USD/CHF Currency Pair Analysis

Running head: INTRODUCTION TO MULTINATIONAL FINANCE
Finance
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(USD/CHF Currency Pair Analysis).

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Table of Contents
Introduction......................................................................................................................................2
Discussion and Analysis..................................................................................................................2
Movement in USD/CHF Exchange Rate.....................................................................................2
Purchasing Power Parity..............................................................................................................2
Prediction of Changes in Currency Exchange Rates...................................................................3
Application of Purchasing Power Parity......................................................................................4
USD/CHF Movement..................................................................................................................4
Forecasting of USD/CHF............................................................................................................7
Conclusion and Recommendations..................................................................................................7
References........................................................................................................................................9

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Introduction
A Bilateral Exchange Rate is a common way for quoting a currency which well involves
two common pair of currencies. The Bilateral Exchange Rates are typically quoted in response to
the US Dollar that is USD $ as the currency is the most traded currency on a global scale. In
majority of the time period the central bank or the federal bank would be in one side of the
relationship and they would be usually displaying numbers using the three letter symbols. The
currency base which has been for example we have well considered the changes in the
USD/CHF for a trend period of one year and relevant changes from 1st January 2019 to 31st
December 2019 would be considered for analysis purpose (Yahoo Finance 2020).
Discussion and Analysis
Movement in USD/CHF Exchange Rate
The USD/CHF Exchange rate in the trend period from 1st January 2019 to 31st December
2019 had shown a fall in the value of USD Currency and in turn rise in the value of the CHF
Currency. This get to clearly show that the CHF Currency in turn has appreciated and in relative
terms the USD Currency has degraded (Theories of Exchange Rate Determination | International
Economics 2018). The currency exchange rate for the USD/CHF Currency was around 0.99 on
1st January 2019 which ended up to around 0.97 on 31st December 2019. The change in the
currency will be well highlighted with the help of the Purchasing Power Parity whereby changes
in the inflation rate has been well considered for analyzing the movement in the USD/CHF
Currency Exchange Rate (USD to CHF Forecast: up to 0.966! Dollar to Franc Analysis,
Converter, Live Exchange Rates and Prediction, Long-Term & Short-Term Forex (FX)
Prognosis 2020).
Purchasing Power Parity
The purchasing power parity is the most common and popular technique that is widely
used for the purpose of valuation of exchange rate in terms of changing price that has been well
referred with the help of inflation data point for both the economies. The PPP is a key
macroeconomic term which is well used as a metric for comparing the economic productivity

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and the standards of living between countries (Gilboa and Mitchell 2020). The PPP as a key
economic theory well compares different set of currencies with the help of common basket value
in both the economy. When considered through this concept both the currency are or should be
in an state of equilibrium that is well known as currency value at par, when the given set of
basket of goods is well priced at the same value in both the country, when considered into their
exchange rates. The PPP is a key popular metric that is well used by macro-economic analysts
for the purpose of well comparing the various currencies with the help of a basket of goods
approach (McKinnon and Ohno 2016). The concept of PPP well allows the economist for
comparing the productivity levels and standard of living between the two set of countries that are
considered (Arize 2020).
In order to well calculate the relative version of the PPP we can still do the same with the help of
the following formula:
 S: P1/P2
 Whereby;
 S: The exchange rate of currency 1 with respect to currency 2
 P1: Cost of Good of X in Price Currency 1
 P2: Cost of Good of X in Price Currency 2
It is important to note that in every three years of time period the world releases a set of report
that well compares the productivity and growth of the various countries in relation to PPP and
US Dollar. In relation both the International Monetary Fund (IMF) and the Organizations for
Economic Cooperation and Development uses the weights based on the metric of PPP for well
making various predictions and recommendations to the economic policies. Now these
recommended economic policies can have an immediate or short term impact on the financial
markets. Forex traders in general uses the PPP for well identifying currencies which are
potentially undervalued or overvalued in terms of currency.
Prediction of Changes in Currency Exchange Rates
The currency exchange rate forecasted for the exchange pair can be well linked with a set
of theories whereby we can well relate the movement of the currency with the movement or
changes that have been observed in the inflation data for the US Economy and Switzerland
Economy (Chinn 2019). The historical changes in the exchange rate would be well observed and