Application of Artificial Neural Network (Ann) in Modeling Foreign Currency Exchange Rates

2018 ◽  
Vol 6 (10) ◽  
Author(s):  
George Kiplagat Kipruto ◽  
Dr. Joseph Kyalo Mung’atu ◽  
Prof. George Otieno Orwa ◽  
Nancy Wairimu Gathimba
Keyword(s):  
Neural Network ◽  
Neural Networks ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
Foreign Currency ◽  
Performance Metrics ◽  
Exchange Rate Volatility ◽  
Foreign Currencies ◽  
Exchange Rates Volatility

Investors, Policy makers, Governments etc. are all consumers of exchange rates data and thus exchange rate volatility is of great interest to them. Modeling foreign exchange (FOREX) rates is one of the most challenging research areas in modern time series prediction. Neural Network (NNs) are an alternative powerful data modeling  tool that has ability to capture and represent complex input/output relationships. This study describes application of neural networks in modeling of the Kenyan currency (KES) exchange rates volatility against four foreign currencies namely; USA dollar (USD), European currency (EUR), Great Britain Pound (GBP) and Japanese Yen (JPY) foreign currencies. The general objective of the proposed study is to model the Kenyan exchange rate volatility and confirm applicability of neural network model in the forecasting of foreign exchange rates volatility. In our case the Multilayer Perceptron (MLP) neural networks with back-propagation learning algorithm will be employed. The specific objectives of the study is to build the neural network for the Kenyan exchange rate volatility and examine the properties of the network, finally to forecast the volatility against four other major currencies. The proposed study will use secondary data of the mean daily exchange rates between the major currencies quoted against the Kenyan shilling. The data will be acquired from the central bank of Kenya's (CBK) website collected for ten years of trading period between the years 2005 to 2017. The data will be analyzed using both descriptive and inferential statistics, with the aid of R's neuralnet package. A number of performance metrics will be employed to evaluate the model. Conclusion and recommendations will be made at the end of the study.

A hybrid approach to exchange rates

2016 ◽  
Vol 33 (1) ◽  
pp. 50-68 ◽  
Author(s):  
Guangfeng Zhang ◽  
Ian Marsh ◽  
Ronald MacDonald
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Real Time ◽  
Private Information ◽  
Hybrid Approach ◽  
Exchange Rate Volatility ◽  
Content Type ◽  
Macro News ◽  
The Impact ◽  
Exchange Rates Volatility

Purpose – This study aims to investigate the impact of information, both public macro news and private information, on exchange rate volatility in an integrated framework. Design/methodology/approach – The authors apply real-time data of macro announcements and high-frequency trading data (German Deutsche Mark to US dollar, DEM/USD, from 1 May to 31August 1996) to GARCH models and examine various model specifications. Findings – Data analysis demonstrates real-time macro news and market makers’ private information both have a significant impact on exchange rate volatility, but there is no interaction between macro and micro information in the information transmission process. Originality/value – This study contributes to empirical hybrid studies of examining exchange rates volatility, which is in line with literature that combine both macro and micro fundamentals in examining exchange rates variation. Particularly, a key element of this study is to use a microstructure fundamental variable, namely, order flow, to capture private information in an exchange rate volatility study.

scholarly journals Real Time Data

2018 ◽  
Vol 4 (3) ◽  
pp. 147
Author(s):  
Arlind Rama ◽  
Ilir Vika
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Foreign Currency ◽  
Developing Economies ◽  
Exchange Rate Volatility ◽  
Economic News ◽  
Economic Fundamentals ◽  
Us Dollar ◽  
The Impact ◽  
Exchange Rates Volatility

Interpretation of exchange rate volatility in the light of economic fundamentals comprises an issue of interest for policymakers when it comes to implementing the monetary policy. Understanding the impact of economic news on the Lek exchange rate against two main hard currencies, Euro and US dollar, would serve to better orient the monetary policy and forex market agents positioning in time. Exchange rates volatility on economic news in short-term is an often discussed phenomenon in the economic literature, but through this material we tend to measure these effects in the Albanian foreign currency market and contribute in the literature interpreting foreign currency markets volatility in developing economies. Very often, domestic foreign exchange movements are attributed to developments in large international markets. In the case of Albanian Lek volatility analysis, we tend to find answers regarding the importance of economic news coming from the two main economies in focus, Eurozone and the US. Furthermore, we investigate the importance of the economic information flow in Albania in determining the Lek exchange rate against Euro and US dollar. For a period in focus from January 2007 until July 2012, we try to understand if the exchange rate volatility has been a result of economic fundamentals or financial markets stress related economic news.

Prediction and Accuracy of Rupiah Exchange Rates Against US Dollar Uses Radial Basis Function Neural Network

2019 ◽  
Vol 7 (4) ◽  
pp. 309
Author(s):  
I Dewa Gede Budiastawa ◽  
I Wayan Santiyasa
Keyword(s):  
Neural Network ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Error Rate ◽  
Foreign Currency ◽  
Domestic Currency ◽  
Training Process ◽  
Currency Exchange ◽  
Exchange Rate Fluctuations ◽  
Radial Basis

Currency exchange rates, or often referred to as the exchange rate, are the price of one unit of a foreign currency in a domestic currency or can also be called the price of a domestic currency against a foreign currency. The value of a country's currency is strongly influenced by the flow of capital between countries. The high exchange rate of other countries' currencies against a country will result in the deterioration of the economic situation of a country. The weakening of the currency exchange rate will cause Indonesia's foreign debt to increase and the balance sheets of companies and banks will decline. The phenomenon of volatile rupiah exchange rate fluctuations often occurs in Indonesia which will cause economic conditions, especially trade will be disrupted because trade is valued in US dollars (USD). Therefore, serious handling is needed in the face of erratic exchange rate fluctuations because it will affect the economic performance of a country so that a decision can be made after knowing the exchange rate of the next period. In helping to make decisions, the authors make a forecasting model of the rupiah exchange rate against USD using the radial basis function of the neural network. In this research used factors that influence the fluctuation of the rupiah exchange rate against IDR, namely the value of exports, imports, GDP, BI interest rates, inflation rates, and the money supply. In this research optimization of learning rate and hidden neuron parameters was done to get the lowest error value or error rate. The results of the research using the radial basis of neural network functions produce accuracy values ranging from 89 - 95% in the training process while the testing process ranges from 67 - 98% and with an error rate of 4 - 11% in the training process while 2 - 32% for testing process. Key Words : Exchange rates, forecasting, RBF, training, testing, accuracy

Banking on foreign currency accounts: evidence from Malaysia

2018 ◽  
Vol 36 (7) ◽  
pp. 1235-1247
Author(s):  
Hway Boon Ong
Keyword(s):  
Exchange Rate ◽  
Least Squares ◽  
Foreign Exchange ◽  
Portfolio Choice ◽  
Commercial Banks ◽  
Foreign Currency ◽  
Exchange Rate Volatility ◽  
Ordinary Least Squares ◽  
Expected Return ◽  
Content Type

Purpose The purpose of this paper is to study how the foreign currency account (FCA) is affected by the domestic fixed deposit (FD) rate, the FCA rate, the expected exchange rate and exchange rate risk. Design/methodology/approach This paper analyses the causal relationship between the domestic FD rate, the FCA rate, the expected exchange rate on a set of foreign currency deposits and exchange rate volatility, based on the theory of portfolio choice. Based on the theory, the panel vector autoregressive regression of fully modified ordinary least squares and dynamic ordinary least squares are modelled. Findings There is no cointegrating relationship for the three-month FCA deposits, the domestic FD rate, the FCA rate and the expected exchange rate. Only the six-month FCA business deposits are affected by the domestic FD rate, the FCA rate and the expected exchange rate. The FCA depositors are not affected by exchange rate volatility. Research limitations/implications This study is conducted based on the FCA rate quoted by the leading commercial banks in Malaysia, Maybank. Thus, the FCA rate is used as a proxy for the FCA rate of commercial banks in Malaysia. Originality/value Individual depositors have to save in more than the three-month FCA to realise their expected return. For individuals, the FCA deposit is not an alternative choice to domestic FD. Exporters may use the FCA deposit to finance their foreign purchases to save the cost of foreign exchange conversion but it is still not an appropriate hedging tool against foreign exchange fluctuations as compared to the existing forward foreign exchange facility.

Herdenverhalten von Wechselkursprognostikern? / Herd Behavior of Exchange Rate Forecasters?

2010 ◽  
Vol 230 (4) ◽  
Author(s):  
Christian Pierdzioch ◽  
Georg Stadtmann
Keyword(s):  
Exchange Rate ◽  
Standard Model ◽  
Exchange Rates ◽  
Survey Data ◽  
Foreign Exchange ◽  
Exchange Rate Volatility ◽  
Foreign Exchange Rate ◽  
Herd Behavior ◽  
Macroeconomic Fundamentals

SummaryExchange rates have been found to be more volatile than underlying macroeconomic fundamentals. Researchers have argued that the empirically observed high exchange-rate volatility may result from herd behavior of foreign-exchange traders and forecasters. We sketch a standard model that illustrates that herd behavior of foreign-exchange-rate forecasters may be rational. We then use survey data to test for herd behavior of forecasters. Our results suggest that exchange-rate-forecasters anti-herd and “lean against the wind” when forecasting exchange rates.

scholarly journals The foreign exchange market in Barcelona at the beginning of the fifteenth century

2021 ◽  
pp. 1-28
Author(s):  
Angela Orlandi ◽  
Giacomo Toscano
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Fifteenth Century ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Exchange Rate Volatility ◽  
Exchange Market ◽  
Macroeconomic Factors ◽  
Local Currency ◽  
European Markets

Based on the reconstruction of the monetary flows of a merchant-banking company operating in Barcelona at the beginning of the fifteenth century, this study aims to understand the reasons behind exchange-rate variations in the local currency with respect to the principal European markets, as well as the modalities and predictability of such oscillations. By using real rather than ‘hearsay’ rates, we present new assessments of the seasonal character of exchange rates and their sensitivity to conditions of currency abundance or shortage. In addition, econometric analysis shows that exchange-rate volatility was quite modest and dependent on geographic and macroeconomic factors, such as the system of commercial flows.

scholarly journals Interest Rate Policy and Exchange Rates Volatility Lessons from Indonesia

2020 ◽  
Vol 9 (2) ◽  
pp. 19-42
Author(s):  
Haryo Kuncoro
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Exchange Rates ◽  
Inflation Targeting ◽  
Exchange Rate Regime ◽  
Exchange Rate Volatility ◽  
Flexible Exchange Rate ◽  
Interest Rate Policy ◽  
Rate Policy ◽  
Exchange Rates Volatility

AbstractWhether or not inflation targeting adoption leads to increased volatility of exchange rates is controversial. The volatility increases with inflation targeting as a result of the flexible exchange rate regime. Others argue that inflation targeting delivers the best outcomes in terms of lower exchange rate volatility. The purpose of this paper is to investigate whether interest rate policy in inflation targeting frameworks – that is subjected to control inflation rate – may reduce the volatility of exchange rates. To test the hypothesis, we use monthly data in the case of Indonesia over the period 2005(7)-2016(7). Several control variables are introduced in the regressions. The result of the autoregressive distributed lag model proves the interest rate policy and foreign exchange intervention fail to reduce the exchange rates volatility. It seems inflation targeting in Indonesia puts too much emphasis on stabilizing the domestic currency thus leading to benign neglect of stabilizing its external value, ultimately resulting in increased exchange rate volatility. These findings suggest that central bank credibility plays an important role in conducting inflation targeting policy which operates primarily through a signalling effect.

scholarly journals THE RESPONSE OF ZIMBABWE TOBACCO EXPORTS TO REAL EXCHANGE RATES VOLATILITY

2020 ◽  
Vol 56 (2) ◽  
Author(s):  
Knowledge Mutodi ◽  
Tinashe Chuchu ◽  
Eugine Tafadzwa Maziriri
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Real Exchange Rate ◽  
Real Exchange Rates ◽  
Exchange Rate Volatility ◽  
Response Model ◽  
The Real ◽  
Long Run ◽  
Exchange Rates Volatility ◽  
Real Exchange Rate Volatility

The focus of this study was on investigating the response of tobacco exports to real exchange rates and real exchange rate volatility and other factors in Zimbabwe using secondary data spanning from 1980 to 2019. Bilateral nominal exchange rates and time-variant weights of Zimbabwe’s 10 major trading partners were calculated and used to compute the real exchange rate index. The time-dependent weighting system was used to better represent the evolution of trade patterns in the index. The arithmetic method was employed for computing the index. Generalized autoregressive conditional heteroskedasticity (GARCH) and autoregressive conditional heteroscedasticity (ARCH) models were used to generate the real exchange rate volatility index. The export response function was adopted as the tobacco exports response model. The variables in the tobacco exports response model were the realworld Gross Domestic Product (GDP), real exchange rate, terms of trade, real exchange rate volatility and dollarization. A vector error correction model (VECM) was used to estimate the response of tobacco exports to real exchange rate, real exchange rate volatility and other factors. The VECM results indicated that real world GDP was insignificant in both the short and long run. In the long run, the real exchange rate appreciation had a negative impact on tobacco exports. Conversely, in the short run, the depreciation of real exchange rate had a positive impact on tobacco exports. Hence, the government has to adopt other mechanisms that reduce uncertain movements of exchange rates.

scholarly journals Persistence And Asymmetry In Exchange Rate Volatility

2012 ◽  
Vol 11 (9) ◽  
pp. 971
Author(s):  
S. Aun Hassan
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Exchange Rate Volatility ◽  
The United States ◽  
Good News ◽  
Economic Downturn ◽  
Exogenous Shocks ◽  
The Past

Recent economic downturn in the United States and Europe has affected major currencies around the world. This paper focuses on the behavior of exchange rates over the past decade to study how volatility pattern of these exchange rates responds to any exogenous shocks. The paper focuses on persistence and asymmetry in volatility of major exchange rates due to exogenous shocks. The paper employs a univariate GARCH and an EGRACH model to test the persistence and asymmetry of exchange rate volatility using data from the past decade plus. The results show high persistence and asymmetric behavior in volatility implying that the effect of good news on exchange rates is different from the effect of bad news. The results of this paper have important implications for foreign exchange investors and will provide a better understanding of the foreign exchange market to interested observers.

scholarly journals Were the Czech Hotels Able to Confront Current Appreciation of the Czech Currency Before the End of the Exchange Rate Commitment?

2017 ◽  
Vol 65 (6) ◽  
pp. 1925-1933 ◽  
Author(s):  
Tomáš Heryán
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
Open Economy ◽  
Foreign Exchange Market ◽  
Foreign Currency ◽  
Small Open Economy ◽  
Estimation Method ◽  
National Bank ◽  
The Exchange Rate

This paper has focused on the issue of foreign exchange markets in relation to tourism and hotel industry in the small open economy such as the Czech Republic. After more than three years when the Czech National Bank (CNB) intervened on the foreign exchange market, everybody look forward to development of exchange rates after the end of the exchange rate commitment. The aim of this study is to show how Czech hotels were been able to confront current appreciation of the Czech koruna before the CNB had ended the exchange rate commitment. According to this aim it was necessary to investigate relations between exchange rates and turnover of Czech hotels as the first. Therefore, it has been obtained time series of the hotels’ profit and loss statements from Bureau van Dijk’s Amadeus international statistical database as well as exchange rates from the CNB online database. Other data is from the Eurostat and the World Bank online statistical database. As the main estimation method it is used the GMM approach with panel data for period from 2007 till 2014. After the estimation of those statistical significant relations it is essential to describe the ways, how were the hotels been able to face the exchange rate risk before the end of the commitment. Furthermore, it has been differentiated between natural hedging for smaller hotels and the usage of the financial derivatives for these bigger. Three types of hedging are described: (i) natural hedging, (ii) usage of a currency forward, and (iii) taking a loan in foreign currency.

Sign in / Sign up

Export Citation Format

Share Document