Bilateral Exchange Rate Movements: Are Exchange Rates Based on Self-Fulfilling Prophecies or Economic Factors

Finance and Accounting Department

School of Business and Management

Course:

FIN 430-Financial Forecasting

Abstract

In this research, we studied several factors that might affect the bilateral exchange rate between the Japanese Yen and the US. The factors we took into consideration are: Balance of trade, GDP, GDP per capita, Money Supply (Narrow Definition-M1), Money Supply (Broad Difinition-M2), Total Reserves, real interest rate, and inflation rates. After collecting the data we ran multiple regression analysis between the chosen independent variables and the exchange rate to see if they are related. The multiple regression resulted in dropping all the variables...