Exchange Rates

Here we discuss about the exchange rates, which is useful for international finance assignment. Exchange Rate is the price of one country's currency in terms of another country's currency; the rate at which two currencies are traded for another. It measures the number of units of one currency which exchange, in the foreign exchange market for one unit of another. Exchange rates are important because, they establish the relationships between the different currencies or monetary units of the world. Exchange rates have been instrumental in developing international trade. These have considerably increased the tempo of international investments. They provide a direct link between domestic prices of commodities and productive factors and their prices in the rest of the world. With the prices at home and abroad at a given level, a low rate of exchange will hamper imports and stimulate exports, and thereby tend to bring about a balance of payment surplus. We have now a system of exchange rate management adopted by the RBI since 1994 and the FERA was replaced by FEMA in the year 2000.

Exchange rate forecasting and speculation are both closely related to the issues of the efficiency of foreign exchange markets. For example, if speculators can profit from forecasting exchange rates markets cannot be efficient. By efficiency we mean here the effective use of all relevant information by people buying and selling foreign exchange. After explaining the vehicles of foreign exchange speculation, the evidence on market efficiency is examined. Then it turns to the record on forecasting exchange-rate, including a comparison of chartist versus fundamental forecasting techniques. The record of chartists and fundamentalists is back to market efficiency, specifically to the ability to earn from speculation using simple trading rules. It should be mentioned at the outset that opinions differ widely on the topics discussed and by no means do all finance researchers agree that