The Effect of Spot Exchange Rates, Estimated Forward Exchange Rates, and Inflation Rates on Future Spot Exchange Rate

Abstract

The study investigates the influence of spot exchange rates, estimated forward exchange rates, and inflation rates on future spot exchange rates. The volatility in exchange rates and its impact on future spot exchange rates is a critical concern for international traders and investors. The findings could have practical implications for currency risk management and hedging strategies. The results of this study indicate that the spot exchange rates and inflation rates have a positive effect on the future spot rate, while the estimated forward exchange rate has a negative effect. The result offer valuable insights for policymakers, financial analysts, and businesses involved in international trade. By understanding the impact of spot and estimated forward exchange rates, as well as inflation rates, stakeholders can make more informed decisions regarding currency exposure and risk management. The study contributes to the literature on international financial management and provides a framework for predicting future exchange rate movements in a dynamic global economic environment.

Keywords: Spot Exchange Rates; Estimated Forward Exchange Rates; Inflation Rates