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International Finance
Project 1 – Exchange rate forecasting
Part 1. Forecast the exchange rate for the following currencies relative to the U.S. dollar for one month and for two months from February 20, 2018. In other words, forecast what the exchange rate will be for each currency on March 20, and April 20, 2018. The currencies are:
Euro, €
British pound, £
Canadian dollar, C$
Brazilian real, R$
Japanese yen, ¥
Kenyan shilling, KSh
Values for these currencies on February 21 are: (to be completed next week)
Euro, € EUR/USD
British pound, £ GBP/USD
Canadian dollar, C$ USD/CAD
Japanese yen, ¥ USD/JPY
Brazilian real, R$ USD/BRL
Kenyan shilling, KSh USD/KES
Use the following forecasting methods to estimate the two future spot exchange rate in one month and in two months for each currency as indicated:
random walk – use for all six currencies
moving average – use for three currencies
auto-regression – use for the three currencies that do not use moving average
purchasing power parity – use for all currencies
international fisher effect – use for two currencies for the 1-month forecast only
unbiased forward rate/forward expectation parity – use for two currencies that do not use the international fisher effect for the 1-month forecast only
structural model – use for the two currencies that do not use the international fisher effect of the unbiased forward rate for the 1-month forecast only
weighted average – use for all six currencies
expert forecast – use for one or more currencies of your choice
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FIN 4180 International Finance Project 1 – Exchange rate forecasting Due: February 28, 2018 Part 1. Forecast the exchange rate for the following currencies relative to the U.S. dollar for one month and for two months from February 20, 2018. In other words, forecast what the exchange rate will be for each currency on March 20, and April 20, 2018. The currencies are: Euro, € British pound, £ Canadian dollar, C$ Brazilian real, R$ Japanese yen, ¥ Kenyan shilling, KSh Values for these currencies on February 21 are: (to be completed next week) Euro, €EUR/USD British pound, £GBP/USD Canadian dollar, C$USD/CAD Japanese yen, ¥USD/JPY Brazilian real, R$USD/BRL Kenyan shilling, KShUSD/KES Use the following forecasting methods to estimate the two future spot exchange rate in one month and in two months for each currency as indicated: random walk – use for all six currencies moving average – use for three currencies auto-regression – use for the three currencies that do not use moving average purchasing power parity – use for all currencies international fisher effect – use for two currencies for the 1-month forecast only unbiased forward rate/forward expectation parity – use for two currencies that do not use the international fisher effect for the 1-month forecast only structural model – use for the two currencies that do not use the international fisher effect of the unbiased forward rate for the 1-month forecast only weighted average – use for all six currencies expert forecast – use for one or more currencies of your choice Part 2. For each currency and each horizon, using the weighted average forecasts and the February 20 spot exchange rate, recommend whether an investor should buy or sell the foreign currency today in order to profit from the forecast change in the exchange rate. (That is, if according to the weighted average forecast, the currency is expected to strengthen relative to the dollar, recommend that the investor purchase the…

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spring-2018-p….docx