The role of medium of exchange in acquisitions

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Accounting and Finance


This study has made significant improvements on the previously built regression models that explain changes in exchange rates using macro fundaments. The enhanced model has added GDP, foreign currency reserve, and trade balance ratio to the original set of independent variables along with the lagged effects of the endogenous variable captured in autoregressive terms. The model has also expanded its scope by incorporating the data from four new countries (New Zealand, Italy, UK, and Sweden) in addition to Australia, Japan, Canada, France, Switzerland and the United States. Twelve more data points were added to the model construction period starting from 1985Q1 to 2000Q4. Twelve data points from 2001Q1 to 2003Q4 were withheld from the model construction process, which formed the forecast sample to measure the forecasting capability of the model. The study has successfully built nine forecasting models which have revealed complex relationships between the currency exchange rates and ten macro fundamental factors.