Abstract
In todays fast paced global economy, the accuracy in forecasting the foreign exchange rate or predicting the trend is a critical key for any future business to come. The use of computational intelligence based techniques for forecasting has been proved to be successful for quite some time. This study presents a computational advance for forecasting the Foreign Exchange Rate in Kuala Lumpur for Ringgit Malaysia against US Dollar. A neural network based model has been used in forecasting the days ahead of exchange rate. The aims of this research are to make a prediction of Foreign Exchange Rate in Kuala Lumpur for Ringgit Malaysia against US Dollar using artificial neural network and determine practicality of the model. The Alyuda NeuroIntelligence software was utilized to analyze and to predict the data. After the data has been processed and the structural network compared to each other, the network of 2-4-1 has been chosen by outperforming other networks. This network selection criteria are based on Akaike Information Criterion (AIC) value which shows the lowest of them all. The training algorithm that applied is Quasi-Netwon based on the lowest recorded absolute training error. Hence, it is believed that experimental results demonstrate that Artificial Neural Network based model can closely predict the future exchange rate.
Highlights
Over the course of monetary history, the Malaysian monetary system has evolved into various forms since the breakdown of Bretton Woods system in the early 1970s
The results show that all neural network models generate superior achievement compare to linear autoregressive integrated moving average (ARIMA) model demonstrating its acceptability for financial modelling
The models were assessed based on Mean Squared Error (MSE) values and the results revealed that ANN capable to closely forecast the future exchange rates of Euro against Turkish Lira
Summary
Over the course of monetary history, the Malaysian monetary system has evolved into various forms since the breakdown of Bretton Woods system in the early 1970s. On August 1975, Malaysian currency which previously named as Malaysian Dollar has retitled as “Ringgit”. Even Ringgit is an official action by the government, Malaysian legal tender is still called “Dollar”. This is continued until 1993 when Government announced that the currency will be replaced as “Ringgit Malaysia” (Joe et al, 2016). The following events is vital to occur for Malaysian exchange rate. Perhaps the most memorable event for Malaysian economic experienced is the year of 1997 which is Asian financial crisis. The countries who are affected greatly along with the crisis are Thailand, South Korea, and Indonesia while Malaysia, Philippine, Taiwan, and Laos had a moderate effect. The catastrophic event started at 30 September 1997 when US Dollar against Ringgit Malaysia currency
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