The Exchange Rate And The Balance Of Payments

Good Essays
Part A. The Exchange Rate and the Balance of Payments
1. Plot the dollar exchange rate since 1995. Use an appropriate benchmark to determine if the exchange rate has depreciated or appreciated since 1995. Explain why you chose such benchmark. Has the dollar depreciated or appreciated (break it up into time periods to answer this)? In Forex Trading these four major currency pairs are the most popular ones.
1. Euro/USD –The Euro and the US dollar
2. USD/JPY - The US dollar and the Japanese Yen
3. GBP/USD- The British Pound and the US dollar
4. USD/CHF – The US dollar and the Swiss Franc.
We are using the third currency pair i.e. GBP/USD for the conduct of the study and the appreciation / Depreciation of these currencies over the
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GBP/USD: Appreciation/Depreciation over the years:
The Appreciation / Depreciation of US dollar against Britain Pound over the years from 1995 – 2014 yearly wise is presented here, the maximum appreciation of Dollar against Pound is seen during the year 2001 i.e. GBP/USD rate was 1.4406, the dollar appreciated 6.24 % against Pound and the dollar depreciated to the lowest value during the year 2007 i.e. GBP/USD rate was 2.0013 and the dollar depreciated by 23.50% against pound.
The Appreciation / Depreciation of US dollar against Britain Pound over the years from 1995 – 2014 is depicted below by the following Graphs:

The above Graphs shows the Year on Year appreciation / Depreciation of US dollar over British Pound, and if we divide the entire Year on Year data into four different time Periods i.e. 1995 -2000, 2001-2005, 2006-2010, 2010-2014 we can easily analyze the Exchange Rate fluctuation of Dollar against Pound over a period of 5 years of time by considering the closing Exchange rates of the respective currencies during the starting and the ending of the 5 year time horizon.

From the year 1995-2000 the dollar has appreciated by 4.26% and the dollar has appreciated to a larger extent of about 20.76% during the period 2001-2005. From the year 2006-2010 dollar has witnessed an appreciation against Pound by 19.12%. By comparing it with the previous period the dollar has depreciated by 2.61% and from the
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