Financial Analysis

Financial Analysis

Introduction3

Literature review3

Methodology4

Results & Techniques5

Testing the joint restrictions8

Testing higher order autocorrelation with the Breush-Godfrey test9

Testing normality using Jarque-Bera statistic9

Testing linearity using the Ramsey RESET test10

Data Source10

Conclusion11

References12

Graph of months and log US CPI13

Graph of months and log US Swiss13

Graph of months and PPP (ST)14

Financial Analysis

Introduction

The core purpose of this literature is to forecast the expected exchange of two currencies by using the simple Linear Regression Model. Therefore we have used the historical data of two currencies i.e., US Dollar and the Swiss Franc. The expected results of this study will explain the behavior of exchange rate of US and Swiss Franc in the upcoming Future. The econometric model named as Purchasing Power Parity will be used as a estimator of the Exchange rate. The accuracy of the results will be supported by the statistical measure for significane of the econometric model.

Literature review

Purchasing power parity (PPP) is a budgetary hypothesis that states inhabitants of one nation ought to have the ability to purchase the products and administrations at the same cost as occupants of any viable nation over the long haul. Why do economists say that? In light of the fact that, at last, rivalry in worldwide exchange permits individuals to look for the best cost. As it were, everybody's obtaining power will get equivalent, or achieve parity. PPP is dependent upon the law of one cost. This states that once the distinction in return rates is represented, then everything might take the same.

Obviously, this isn't accurate in this present reality on a regular foundation. Not everything could be exchanged as effortlessly all far and wide, because of transportation expenses, assessments and duties. A few things, such as land and administrations, for example hair stylings, truly can't be sent. Not everybody all far and wide has the same access to universal exchange. Case in point, somebody in rustic China can't generally pick between each great and administration all around the globe. Maybe one day Amazon.com and other online retailers will empower correct acquiring power parity.

Purchasing power parity is additionally a computation that figures out what amount things might take if parity did exist. It considers the effect of trade rates. It's computed by verifying what everything acquired in a nation might take provided that it were sold in the U.s. These are then included for all the last merchandise and administrations prepared in that nation for that given year.

This parity is repetitive to register, since U.S. dollar esteem must be relegated to everything - even things not broadly accessible in the U.s. Case in point, might the cost of a bull truck in the U.s correctly depict its esteem in provincial Vietnam, where it's required to develop rice? What is the U.S. value likeness an improved hairdo in a nation where it's given by relatives? For numerous advancing nations, the PPP is evaluated utilizing only several of the official exchange rate scale (OER) measure. For improved nations, the OER and PPP measures of GDP are progressively comparative, since their ...