Foreign Exchange Market Research Articles

The Impact of the Measure Used to Calculate the Distance between Exchange Rate Time Series on the Topological Structure of the Currency Network.

Structural properties of the currency market were examined with the use of topological networks. Relationships between currencies were analyzed by constructing minimal spanning trees (MSTs). The dissimilarities between time series of currency returns were measured in various ways: by applying Euclidean distance, Pearson's linear correlation coefficient, Spearman's rank correlation coefficient, Kendall's coefficient, partial correlation, dynamic time warping measure, and Kullback-Leibler relative entropy. For the constructed MSTs, their topological characteristics were analyzed and conclusions were drawn regarding the influence of the dissimilarity measure used. It turned out that the strength of most types of correlations was highly dependent on the choice of the numeraire currency, while partial correlations were invariant in this respect. It can be stated that a network built on the basis of partial correlations provides a more adequate illustration of pairwise relationships in the foreign exchange market. The data for quotations of 37 of the most important world currencies and four precious metals in the period from 1 January 2019 to 31 December 2022 were used. The outbreak of the COVID-19 pandemic in 2020 and Russia's invasion of Ukraine in 2022 triggered changes in the topology of the currency network. As a result of these crises, the average distances between tree nodes decreased and the centralization of graphs increased. Our results confirm that currencies are often pegged to other currencies due to countries' geographic locations and economic ties. The detected structures can be useful in descriptions of the currency market, can help in constructing a stable portfolio of the foreign exchange rates, and can be a valuable tool in searching for economic factors influencing specific groups of countries.

A neural network model for predicting price changes of the exchange rate EUR/USD

With the rapid development of the global economy, economic exchanges and cooperation between countries have become increasingly frequent, and the importance of the foreign exchange market has become increasingly prominent. As a link between international trade, foreign exchange plays a crucial role in formulating relevant financial policies and the risk management of multinational enterprises. However, accurately predicting foreign exchange changes is very challenging because the foreign exchange market is characterized by non-linear and dynamic changes and exchange rate fluctuations are also affected by historical data. The analysis method based on time series has always been an effective solution for studying exchange rate issues, and the model trained by the deep learning model based on time series data can further simulate and predict the exchange rate. Therefore, this article uses the BP neural network algorithm based on the time series model to predict the price change of the exchange rate EUR/USD. This article first uses the historical exchange rate data of the euro against the US dollar as a training set and performs data preprocessing. Secondly, the activation function and learning rate of the model are tuned, and the performance of the model is compared by evaluating indicators to improve prediction accuracy. The final experimental results show that the neural network model is highly accurate and predictive in predicting EUR/USD exchange rate price changes.

The Co-volatility of Uncertainty Shock on Chinese Exchange Rate: Based on Time-frequency Domain and Time-varying Method

In recent years, with the global epidemic, the Russia-Ukraine conflict, the great power game, and so on events, the international political and economic environment has become more and more unstable, the USDCNY exchange rate fluctuates significantly, and the external uncertainty risk shocks negatively hit the foreign exchange market. Based on this, this article expands global uncertainty risk shocks into four dimensions: global geopolitical risk, U.S. economic policy uncertainty, Chinese economic policy uncertainty, and VIX index, in addition to adding international WTI crude oil and gold price as additional variables, which are significantly correlated with both, to study the linkage among uncertainty shocks, commodity volatility and USDCNY exchange rate from the time-frequency domain. Furthermore, we analyze the time-varying spillover effects among variables at different frequency scales by decomposing the data into multiple scales using the Maximum Overlap Discrete Wavelet Transform (MODWT). Findings reveal that uncertainty factors and commodity prices exert distinct influence mechanisms on the USDCNY exchange rate under different cycles of frequency fluctuations. At various time-frequency domain volatility scales, VIX and WTI generate significant risk spillovers over the USDCNY exchange rate. Moreover, when global major events occur, time-varying spillover effects of variables are also heterogeneous. The research findings presented in this paper can provide valuable insights for policymakers and investors regarding the impact of international uncertainty shocks on the Chinese exchange rate across various short, medium, and long frequencies. This understanding can aid in managing uncertainty risks in decision-making processes, ultimately facilitating the efficient functioning of the foreign exchange market.

Predicting multiple observations in complex systems through low-dimensional embeddings

Forecasting all components in complex systems is an open and challenging task, possibly due to high dimensionality and undesirable predictors. We bridge this gap by proposing a data-driven and model-free framework, namely, feature-and-reconstructed manifold mapping (FRMM), which is a combination of feature embedding and delay embedding. For a high-dimensional dynamical system, FRMM finds its topologically equivalent manifolds with low dimensions from feature embedding and delay embedding and then sets the low-dimensional feature manifold as a generalized predictor to achieve predictions of all components. The substantial potential of FRMM is shown for both representative models and real-world data involving Indian monsoon, electroencephalogram (EEG) signals, foreign exchange market, and traffic speed in Los Angeles Country. FRMM overcomes the curse of dimensionality and finds a generalized predictor, and thus has potential for applications in many other real-world systems.

Foreign Exchange Operations of Islami Bank Bangladesh Limited

In the dynamic global financial landscape, foreign exchange operations play a pivotal role in facilitating international trade and economic activities. Islami Bank Bangladesh Limited (IBBL) has emerged as a significant player in the country's banking sector with a strong commitment to Shariah-compliant practices. Understanding the nuances of its foreign exchange operations is essential for assessing its contribution to the national economy. This study aimed to comprehensively analyze the foreign exchange operations of Islami Bank Bangladesh Limited, focusing on its performance and adherence to Islamic principles. The research involved an in-depth examination of IBBL's foreign exchange operations, including documentary analysis, interviews with bank officials, and a review of relevant literature. Data on foreign exchange transactions, compliance with Shariah principles, and financial performance were analyzed. The study found that IBBL has demonstrated commendable performance in foreign exchange operations. It has successfully maintained a substantial share of the foreign exchange market in Bangladesh, accounting for over 20% of total transactions. Moreover, IBBL's strict adherence to Shariah principles in its foreign exchange activities has positioned it as a reputable Islamic banking institution. The bank's compliance rate with Islamic principles in foreign exchange dealings exceeded 90%, reflecting its commitment to ethical banking practices. Islami Bank Bangladesh Limited has emerged as a prominent player in the foreign exchange market, maintaining both financial viability and adherence to Shariah principles. Its commitment to ethical and Islamic banking practices has contributed significantly to the country's economic growth. IBBL should continue to focus on enhancing its foreign exchange operations, ensuring strict adherence to Islamic principles, and expanding its market presence.

Analysis of Systemic Risk on the Financial Performance during the COVID-19 Pandemic: The Case of the Colombian Banking Industry

This study seeks to analyze the financial performance of the Colombian banking industry during the COVID-19 pandemic. The frame of reference is based on the concept of systemic risk; concerning this, the pandemic is conceived as an external shock, which impacted the dynamics of the banking industry. To conduct this study, a descriptive-correlational scope is proposed, from which an analysis of different accounting items related to the banking business is made and validated by expert judgment. The analysis horizon covers six years, but the focus is placed on March 2020, when COVID-19 was declared a pandemic by the World Health Organization (WHO). For this purpose, a longitudinal design is proposed, which analyzes the time series describing the behavior of some relevant items in the management of the banking business, such as operating revenue, provisions, interest on deposits and drawings, valuation of trading derivatives, and technology-related expenses. In addition, these items’ correlation with banking establishments’ performance is analyzed. The results of the study show that during the pandemic period, there was a significant increase in the level of volatility in the foreign exchange market, which impacted the operating revenue of banking establishments. It is concluded that, although exchange rate volatility affected the results of the banking industry, the main factor related to the financial performance of Colombian banks is their business itself, i.e., revenue from the loan portfolio and the quality of the loan portfolio. Therefore, systemic risk must be addressed regarding its implications on banks’ main profit drivers, such as portfolio revenue, cost of deposits, and provisions. Based on the above, it is recommended that Colombian banking establishments make greater efforts to diversify their sources of income to reduce their exposure to systemic risk situations.

Currency Exchange Rate Formation in Ukraine: Problems and Ways of Optimization

The conducted analysis proved the presence of quite diverse trends in the foreign exchange market of Ukraine: the national currency is undervalued, the exchange rate is unstable, a significant burden on the financial system as a whole due to the growth of public debt, a high level of dollarization of the economy. That is, on the one hand, there are destructive processes, including those of a chronic nature. On the other hand, the national currency market quickly and easily picks up new opportunities that come to all spheres of economic life, related to digitization and electronic means of trade.
 It was revealed that of the key macroeconomic variables that determine the exchange rate: gross domestic product, government debt, gold and foreign exchange reserves, balance of payments, inflation, it is inflation that has the greatest influence on the exchange rate.
 Key macroeconomic parameters determining the state of the foreign exchange market can have a destabilizing effect on the foreign exchange market both at a fixed and at a floating exchange rate. It has been proven that the use of any of these regimes in their "pure" form is particularly risky for the economy. An algorithm for making a decision on softening/increasing course flexibility was proposed.

Strategi Pengembangan UMKM di Masa Pemulihan Pasca Pandemi Covid-19 (Studi Kasus CV. Kreasi Pangan Kita)

MSMEs have a very important role in the Indonesian economic system. The important role of MSMEs in the lives of Indonesian people includes reducing unemployment, stabilizing the economy of the entire region, and having an influence on the national foreign exchange market. Currently, the development of MSMEs in Indonesia continues to grow rapidly. However, in the midst of the development of MSMEs, Covid-19 emerged which hampered the development of all sectors, including MSMEs. In this regard, the aim of this research is to determine the effectiveness of MSME development strategies after the Covid-19 pandemic, where in this research samples were taken from CV. Our Food Creations. The research method used is qualitative type with descriptive analysis. The approach used is a case study approach. Then, data collection techniques for primary data are through observation, interviews and documentation carried out directly, while for secondary data through the MSME website. The data testing process uses the IFAS (Internal Factor Analysis Strategic) and EFAS (External Factor Analysis Strategic) analysis methods which are combined or matched with the creation of SWOT diagrams and tables. The results obtained are that there are 18 alternative growth-oriented development strategies, so that CV. Kreasi Pangan Kita has a good opportunity to develop its business after the Covid-19 pandemic.

Exchange Rate Management Policies Options Towards Strengthening the Naira for Economic Transformation

Close to two decades, the Nigerian Naira has witnessed tremendous fall in its value against major currencies in the global market, giving rise to fast climbing inflation rate and its attendant consequences. Effort by various governments at federal and state levels to remedy the Naira and ensure its stability have shown no signs of fruitfulness. The Central Bank of Nigeria (CBN), at different times, has adopted several measures in this regard including currency devaluation, stringent monetary and fiscal policies, Naira redesign, and the newest, being the effort to collapse into one, the parallel exchange market. These measures, from all indications, were unable to stem the tide of the Naira fall. This study, therefore, adopts a narrative review of economic and finance literature to suggest policy options that could redeem the Naira and strengthens its exchange value in the global market. Inputs from scholarly literature were sought and reviewed around issues such as the working mechanisms of the foreign exchange market, continuous demand and consumption of foreign made goods, and short- and long-term monetary policies. The measures to restore the value of the Naira were then suggested in the paper. Keywords: Exchange rate; Naira fall; Currency Devaluation; Monetary Policy; CBN

Explaining the Stylized Facts of Foreign Exchange Markets with a Simple Agent-based Version of Paul de Grauwe’s Chaotic Exchange Rate Model

AbstractWe propose a simple agent-based version of Paul de Grauwe’s chaotic exchange rate model. In particular, we assume that each speculator follows his own technical and fundamental trading rule. Moreover, a speculator’s choice between these two trading philosophies depends on his individual assessment of current market circumstances. Our agent-based model setup is able to explain a number of important stylized facts of foreign exchange markets, including bubbles and crashes, excess volatility, fat-tailed return distributions, serially uncorrelated returns and volatility clustering. A stability and bifurcation analysis of its deterministic skeleton provides us with useful insights that foster our understanding of exchange rate dynamics.

Weighted Signed Networks Reveal Interactions between US Foreign Exchange Rates.

Correlations between exchange rates are valuable for illuminating the dynamics of international trade and the financial dynamics of countries. This paper explores the changing interactions of the US foreign exchange market based on detrended cross-correlation analysis. First, we propose an objective way to choose a time scale parameter appropriate for comparing different samples by maximizing the summed magnitude of all DCCA coefficients. We then build weighted signed networks under this optimized time scale, which can clearly display the complex relationships between different exchange rates. Our study shows negative cross-correlations have become pyramidally rare in the past three decades. Both the number and strength of positive cross-correlations have grown, paralleling the increase in global interconnectivity. The balanced strong triads are identified subsequently after the network centrality analysis. Generally, while the strong development links revealed by foreign exchange have begun to spread to Asia since 2010, Europe is still the center of world finance, with the euro and Danish krone consistently maintaining the closest balanced development relationship. Finally, we propose a fluctuation propagation algorithm to investigate the propagation pattern of fluctuations in the inferred exchange rate networks. The results show that, over time, fluctuation propagation patterns have become simpler and more predictable.

Spillover effects of Ruble’s turmoil on foreign exchange markets after the invasion of Ukraine

ABSTRACT Russia’s invasion of Ukraine significantly impacted the global economy. This study examines the asymmetric spillover effects of dramatic fluctuations in the ruble on other currencies when Western countries imposed economic sanctions on Russia. Under the sanctions, the ruble showed not only a large depreciation but also a large appreciation. Using hourly data from late February to mid-March 2022, we explore their effects on 10 major currencies. We find that a large depreciation caused a depreciation in the European currencies. This might reflect the fact that sanctions on Russia damaged European economies, which relied heavily on Russian energy. However, we also find that a large appreciation led to a significant depreciation of the Chinese yuan (CNY) and a significant appreciation of the Swiss franc (CHF). The CNY depreciated by 0.2% and the CHF appreciated by 0.8% when the ruble appreciated by 10%. Noting that a large appreciation occurred because of Russia’s large-scale interventions in the foreign exchange market, this implies that the Russian government defended the ruble at unprecedented scales by selling CNYs and purchasing CHFs. A rise of new bipolarized world currency regimes caused a new spillover effect on economic partners after the invasion.

Deep learning-based predictive models for forex market trends: Practical implementation and performance evaluation.

In recent years, there has been growing interest in the prediction of financial market trends, due to its potential applications in the real world. Unlike traditional investment avenues such as the stock market, the foreign exchange (Forex) market revolves around two primary types of orders that correspond with the market's direction: upward and downward. Consequently, forecasting the behaviour of the Forex behaviour market can be simplified into a binary classification problem to streamline its complexity. Despite the significant enhancements and improvements in performance seen in recent proposed predictive models for the forex market, driven by the advancement of deep learning in various domains, it remains imperative to approach these models with careful consideration of best practices and real-world applications. Currently, only a limited number of papers have been dedicated to this area. This article aims to bridge this gap by proposing a practical implementation of deep learning-based predictive models that perform well for real-world trading activities. These predictive mechanisms can help traders in minimising budget losses and anticipate future risks. Furthermore, the paper emphasises the importance of focussing on return profit as the evaluation metric, rather than accuracy. Extensive experimental studies conducted on realistic Yahoo Finance data sets validate the effectiveness of our implemented prediction mechanisms. Furthermore, empirical evidence suggests that employing the use of three-value labels yields superior accuracy performance compared to traditional two-value labels, as it helps reduce the number of orders placed.

Exchange Rate Management Reforms and Restoring the Dignity of the Naira

This article provides comprehensive advice to the Federal Government of Nigeria (FGN) on exchange rate management in order to restore exchange rates to pre-President Buhari administration levels. Nigeria's exchange rate dynamics have witnessed significant changes in recent years, and this article presents a multifaceted approach to address the challenges faced by the FGN. By examining the historical context and global economic trends, this article offers policy recommendations encompassing fiscal, monetary, and structural reforms. It aims to guide the FGN in achieving stability and competitiveness in the international foreign exchange market. Keywords: Fiscal policy, Monetary policy, Exchange rate management, Structural reform

The changing performance of inbound tourism under the fluctuation of the Renminbi exchange rate

In the context of the information age in the post epidemic period, China's inbound tourism is increasingly recovering, and related tourism products are gradually coming into the view of foreign consumers. The development of tourism is an important way to promote international relations and improve international influence, while the exchange rate plays an irreplaceable role as one of the important influencing factors of international trade. In addition, the exchange rate reflects the price conversion index between the two countries can effectively explain the international economic situation and the continuous reform of the exchange rate system on China's foreign exchange market has caused different impacts, the exchange rate fluctuations of the RMB may be outside the part of the population with the intention of coming to China to cause a certain impact. In order to explore the impact of exchange rate fluctuations on the inbound tourism industry, this paper combines the background of the post-epidemic period with a view to empirically analysing the issue through macro data, and then exploring the changes in China's inbound tourism market under the fluctuation of the RMB exchange rate from multiple perspectives, as well as the transmission mechanism of exchange rate fluctuations on the inbound tourism market. Ultimately, it will provide certain reference value for the Chinese government and the related tourism industry, so as to effectively promote the development of China's tourism industry and improve China's international influence.

The History of Fed Interest Rate Hikes and the Impact on Stock and Foreign Exchange Markets

Following COVID-19, America uses policies to boost its economy, inadvertently pushing inflation from 2018 to 2022. This paper discusses the history of the Federal Reserve rate increase and its repercussions on financial areas, especially on the stock and foreign exchange markets. The main analysis centers on the impacts of the markets and behaviors of the answers. Initially, the Federal Reserve rate increase seemed economically beneficial. However, long-term effects may negatively impact both domestic and international economies to some degree. By examining historical data, this paper dissects the rationale behind such moves and their direct outcomes. This offers a better perspective on potential future interest rate influences. For investors, to be positive and need to adjust their investment strategies to adapt when they face the Federal Reserve rate increase. For policymakers, during the fluctuations in interest rates, they need to maintain the global equilibrium as far as possible, without excessive disruption or impact.

Hedging Strategies with Derivatives after 2020

This paper examines the changes in the futures market and how Chinese companies have hedged in recent years. As is known to all, the world has experienced lots of events, such as the COVID-19 pandemic, the Ukraine Conflict, the economic recession, and the rising interest rate in the U.S. Under the risky circumstances, the foreign exchange market and commodity futures market have shown a larger volatility. During times of global economic turmoil, the investors in the financial markets are seeking opportunities to protect their investment portfolios and assets. Historically, the futures market can be seen as a safe haven for funds, mitigating losses caused by fluctuations in stock or commodity prices through proper hedging strategies. This paper analyses what the Chinese futures and spot markets are like and how Chinese companies use hedging tools to lock profits. Then, the paper gives suggestions and prospects for futures hedging and the development of markets.

Understanding Monetary Policy Communication in a Small and Open Economy Under an Exchange Rate Anchor: The Case of North Macedonia

ABSTRACT The aim of this paper is to provide insights into the readability, structure, and tone of monetary policy communication in the case of the National Bank of the Republic of North Macedonia (NBRNM), a small and open economy operating under an exchange rate anchor. The results indicate the NBRNM generally communicates with a neutral tone while its communication is complex in terms of syntax and structure. The dominant topic is inflation and financial markets, followed by monetary policy, economic growth, and the foreign exchange market. Further, topic proportions and tone are analyzed in relation to key macroeconomic indicators.

What influences the dynamic spillovers of China’s financial market uncertainties?

ABSTRACT Uncertainty serves as a significant source of volatility in financial markets. The aim of this study is to examine the spillover effects of China’s financial market uncertainties (capital market, currency market, foreign exchange (FX) market and derivatives market) and their potential determinants. A large amount of economic and financial data is selected as the sample dataset to construct the financial uncertainty index by the combination of the stochastic volatility model and the Markov chain Monte Carlo algorithm. The TVP-VAR-DY model and the extreme bounds analysis model are also used to conduct spillover and determinant analyses. The results indicate that uncertainties in capital and currency markets primarily act as transmitters of spillover effects. The derivatives market uncertainty mainly serves as a recipient of influence from other markets, whereas the role of FX market uncertainty is relatively unstable. Moreover, international factors such as global economic policy uncertainty and the implied volatility index (VIX) have a more robust impact on spillover relationships among the four financial uncertainties, whereas domestic factors have the greater impact intensity.

Analyzing the Relationship Between the Fed Interest Rates and Foreign Exchange Markets

The research on analyzing the relationship between fed interest rates and foreign exchange markets aims to establish how fed interest rates and foreign exchange rates are related based on capital flow between different countries. The research is to answer the question of how changes in federal interest rates affect capital flow between other countries since it affects the foreign exchange market. The research reviews various scholarly journals as a source of literature on previous studies done within the research area. The methodology to be applied is the empirical research approach. Data is to be collected from verified journals and research papers. Linear aggression is the data analysis method for the research, and XSLAT software will be used in data analysis. Independent and dependent variables will be developed based on the research objectives to help the study. Secondary analysis using linear aggression has been preferred because of how reliable, time-saving and cost-effective. The expected results from the research show that changes in federal interest rates affect the flow of capital since foreign exchange is implicated. Factors such as currency value and economic level influence federal interest rates and foreign exchange.