Try it now!

USD
10

# The Influence of the Exchange Rate of US Dollars on the Efficiency of Mutual Funds in China - Part 5

2052

## CHAPTER 4 – RESULTS

Based on the above, this section of the paper will present the results of the statistical calculations. The mean of the range of date presents is represented in Table 3. For the calculation of the mean, the researcher used the Average function from Microsoft Excel. Using the same software, the standard deviation is presented in Table 4.

Would you like to buy a dissertation instead of writing it by yourself? Then, you should review some dissertation writing services, and our recommendation will be the Pro-Papers, where only the best writers do their work.

Table 3 – Mean

 No. Year Exchange rate Mutual Funds Value 1 1997 8,32 2 1998 8,3 10,80 3 1999 8,28 57,40 4 2000 8,28 84,60 5 2001 8,28 82,10 6 2002 8,28 120,50 7 2003 8,28 256,10 8 2004 8,28 324,60 9 2005 8,19 469,10 10 2006 7,97 856,50 11 2007 7,61 3275,00 12 2008 6,95 1940,00 13 2009 6,83 2680,00 14 2010 6,77 3684,00 Mean 7,901428571 1064,67

Table 4 – Standard deviation

 No. Year Exchange rate Mutual Funds Value 1 1997 8,32 2 1998 8,3 10,80 3 1999 8,28 57,40 4 2000 8,28 84,60 5 2001 8,28 82,10 6 2002 8,28 120,50 7 2003 8,28 256,10 8 2004 8,28 324,60 9 2005 8,19 469,10 10 2006 7,97 856,50 11 2007 7,61 3275,00 12 2008 6,95 1940,00 13 2009 6,83 2680,00 14 2010 6,77 3684,00 Mean 7,901428571 1064,67 Standard Deviation 0,579419132 1290,919238

As seen, the deviation of the exchange rate has a small value, meaning that the independent values are closer to the mean. However the deviation for the value of the mutual funds is very high. This translates into a very high spread of the independent values around the mean. Having two data values for the standard deviation, with such high differences may lead to the conclusion that the relation between the exchange rate and the value of the mutual funds is not a direct one. More conclusive proofs will be obtained from the Z score and the T test.

Z test

 z-Test: Two Sample for Means 8,3 10,8 Mean 7,833333 1152,492 Known Variance 1 1 Observations 12 12 Hypothesized Mean Difference 0 z -2803,83 P(Z<=z) one-tail 0 z Critical one-tail 1,644854 P(Z<=z) two-tail 0 z Critical two-tail 1,959964

The 1.95 value obtained for the Z score confirm the hypothesis. That means that differences between the means cannot be just the result of randomization. In order to able o formulate a statically correct assumption we will perform also the T test.

The T test

To calculate the size of the effect for a two sample paired t test we need the following information: the average of the dependent variable for each of the groups; the standard deviation of the dependent variable for each of the groups; the number of pairs formed (number of subjects in both group) (Cragg, 1971); the indicators of the statistical test (t test value, the number of degrees of freedom, materiality).

 t-Test: Paired Two Sample for Means 8,3 10,8 Mean 7,833333 1152,491667 Variance 0,391861 1860086,228 Observations 12 12 Pearson Correlation -0,88951 Hypothesized Mean Difference 0 df 11 t Stat -2,90618 P(T<=t) one-tail 0,007143 t Critical one-tail 1,795885 P(T<=t) two-tail 0,014286 t Critical two-tail 2,200985

The t value is also pointing to the idea that there is a direct correlation between the exchange rate and the value of the mutual funds. In this condition, the hypothesis tested is statistically valid. However, statistically valid, does not always mean scientifically true. The best example is related to the comparison between the years when the exchange rate was stable and the years when the exchange rate started to drop. The values and the performances of the Chinese mutual funds always kept rising. Of course, the influence of the economic crisis was felt also by the Chinese mutual funds, but the difference between the decrees of the exchange rate and the decrees of the performances of the mutual funds is not having a direct relations.

One of the main points that need to be made here is the fact that China’s economy is based on exports. Exports, that in a large percentage go to the US. On the other hand, China’s imports from the US are having a low value, so their economy is less influenced by the exchange rate of dollar – yuan. In addition, China’s opening towards the U.S. in term of financial investments has been realized just recently. This represents another factor that consists a barrier in the interdependencies of the two countries.

## CHAPTER 5 – CONCLUSIONS

Considering the date obtained from both the standard deviation calculations and the Z and T test, but also the financial analysis, the present study can argue two distinct arguments. Statistically speaking, the relation between the exchange rate and the performances of the mutual funds measured in the value of the assets is a direct one. Almost all test performed point into this direction. However, the economic realities are different. For years, the exchange rate of the dollar versus the yuan was stable. Even more stable than the financial market specialists have wanted. Also in this period of time, the asset value of the mutual funds in China has grown constantly. In addition, it needs to be noted that China’s opening towards foreign investors has occurred just recently and China, for the last 10 years had no open-end mutual fund.

Although the financial analysis is nowadays based on statistical interpretations, to take the statistical data for grated is just a sign of a limited economical view. In addition, the implications and the correlations of today’s economic life are so great, that a simple statistical analysis is no longer sufficient.

Currently China is the world’s first emerging super power in both economic and political terms. Its success is related to both a protectionist internal policy and to its extra-large exports. China’s economy is not based on a high quality of goods, but has a huge cost related competitive advantage. An advantage that was also translated to its mutual funds. Considering small steps, and taking in consideration all the available risks, China has grown each year its mutual funds industry (although it represents just a tenth from the value of the U.S. industry), registering the highest growth in the world. The present study is another proof that China’s economy is independent, and that the relation with the U.S. dollar is not having a direct influence on its economy. Of course, decrees of the U.S. dollar will have repercussions on China, but these repercussions are smaller in absolute terms than the fall of the dollar.

### 5.1 Further Studies

Considering the basis established by the present study and the conclusions emitted, the proponent of this dissertation expects that the following studies will incorporate even more data, and that researchers will try to analyze this topic based on the future developments of the U.S. – China relations. The researcher of the current study considers that this is an ongoing work that needs to be updated, based on future developments. The interest of the U.S. investors in the China market will probably continue to rise, so the interdependences between the two states will become tighter.

## References

Ali, S. and Guo, W. (2005) Determinants of FDI in China. Journal of Global Business and Technology vol. 1, no. 2, pp. 20 – 33.

Barboza, D (2011) China’s treasury holdings make U.S. woes its own. The New York Times.

Barth, Tatom and Yago, J.R., Tatom, J.A. and Yago, G (2009) China’s emerging financial markets: challenges and opportunities. Springer: London.

Bawa, Vijay S. (1975), “Optimal rule for ordering uncertain prospects.” Journal of Financial Economics,2, pp.95-121.

Bhattasali, D., Li, S., Martin, W., (2004). China and the WTO: Accession, policy reform, and poverty reduction strategies. World Bank Publications, Washington D.C.

Bradsher, K. (2011) Chinese fault Beijing over foreign reserves. New York Times. Available at http://www.nytimes.com/2011/08/09/business/global/chinese-fault-beijings-moves-on-foreign-reserves.html.

Brennan M, (1979), The pricing of contingent claims in discrete time models Journal of Finance, (60), 2

Campbell R. H., (1995 ), Quantitative Performance Evaluation, Duke Univerisity

Campbell H. and Ravi B., (1995), 'Performance evaluation in the presence of dynamic trading Strategies.' , Duke Univerity, p. 32-35

Cragg, J.G., (1971). Some statistical models for limited dependent variables with application to the demand for durable goods. Econometrica 39, 829-844.

China Daily, China to relax laws on mutual funds, 11 January 2008. < http://www.chinadaily.com.cn/bizchina/2008-01/11/content_6388101.htm>

Dowd, K. (1999), “A value at risk approach to risk-return analysis.” The Journal of Portfolio Management, pp. 60-67.

Ferris, S.P., Chance, D.M., 1987. The effect of 12B-1 plans on mutual fund expense ratios: A note. Journal of Finance 42, 1077-82.

Fisher, K.L. and Statman, M. (1997) “Investment advice from mutual fund companies”. The Journal of Portfolio Management. Fall 1997, pp. 9 – 25.

Fudenberg, D., Tirole, J., 1991. Game theory. MIT Press. Cambridge, Massachusetts.

Fiserburn, P. C. (1977), “Mean-risk analysis with risk associated with below-target returns.” The American Economic Review, 67, pp.116-126.

Grootveld,H. & Hallerbach, W. (1999), “Variance vs. downside risk: Is there really that much difference? ” European Journal of Operational Research, 114, pp. 304-309

Geranio, M., Zanotti, G., (2005), “Can mutual funds characteristics explain fees?” Journal of Multinational Financial Management vol. 15, pp. 354-376.

Greene, W.H., (1997) Econometric analysis, 3rd edition, Upper Saddle River, N.J.: Prentice Hall.

Hosmer, D.W. and Lemeshow, S., (1986) “A review of goodness of fit statistics for use in the development of logistic regression models”. American Journal of Epidemiology vol15, pp. 92-106.

House, L., Hanson, T., and Sureshwaran, S., (2003) “U.S. consumers: Examining the decision to consume oysters and the decision of how frequently to consume oysters”. Journal of Shellfish Research vol. 22, pp. 51-59.

Hamilton, S., Jo, H. and Statman, M. (1993) “Socially responsible mutual funds”. Financial Analysts Journal. November – Devember, pp. 62 – 66.

Huang, T.J. (2004) “Spillovers from Taiwan, Hong Kong and Macau Investment and from

Other Foreign Investment in Chinese Industries”. Contemporary Economic Policy. Vol. 22, no.1, pp. 13 – 25.

Jorion, P., (1997), “Value at risk: the new benchmark for controlling market risk”, McGraw Hill..

Kahn, A.E., (2002) “The adequacy of prospective returns on generation investments under price control mechanisms”. Electricity Journal 15, 37-46.

Knittel, C.R. Stango, V., (2003) “Price ceiling as focal points for tacit collusion: Evidence from the credit card market” American Economic Review vol, 93, pp. 1703-1729.

LaPlante, M., (2001) “Influences and trends in mutual fund expense ratios”. Journal of Financial Research vol. 24, pp. 45-63.

Latzko, D.A., (1999) “ Economies of scale in mutual fund administration”. Journal of Financial Research vol. 22, pp. 331-339.

Latzko, D.A., (2003) Mutual fund expenses: An econometric investigation. Working Paper, Pennsylvania State University.

Leland H. (1993), “Beyond mean variance: Performance measurement in a nonsymetric world”, Financial Analysts Journal, p. 41-44

Levi, M.D. (2005) International finance. Routledge: New York.

Levitt John B. (2002), Skewness, Kurtosis, and Omega: Risk Mitigation Benefits Of Ultra-Diversified Hedge Fund Portfolios

McKinnon, R. and Schnabl, G. (2004) “The East Asian dollar standard, fear of floating and original sin”. Review of Development Economics. Vol. 8, no. 3, pp. 331 – 360.

McKinnon, R. and Schnabl, G. (2011) China and its dollar exchange rate: a worldwide stabilizing influence? Stanford University: Stanford.

Mercer O. W., (2003), Selecting a risk adjusted shareholder performance measure Judge Institute Seminar

Morrison, W.M. and Labonte, M. (2011) China’s holdings of U.S securities: implications for the U.S. economy. Congressional Research Service.

Nominally cheap or really dear? (2010) The Economist. Available at http://www.economist.com/node/17420096.

Pagano, R.R. (2009), Understanding statistics in the behavioral sciences. Wadsworth: Belmont.

Pedersen C. S., Satchell S., (2002), On the Foundation of performance Measures under Asmetric Returns.

Rom, B. M. & Ferguson, K. W. (1994), “Post-Modern Portfolio Theory Comes of Age.” The Journal of Investing, Fall, pp.11-17.

Roy, A. D. (1952), “Safety First and the Holding of Assets.” Econometrics 20, pp. 431-449.

Rubinstein M. (1973), “The Fundamental theorem of parameter-preference security valuation” Journal of Financial and Quantitative Analysis, (40), 1

Sharpe. W, (1964), “Capital Asset Prices: A Theory of Market Equilibrium.” Journal of Finance, pp. 425-442

Shen W. & Huang, X. (2001), “An Empirical Research to Funds Performance.” Economics Research Journal，2001.(9).

Siddaiah, T. (2010) International financial management. Dorling Kindersley: New Delhi.

Sortino Frank A. (2002), From alpha to omega - Managing downside risk in financial markets, Butterworth Heinemann.

Sutter, R.G. (2010) Chinese foreign relations: power and policy since the cold war. Rowman & Littlefield Publishers, Inc.: Plymouth.

Are you not competent enough at writing a thesis proposal? That's all right, you can simply buy thesis proposal papers at Pro-Papers writing service, and continue your study.

T-test (n.d.) Investopedia. Available at http://www.investopedia.com/terms/t/t-test.asp#axzz1eFCx4PfR.

Treynor, J.L.(1965)., “How to rate management investment funds.” Harvard Business Review, Jan/Feb 1965, Vol, pp.63-75.

Urdan, T.C. (2005) Statistics in plain English. Lawrence Erlbraum Associates, Inc.: New Jersey.

Xu Y. & Zhang Y. (2004), “The effect of time selection to mutual funds performance” Securities Market Herald, 2004.(10).

Wang Zhicheng (2000), “A Comparison of Funds Performance Measures.” Journal of Finance and Economics, 2000.(3).

Wessels, W.J. (2000) Economics, 3rd ed., Barron’s Edicational Series, Inc.: New York.

Wei, Y.A. and Balasubramanyam, V.N. (2004) Foreign Direct Investment. Six Country Case

Studies. Masachusetts: Edward Elgar Publishing, Inc.

Wiggin, A. and Butler, C. (2008) The demise of the dollar and why it’s even better for your investments. John Wiley & Sons, Inc., New Jersey.

Yuan, L. (2010) Further development of remninbi’s exchange rate regime after joining WTO. Grin Verlag: Nordersdtedt.