Volume : I, Issue : VI, March - 2012

Exchange Rate Forecasting

Dr. T. Koti Reddy

Abstract :

The forecasting of US$ vs. CANADIAN$ is done with the help of Technical and Fundamental Analysis. Under Technical Analysis the study of past trends are done and based on which the upcoming trends are forecasted. The momentum study is also done for Canadian dollar. Under fundamental analysis the support for technical is provided with the help of understated variables. The variables taken were the basic variables that affect the exchange rate solely. The variables which will have an effect on the exchange rate are decided as GDP, exports, imports, inflation, foreign exchange reserves, current account balance and trade balance. These variables are used to forecast the exchange rate. The data is collected from 2001 to 2009 for the above variables to forecast the exchange rate for 2010. Since multi–colinearity was found between the variable it was decided to do factor analysis before running regression. The results obtained were totally in line with the forecast of Bank of Canada making the study done a success. The final equation obtained which is used for forecasting after the regression analysis is: Y = 0.804 + factor1 (0.32) – factor2 (0.110) Where, Factor 1: Inflation, Current Account Balance, Exports. Factor 2: Imports, Forex Reserves, GDP, Trade Balance.

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Article: Download PDF   DOI : 10.36106/ijar  

Cite This Article:

Dr. T. Koti Reddy Exchange Rate Forecasting Indian Journal of Applied Research, Vol.I, Issue.VI March 2012

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