The floating exchange rate

The floating exchange rate can be predicted by using various methods.

- Fundamental analysis: it studies the relationship between macro economic variables (such as the rate of inflation, growth of national income and changes in money supply)

- Technical analysis: it uses past price and volume movements project the future exchange rate.

- The reliability of predictions can be found on the basis of forecasting error, which is calculated by square root error.

- The root square error is calculated using the following formula:


2
= (FV-R.V.)
RV

Where is the "FV" is forecasted values ​​and "RV" value is realized.