International Finance Project: Exchange Rate Analysis - FIN 330, CUD

This project analyzes the economic context and determinants of exchange rates, focusing on the GBP/USD currency pair. The student conducted a literature review, exploring factors influencing exchange rates and gathering secondary data, including GDP growth, balance of payments, interest rates, and reserves. The analysis involved calculating mean and median rates, creating illustrative graphs, and performing regression analysis to identify relationships between exchange rates and economic indicators. The project compares the US and UAE economies. Findings suggest that the US has a stronger performance than the UAE, particularly in reserves, interest rates, and inflation. The project concludes by summarizing the key findings and discussing the effectiveness of different economic parameters on exchange rates.

Economic Context and
Literature Review
The context of the paper lies in the usage of currency and exchange rates.
A high value of currency of an economy makes the import of the country
less expensive with respect to exports in the international markets. Thus, a
weaker currency is beneficial with respect to cheaper export of goods,
cheaper import of capital or technologies (Verdelhan, 2018). US dollar
has been one of the strongest due to its high standard of living and change
in effective market conditions.

Effectiveness of currency exchange rate
The currency value is actively related to the exchange rate that that can adequately
change the flow of gods and services, in and out of the economy.
Determinants of foreign exchange rate
Foreign exchange rate can be denoted by several factors such as international parity
conditions, asset market model, balance of payments model and the value of economic
indicators. US has a strong currency value that make imports cheaper and exports
expensive, yet US still manages to be one of the strongest economies.

Data Collection
The data that is collected is secondary data that has already been created by other
researchers or statisticians and can be effectively used to denote the effectiveness
of exchange rate in US . Nine year data has been taken for GDP, BOP, inflation,
interest rates and the reserves used in BOP with respect to change in rate of
exchange for the last month of every year to denote the strengths of the variables
and compare them with UAE values (Data.worldbank.org, 2020).

Analysis
The value of mean for reverses used in BP is more than the value of mean
(Investing.com, 2020) which signifies that the values are positively skewed
and more spread out. The value of median is greater than value of mean for
the change in value of Balance of Payments which shows that the data sets
are negative skewed (Cud.ac.ae, 2020). The growth rate is also negatively
skewed with respect to value of mean and median. This rates is positive for
inflation and interest rates showing a positive skewness. Although, US is a
better performer than UAE.

Conclusion
The differences in the data sets shows that reserves in the US are effective, while
the other parameters like GDP growth, balance of payments, are not effective as
the skewness is negative or flat. Only the values of reserves, interest rates and
inflation in US performs efficiently as the value is positively skewed. The
comparison shows that US has better performance than UAE.

Reference List
Cud.ac.ae. (2020). Research | Canadian University Dubai. Retrieved 4 April 2020,
from http://www.cud.ac.ae/research
Data.worldbank.org. (2020). GDP (current US$) - United States | Data. Retrieved
4 April 2020, from https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?
locations=US
Investing.com. (2020). U.S Stock Market | U.S Financial Markets. Retrieved 4
April 2020, from https://www.investing.com/markets/united-states
Verdelhan, A. (2018). The share of systematic variation in bilateral exchange
rates. The Journal of Finance, 73(1), 375-418.