hari.adams2003
F G
<h1>Harikrishnan Mini Project On Finance</h1>
Project Title:
'An Empirical Test of Purchasing Power Parity Theory and Interest Rate Parity Theory'
Research Problem
Forecasting of Foreign Exchange Rate is one of the most important problems faced by investors and participants of foreign exchange market. For reliable forecasting of forex rates, the factors affecting foreign exchange rates have to be identified and their relationship with foreign exchange rates have to be established. Inflation and Interest Rates are two major determinants of forex rates. While Purchasing Power Parity Theory (PPP) examines the relationship of Inflation on exchange rates, Interest Rate Parity Theory (IRP) examines the influence of Interest Rates on Exchange rates. The present study makes an empirical test of PPP and IRP in order to determine their validity in Indian Forex Market.
OBJECTIVES OF THE STUDY
Primary Objective
To perform an Empirical Test of Purchasing Power Parity Theory and Interest Rate Parity Theory’
Secondary Objectives
To test the efficiency of forex market by determining the deviations of actual exchange rates from those predicted by PPP and IRP.
RESEARCH METHODOLOGY
Research design:
The research design is the conceptual structure within which research will be conducted .Design includes an outline of what the researcher will do from writing the hypothesis and its operational implications of the analysis of the data. The study is based on analytical type of research.
Source of Data:
The movements of Foreign exchange market prices are the fundamental data for the study. The nature of data is secondary. The main source of information is websites. Reference are made from news papers, magazines and journals.
Period of study:
The study was carried out for a period of 21 days.
Major currencies selected for the study are:
• Indian Rupee(INR)
• U S Dollar(USD)
• Australian Dollar(AUD)
• British Pound(GBP)
• Euro(EUR)
• Japanese Yen(JPY)
Tools for analysis:
Data collected has been analyzed using ratios, charts, formulae etc.
LIMITATIONS OF THE STUDY:
• The duration of study was limited to a period of 21days so that an extensive and deep study could not be possible
• The conclusion cannot be final as market is volatile and unpredictable
• Data considered is only for past 3 year period
• Transaction cost, taxes and other cost are ignored during the period
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