Forecasting Exchange Rates

The work of this thesis primarily revolves around the concept of forecasting the daily exchange rates of the European Euro valued in United States Dollars. Forecasting is a relatively important issue in business operations, however it is also one of the most problematic. With the uncertainty of the future, forecasts are difficult to assess. The aim of this thesis is to successfully forecast the future exchange rates of the European Euro in terms of United States Dollars for the month of May 2010, and determine whether the forecasting models properly work when applied to exchange rates, why or why not, and their measure of accuracy. The methodology of this thesis revolves extensively around quantitative research, largely including a probability and forecasting approach. Throughout a period of three months, actual exchange rate values were collected and recorded to form a data set. The exchange rate data was then used in the application of a variety of mathematical forecasting models to forecast the daily exchange rates for a future, one-month period. Upon measuring the accuracy of the forecasts, the forecasted exchange rates contained very little error. Therefore, the forecasts are considered to be successful, and the hypothesis that exchange rates could be determined with the aid of a mathematical forecasting model is accepted. Though it is very difficult to consistently estimate exchange rates successfully, the work of this thesis shows there is always a greater probability of benefiting from a forecast