FOREX

BY   KHADAR AHMED, HUMAIRA, NUR SYAHIRAH DAN TAN SIN YENG 

In recent years, our understanding of exchange rates and their impact on variables of policy concern has again been put under test for several reasons. While exchange rates have traditionally proven very difficult to model and, especially, to forecast, this task has recently been complicated by structural changes in financial markets. There is evidence that the relationship between exchange rates, inflation and real activity has changed in particular, the apparent smaller pass-through of exchange rate changes into prices has attracted much attention. In addition, currency crises and changes in exchange rate regimes in emerging markets have brought to the fore the implications of foreign exchange balance-sheet mismatches for the link between the exchange rate and real economic activity.

Exchange rate has a vital role in the country’s level of trade, which in turn is very critical in a free market economy. Consumer spending is specifically directly affected by money supply in the agribusiness sector, and vice versa. The main objective of this study is to determine the factors affecting movements in the exchange rate. Exchange rate is a very important factor affecting economic health. It has a vital role in country’s level of trade which in turn is very critical in a free market economy. Consumers spending particularly in the agri-business sector, it is directly affected by money supply and vice versa. Like any other commodity, the value of the currency rises and falls depending on the forces of demand and supply. Consumer spending is directly affected by money supply and vice versa.

Main focus of this paper is to identify important factors affecting valuation of the currency, economic formulas used to find currency valuation based on theory of economics and prediction of future values through different prediction models. The factors that we define is inflation, interest rate, balance of payment, government debt, term of trade, political stability and performance, recession and speculation. Everybody involved in currency trading are always interested in better prediction of future values of the currency. As it is highly uncertain, it is not possible to exactly predict the value of a currency but we can get nearer predicted value using various statistical models and other advanced prediction models.