Quantitative Research on AUD/BHT Exchange Rate

INTERNATIONAL FINANCIAL MANAGEMENT
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INTRODUCTION
The exchange rate of currency tends to depend on a host of factors and several theories and
empirical studies over the years have validated the same. In the Australian context, exchange
rate has immense relevance considering the importance of trade for the Australian economy.
It is noteworthy that a depreciating AUD rends to assist the Australian exporters while an
appreciation AUD tends to adversely impact the Australian importers (Koutsoyiannis, 2013).
For the purposes of this project, Thai Baht has been chosen as the appropriate foreign
currency. The reason for choosing this currency is the growing importance of trade between
Thailand and Australia especially after a FTA (Free Trade Agreement) was signed between
the two countries in 2009. Currently, in terms of bilateral trade Thailand is sixth largest
trading partner and hence is significant for the Australian economy (AusTrade, nd).
Additionally unlike the developed countries, the country has lad various economic and
political issues within the last two decades which makes this a suitable choice for the given
project.
Amongst the various factors on which currency exchange rate tends to differ is the
differential with regards to interest rates, inflation and GDP growth. This is because these
factors tend to impact the fund flow and therefore impact the exchange rate. For instance, an
increase in the interest rate I one country relative to the other, tends to increase funds flow in
the country with the higher interest rate and thus potentially lead to appreciation of currency.
In wake of this, the objective is to conduct a quantitative research on AUD/BHT exchange
rate taking into consideration the data for interest rate (reference), inflation and GDP growth
rate for a period of 20 years on a quarterly basis. Further, a regression model has been
constructed using the above data so as to determine which of the variables are significant and
whether the respective sign of the coefficients are in accordance with the accepted theoretical
framework in this regards.
DATA COLLECTION AND DATA TRANSFORMATION
For the given project, the following data has been collected.
 Quarterly Exchange Rate (1998-2018) – This has been obtained from Datastream and
is expressed as AUD/BHT where AUD represents the Australian Dollar and BHT
represents Thai Baht.
 Quarterly Inflation Data for Australia (1998-2018) – This has been obtained from
Australian Bureau of Statistics (ABS) through their catalogue dealing with inflation
and capture the CPI or Consumer Price Index.
 Quarterly Inflation Data for Thailand (1998-2018) – This has been obtained from
Bank of Thailand website and captures the CPI or Consumer Price Index.
 Quarterly Interest Rate for Australia (1998-2018) - This data is essentially the
historical cash rate which has been obtained from the RBA or Reserve Bank of
Australia website.

 Quarterly Interest Rate for Thailand (1998-2018) - This has been obtained from Bank
of Thailand website and captures the bank rate prevalent.
 Quarterly GDP growth rate for Australia (1998-2018) - This has been obtained from
Australian Bureau of Statistics (ABS) through their catalogue dealing with quarterly
GDP growth.
 Quarterly GDP growth rate for Thailand (1998-2018) - This has been obtained from
Bank of Thailand website and quarterly GDP growth.
In order to utilise the above data for the regression, transformation in the data has been done.
Firstly, the quarterly change in exchange rate has been computed as essentially this would
serve as the dependent variable for the regression analysis. Further, the average annual
change in the currency has come out to be -0.15% which highlights that during the given 20
year period, AUD on an average has depreciated against the BHT. Besides, the more risky
currency is Thai Baht considering the various crisis such as 1998 currency crisis besides the
global financial crisis coupled with political stability that has been witnessed in the kingdom
(World Bank, 2018). The political and economic risk associated with Australia are relatively
less which contributes to a more stable value for AUD.Additionally, for the macroeconomic
variables, the difference between the respective rate for Australia and Thailand has been
computed which tend to serve as the relevant independent variables for further regression
analysis.
EMPIRICAL ANALYSIS
A regression analysis has been done using the above mentioned variables. The output in this
regards is indicated below.
The requisite regression equation from the above model comes out as follows.