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Interest Exchange Rate

In: Business and Management

Submitted By wuyuxinmu
Words 3687
Pages 15
Executive Summary
It is important for companies and investors to have a firm understanding on the forces driving exchange rate changes as these would affect investment and financing opportunities.
This report analyzes the movements of three currencies, Australian Dollar (AUD), Icelandic Krona (ISK), and Indian Rupee (INR) against US dollar, and suggests events that may cause the violations of three chosen currencies. Analysis shows that factors including but not limited to inflation rates, interest rate differences, foreign investment as well as demand and supply of domestic currency are highly correlated with exchange rate changes in chosen currencies.
Based on the analysis, Purchasing Power Parity is used to forecast spot exchange rates of those chosen currencies in one-year and three-year time. Rationales and limitations of PPP are also given to analyze the forecasts of three currencies.

Table of Content

1.0 Introduction 1
2.0 Question 1 1
2.1 AUD/USD 1
3.0 Question 2 4
3.1 ISK/USD 4
3.2 INR/USD 6
3.3 Common Events that May Have Influenced the Exchange Rate Changes 8
4.0 Question 3 9
4.1 Forecast of Currencies 9
4.2 Forecast of AUD 10
4.3 Forecast of ISK 11
4.3 Forecast of INR 11
4.3 Comments on the Forecasts 12
References 13

Figures & Tables
Figure 1 Exchange Rate of AUD/USD Over Five Years 1
Figure 2 Percentage Change of AUD/USD Exchange Rate 2
Figure 3 Trends of AUD/USD and Gold Price 2
Figure 4 AUD/USD Exchange Rate and Interest Rate over Five Years 3
Figure 5 Exchange Rate (ISK/USD) 4
Figure 6 Percentage Changes (ISK/USD) 4
Figure 7 INR/USD Exchange Rate from January 2006 - December 2010 6
Figure 8 Percentage Change of INR/USD Exchange Rate 7

Table 1 Summary Statistics (AUD/USD) 3
Table 2 Summary Statistics (ISK/USD) 5
Table 3 Summary Statistics (INR/USD) 8
Table 4 Forecast Inflation Rate: 2011-2013 (Economy

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