Abstract

Exchange rates are important not only in international trade translations but also in services like banking, insurance, tourism and education. In this project paper has selected three countries exchange rates for testing their relative macro-economic variables such as interest rates, inflation rates, employment rate and gross domestic product etc. through correlation and regression techniques a few hypotheses were tested to establish their relationships with exchange rates.

The interest rate, employment rate and inflation influence exchange rates in a positive way and the corruption influences the exchange rates negatively. This implies that the important macro-economic variables decide the future exchange rates in turn the home currency value. A stable home currency value not only stabilizes exchange rates, but also attracts foreign direct investment and boost the public confidence in the home currency. The ultimate effect is the increase in standard of living for the home country people. Recent global economic crisis affect significantly different aspects of economy.

Exchange rate is not an exception which is closely aligned to economic variables, challenges and problems, studying exchange rates is an inseparable factor of international trading needs to be analyzed and compared to other parameters which have direct or opposite in the other economic variables. Evidence for the contribution of the exchange-rate volatility is that its inclusion appears necessary in most of the countries for the estimated export demand equation to exhibit the desired property of co-integration.

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