Factors affecting the foreign exchange market: (10% marks)
1. You are required to collect data on historical foreign exchange rate for 5 selected currencies against the Bangladeshi Taka or any other currency for the period of 01/07/2019 -30/6/2021 (two year : daily data).

2. Plot the collected data on a graph showing the daily movements in FX rates (you can plot all data in one chart or use several charts, if the magnitude of the rates varies widely).

3. Identify the significant movement of FX rates during the last year of your data and explain possible reasons for those movements (you are required to cite all your sources).

4. Discuss how those foreign exchange movements have affected the economy in general (you can use any other information such as trade statistics to justify your explanations).

5. Estimate the correlation coefficient for each pair of currency. What can you learn from the estimated correlation coefficients? Explain, how you (assuming that you are a financial controller of a large MNC which having cash flows in all currencies) can use the estimated correlation coefficient to manage the foreign exchange rate exposure.

6. Take quarterly information on a particular currency (minimum 10 data points are required) and run a regression analysis to show the effect of macroeconomic variables on exchange rate.

Task 2
Forecasting foreign exchange rates (5% Marks)

1. Select two currencies on which you have already collected data and find corresponding national interest rates and inflation rates information from respective official sources (such as central banks or IMF).

2. Based on the spot exchange rates on January 1, 2021, estimate the expected exchange rate one month, three months, six months and one year using the power purchase parity and International Fischer Effect.

3. Compare your estimated spot exchange rates with the corresponding actuals rates. Are they different to the actuals? Explain why.

Answer rating: 100% (QA)

Factors Affecting the Foreign Exchange Market 1 Economic Growth Changes in economic growth rates have a significant impact on exchange rates When a countrys economy is growing faster than other countr... View the full answer