Can Exchange Rates Be Predicted?

Foreign exchange rates produce significant impacts on both the macroeconomic and microeconomic scale. Countries� government and multinational companies have been seeking ways to stabilize the exchange rates for a few decades. However, there is no perfect consensus on methods to control and stabilize the exchange rates. In fact, there are several occasions in history where turbulence movements caused crisis in the economies. There are several factors that are identified by economists and researchers as the causes of exchange rate movement. In this paper, hypotheses are developed based on theories and models, as well as on the factors that affect the exchange rate movement. The five factors include relative interest rate, relative income level, relative money supply, relative inflation, and exchange rate premium. The relationship between these factors and the exchange rates will be studied and analyzed in order to answer the research question, of whether it is possible to predict exchange rates or not. This paper is a quantitative dissertation. The regression analysis performed on SPSS program is applied to find out the significance of effect each factor makes on the exchange rate movement. The results from the analysis display significant impacts each factor may have on exchange rates. On top of this, the analysis of the results can then be used to suggest different policy implications to facilitate exchange rate stability