Background Protection Requirement Elasticity Of Gold Gold Consumption Scenario in India Need and Objective Of Study Research Methodology Tools and Techniques Hypotheses Data Analysis 1. US Dollar 2. Crude Oil 3. Silver 4. Inflation 5. Sensex Values Findings and Conclusions INTRODUCTION This report emphasizes on studying, interpreting and illustrating the various economic factors affecting the consumption and price of the precious metal Gold. We examine the impact of factors that maybe reason for such distortion and also see how the change in gold price impacts other commodities in the open market. Background Used as a sovereign since ages, gold has always been a sought after commodity. The price variation has almost always been upwards and has had a steep rise in this trend. A few pointers about Gold can be inferred as below. Production Gold is majorly obtained through mining, other sources may include recycling, trading etc. Through these sources gold enters the market. Requirement Gold is an essential commodity in any country’s economic state. It is used in several ways namely – Jewellery, Industry, Retail Investment, ETF etc. Its value is unaffected relating to the currency of...
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...net loss. Investment Cost and Size of Fishmeal Plant The same financial indicator, Internal Financial Return, used to measure the overall profitability of one investment project is also useful for making comparisons between different scales of a similar type of operation, that is, generally speaking, fishmeal plant A with a production capacity of X tons per day and an Internal Financial Return of 25%, is more profitable than an alternative plant B of Y-ton capacity and a return of 15%. The investment cost per ton of processing capacity for plants of different sizes is another method of determining the economics of scale. To give an idea of how these costs vary depending on the size of plant, Table 8 gives some figures based on 1984 prices. These and...
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...Energy transition Exercise 3 Fuel prices Dollars/litre, 2014 | Price | Price without tax | France | 1.996 | 0.847 | Germany | 2.093 | 0.887 | Italy | 2.329 | 0.936 | Spain | 1.878 | 0.932 | Great Britain | 2.158 | 0.830 | Japan | 1.641 | 0.972 | USA | 0.921 | 0.809 | Source: AIE a) Comment on the weight of taxes on total fuel prices in these countries Share of the taxes on fuel prices There is substantial variation. Generally, in countries that are members of the European Union, the tax is an average of 57.4% of the price, while in Japan it is around 40%, and in the US it is the lowest. Clearly in most of these countries, fuel prices are heavily determined by taxes b) What could be the reasons for these taxes? The big gap between the European countries and Japan relative to the US in terms of fuel price taxation is linked to the fact that these countries are net importers of fuel. As a consequence, the governments incur in a deficit, as they are in charge of importing oil and gas. The high tax on fuel prices contributes to making up for that deficit. In parallel, the fuel taxes can help discourage the use of fuel cars so as to foster the use of cars that are based on cleaner energies. c) Can they be effective, given that oil consumption is difficult to reduce? Regarding the aim of taxes to discourage the use of oil and gas, yes, they can be if there are other incentives/benefits to switch to cleaner cars and if cleaner...
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...1. For OPEC to act in accordance with this model, what fundamental change in OPEC would have to occur? What factors prevent it? First of all, all OPEC members must agree on the desired output level and price. The initiative for price and output decisions has to be turned to some assigned cartel authority and all members have to comply with this body. Therefore, the OPEC members can no longer make any independent price and output decisions on their own. An important attribute of this model is the absence of disputes among the cartel members on the basis of the optimal price and output for each member. However, several factors will prevent this form of cartel of taking place in the OPEC. First of all, each OPEC country maintains control over its own production and there are serious doubts that the OPEC members would want to assign the price and output decisions to some central authority. Secondly, even side payments to high-cost producers from low-cost producers to induce the former to reduce their production are impractical because they are so costly to negotiate and enforce. Finally, the OPEC nations have traditionally eschewed any production controls, viewing their production decisions as sovereign national matters. 2. Why is this form of cartel likely to be the most durable? This form of cartel maximizes the joint profits of its members and is completely insulated from internal cheating tendencies. Members may disagree as to the cartel's assignment of profit shares, but...
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...mF OXFORD INSTITUTE O R I ENERGY STUDIES The Effects of Vertical Integration on Oil Company Performance Fernando Barrera-Rey Oxford Institute for Energy Studies WPM 21 October 1995 The contents of this paper are the author's sole responsibility. They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members. Copyright 0 1995 Oxford Institute for Energy Studies All rights reserved. No palt of this publication may be reproduced, stored in a retrieval system, or transmitted in any fomi or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior pemiission of the Oxford Institute for Energy Studies. This publication is sold subject to the condition that it shall not, by way of trade or otherwise. be lent, resold, hired out, or otherwise circulated without the publisher's prior consent in any fonii of binding or cover other than that in which it is published and without D similar condition including this condition being imposed on the subsequent purchaser. ISBN 0 948061 90 1 ABSTRACT When asked to rank industries by their degree of vertical integration, most people would agree that the oil industry should come top of the list. Underlying this belief is the fact that integration and size tend to be closely associated. As the oil industry is so large and oil companies so visible and perceived as so profitable, the common belief is a correlation between vertical...
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...typically a short summary of the contents of the document.] Economic Assessment Rebecca Schauer & Simón Ucrós [Type the abstract of the document here. The abstract is typically a short summary of the contents of the document.] 08 Fall 08 Fall INTRODUCTION After years of hard work by our geologists, geophysicists, and reservoir engineers, an oil field was discovered. Before deciding whether to develop this field or not, an economic assessment of our potential production options is necessary as to validate its economic viability. This report contains necessary work by surface installation specialists, tax experts, and others in order to define the best development option. Before getting into the specificities of the economic assessment, we will briefly summarize the technical data provided by the engineers, as well as the different development options, economic assumptions, fiscal terms, and project financing related to the project. After, we will explain the results of each scenario and conclude which one represents the best opportunity for our company. Technical Data * Water depth of offshore oil field in Africa: 330 feet (100 meters) * Reserves: * 1P: 120 Mb * 2P: 200 Mb * 3P: 350 Mb * Vertical depth of well: 10 000 feet (3000 meters) * Productive area: 6km x 2.5 km = 15 km2 (3750 acres) * Well productivity: 3000 b/d * One injector well for every three production wells * Tangible investments include:...
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...Crude Oil Price | A comprehensive examination of statistical models using Multiple Linear Regression | | STAT 378 | 4/29/2010 Introduction – definition of response, predictor, and indicator variables Our group has decided to explore the problem of rising crude oil prices and attempt to identify variables that contribute to rising/falling costs of oil roughly over the last 25 years. We have selected many different economic measurement tools that might contribute to how oil prices have acted from 1982 to 2008. Our group decided to evaluate the price of crude oil variables based on six explanatory variables. The response variable is Crude Oil Price / Barrel and the six explanatory variables are as follows: Purchase Power of U.S. Dollar by Consumer Index, Dow Jones Industrial Average Composite, Interest Rate on U.S. 10 Year Treasury Notes, Consumer Debt (Billions of Dollars), U.S. Gross Domestic Product (Billions of Dollars), and Lag Time (which is dependent on the previous year’s crude oil price). Since all of our chosen explanatory variables are quantitative, our model does not include indicator variables because we do not have a need for categorical explanatory variables. Our data set was collected primarily from the United States Census Bureau site and our stock market index figures were obtained from Yahoo.Finance and were manipulated into what we were after using excel and small calculations. The data itself was not overly hard to collect; however, due to the...
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...Forecasting and Analyzing World Commodity Prices René Lalonde* Principal Researcher International Department Bank of Canada Zhenhua Zhu Economist Research Department Bank of Canada October 18, 2002 Frédérick Demers** Economist Research Department Bank of Canada Abstract This paper develops simple econometric models to analyze and forecast three components of the Bank of Canada commodity price index (BCPI), namely non-energy commodity prices (BCNE), the West Texas Intermediate crude oil price (WTI), and other energy prices. In the paper, we present different methodologies to identify transitory and permanent components of movements in these prices. A structural vector autoregressive (SVAR) model is used for real BCNE prices, a multiple structural-break technique is employed for real crude oil prices, and an errorcorrection model is constructed for real prices of other energy components. Then we use these transitory and permanent components to develop forecasting models. We assess our models’ performance in various aspects, and our main results indicate: (a) for real BCNE prices, most of the short-run variation is attributed to demand shocks, (b) the world economic activity and real U.S. dollar effective exchange rate explain much of the cyclical variation of real BCNE prices, (c) real crude oil prices have two structural breaks over the sample period, and their link with the world economic activity is strongest in the most recent regime, (d) real prices of other energy components are...
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...billion barrels) of gasoline. 1 Currently the retail gasoline prices about $2.83 per gallon after it went up to above $3.00 per gallon then dropped down. Mainly is the increasing price of crude oil where price varies within the year from $40 to $86 per barrel. Depend upon the circumstance, barrel oil could change rapidly; gasoline production and inventory are the two factors could make big impact on the price variation. Basically, there is huge demand on consuming of gasoline in US which source of supplies mainly from the Organization of the Petroleum Exporting Countries (OPEC) which has continued to produce oil to satisfy US consumers. In 1996, gasoline increased from $2.00 to $3.38 due to the Iraq-Iran’s war broke out. When Iraq and Iran’s war occurred, their capacity of producing oil were limited and reduced significantly, therefore a change in the supply determinant had triggered up the oil price of US and worldwide, as consequence, its results the supply curve shifted, increasing the price dramatically. On the demand side, U.S. is heavily depended on foreign oils. As a result, U.S. gasoline prices changed and varied accordingly to the turmoil of the world’ situation. When US consumers increase number of buyers, this determent of demand affects the market, making a shift to represent an increase in the demand as well. Could we reduce our oil consuming to push OPEC changes its producing capacity and oil prices relatively? From economy’s aspect, demand and supply are mutually...
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...Causes of Erratic Oil Price Fluctuations on a Global Scale Crude oil is a significant commodity that has a far-reaching global economic impact. This is mostly because it is used as a primary raw product for extracting various forms of energy, such as diesel, petrol, and kerosene. The products extracted from crude oil are used in the various facets of human life. For instance, diesel is a crucial component used in manufacturing facilities (Mankiw 115-133). There are constant fluctuations in oil prices, making the price of a barrel of crude oil vary on a minute-by-minute scale. Fluctuations in fuel prices can be a primary factor in the cost of transportation and manufacturing to name but a few. Therefore, fluctuations in the price of crude oil have constant effects on the global economy. These effects have made many investors and citizens alike to be wary of any fluctuations (Butcher 45-77). Oil price fluctuations are bad for the global economy. High crude oil prices contribute to a higher cost of living, thereby affecting national and global economic performance. The question then begs; what is the cause of the erratic crude oil price fluctuations in global scale? There are various reasons as to why there are frequent fluctuations in crude oil prices. In particular, just crude oil production itself can cause major fluctuations in crude oil prices. For instance, reduced production would create shortage of crude oil in the market, and following microeconomics principles;...
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...sufficient gasoline supply, as well as a recommendation about the desirability of undertaking the venture. Crude oil prices have fluctuated over the past several years, but have steadily risen which translates into a rise of gasoline at the pump. This has made it appear appealing to venture into this business. On the other hand, people are very tired of high fuel prices and how rising fuel prices seem to drive up the price of consumer goods, utilities and touch almost anything consumers would have a desire for. According to an article published on the Forbes website in 2012 [1], the worst is not over. The last two years has proven this not to be true. Although there have been a number of spikes in gas prices, the prices in 2014 have been reported to be the lowest since 2010. This could lead to lower profits for a variety of reason that this paper will examine. Opening up or purchasing one or more gas stations represents a substantial outlay of cash, or obtaining large loans, or a combination of the two. The investment in the gas stations is based upon the premise that the gas stations will produce enough revenue to pay debts, as well as provide enough income to pay off loans or provide a return on the initial investment. On-going maintenance and other costs would have to be considered before a purchase decision is made. DEMAND DETERMINANTS Gas prices have risen and fallen over the years following supply and demand. It appears that demand for gasoline is decreasing...
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...However, these political and economic reforms came at a price there was a lot a resistance from the Venezuelan people. The ongoing tension held by the people made itself very clear from 2001 to 2003 when the opposition attempted to force the resignation of Chavez. Venezuela suffered a catastrophic recession in 2002, “According to the Central Bank, in 2002 the variation of the GDP compared with the previous year register -8.9% and in 2003 it was -7.8%. For the oil industry, the variation registered was -14.8% for 2002 and -1.9% for 2003. In 2003 the unemployment rate reached 18.9% and by 2004 it had decreased only to 15.1%” (Lopez Maya, pg 222).The leadership of Hugo Chávez in 1998 marked the rise of the left in Latin America and especially the rise of the Bolivarian forces. The leadership of Hugo Chávez in 1998 marked the rise of the left in Latin America and especially the rise of the Bolivarian forces. After this devastating downfall for Venezuela's economy and political regime the government seeked an effective way to productively confront the political and economic impact that was created. Leading to the creation of the Endogenous Development Nuclei. This reform was created on the basis to offer solutions to the principles of participatory democracy for important social problems. This was used to strengthen the social economy as well as to gain social unity. The Bolivarian economy began to strengthen as the oil prices boomed and their international policy strongly promoted...
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...Hedging Strategies for Crude Oil Market Andre Assis de Salles Industrial Engineering Department Polytechnic School, Federal University of Rio de Janeiro, Rio de Janeiro, Brazil. Email: as@ufrj.br ABSTRACT: This paper examines the performance of bivariate volatility models for the crude oil spot and future returns of the WTI type barrel prices. Besides the volatility of spot and future crude oil barrel returns time series, the hedge ratio strategy is examined through the hedge effectiveness. Thus this study shows hedge strategies built using methodologies applied in the variance modelling of returns of crude oil prices in the spot and future markets, and covariance between these two market returns, which correspond to the inputs of the hedge strategy shown in this work. From the studied models the bivariate GARCH in a Diagonal VECH and BEKK representations was chosen, using three different models for the mean: a bivariate autoregressive, a vector autoregressive and a vector error correction. The methodologies used here take into consideration the denial of assumptions of homoscedasticity and normality for the return distributions making them more realistic. Keywords: Volatility Models; Future Markets; Hedge Ratio; Hedge Effectiveness; Crude Oil Market JEL Classifications: C32; G15; Q40 1. Introduction All countries consume crude oil or oil products. Both producers and consumers are highly concerned about crude oil prices. The crude oil prices are being directly affected by...
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