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Bangladesh
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Analysis of Currency Forecasting
Bangladesh (2017-2027)
Independent University
Submitted By:
Name ID
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Letter of Transmittal
Dear Sir,
We are pleased to submit our set topic analysis of currency forecasting for
Bangladesh.
Moreover, we will be pleased to clarify and answer any questions regarding
possible discrepancies or inconsistencies that may have presented itself in the
paper.
Thanking you.
Yours sincerely,
Name ID
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ACKNOWLEDGEMENT
At first, we express our deep gratefulness to the almighty Allah for giving us
assistance in the way of life. A large number of people contributed significantly to
making this report possible.
The special thank goes to our helpful Faculty and my group members. The
supervision and support that they gave truly help the progression and smoothness
of the report. The co-operation is much indeed appreciated. A lot of effort and
study have been put in to make this report a reality. This would not have been
possible without the genuine support and assistance provided by the people whom
we approached during the various stages of preparing this report.
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EXECUTIVE SUMMARY
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Introduction
Exchange rate between two currencies is the rate at which one currency is exchanged for another.
It is the amount of foreign currency that one unit of domestic currency can purchase. It is also
regarded as the value of one countrys currency in terms of another currency. Depreciation
means weakening of a currency, or in other words, it is able to buy lesser foreign currency, per
unit of domestic currency than it could before. Appreciation means strengthening of a currency,
or in other words, it is able to buy more foreign currency per unit of domestic currency than
before.
Exchange rates are determined in the foreign exchange rate, which is open to a wide range of
different types of buyers and sellers. Currencys exchange rates may be floating or they may be
pegged to another currency. A floating exchange rate is dependent on the supply and demand of
the involved currencies and also as the amount of the currency held in foreign reserves. A
government may peg its currency to a certain amount in another currency.
Methodology:
The study is purely based on secondary data collection. We collected the information from
Bangladesh Bank website. As the study required a diversification of data so we searched various
websites, journals and articles of different authors. We took spot rate, lending rate and borrowing
rate and then forecasted that whether the value will appreciate or depreciate in March 2017-2027.
1) We choose USD Currency against Bangladesh Currency for our quarterly and yearly forward
rate and speculation analysis.
2) Spot Rate: The Spot rate of Bangladesh is Taka 78.74159 BDT/ USD ( 30 December, 2016)
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APPROACHES TO FORECASTING EXCHANGE RATES
A forecast represents an expectation about a future value or values of a variable. The expectation
is constructed using an information set selected by the forecaster. Based on the information set
used by the forecaster, there are three pure approaches to forecasting foreign exchange rates:
The benchmark interest rate in Bangladesh was last recorded at 6.75 percent. Interest Rate in
Bangladesh averaged 7.20 percent from 2008 until 2016, reaching an all time high of 8.75
percent in September of 2008 and a record low of 4.50 percent in October of 2009.
The Federal Reserve kept the target range for its federal funds steady at 0.5 percent to 0.75
percent during its February 2017 meeting, in line with market expectations and following a
25bps hike in December. Policymakers noted the improvement in business and consumer
confidence and the rise in consumer prices and said near-term risks to the economic outlook
appear roughly balanced. Interest Rate in the United States averaged 5.81 percent from 1971
until 2017, reaching an all time high of 20 percent in March of 1980 and a record low of 0.25
percent in December of 2008.
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Quarterly Interest Rate of Foreign currency (0.0075/12)*3=0.000625
e = [1+INT (n)] / [1+INT (f)] -1
= [1+ 0.016875] / [1+0. 0.000625] 1
= 0.01623985
1st Year (January 2017 to December 2017) - Spot Rate= Taka 78.74159 BDT/ USD
F = 78.74159 (1+0.059553349)
= Taka 83.43080943 / USD
From our computation of exchange rate using Market base analysis, we have forecasted that the
exchange rate in December 2017 is going to be Taka 83.43080943 / USD. The exchange rate in
December 2016 was 78.74159 BDT/ USD. Now more Taka is required to purchase a USD. Hence
according to our forecast, we can conclude that the Taka will depreciate in December 2017.
2nd Year (January 2018 to December 2018) - Spot Rate= Taka 83.43080943 / USD
F = 83.43080943 (1+0.059553349)
= Taka 88.39939354 / USD
From our computation of exchange rate using Market base analysis, we have forecasted that the
exchange rate in December 2018 is going to be 88.39939354 / USD .The exchange rate in December
2017 was Taka 83.43080943 / USD. Now more Taka is required to purchase a USD. Hence
according to our forecast, we can conclude that the Taka will depreciate in December 2018.
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3nd Year (January 2019 to December 2019) - Spot Rate= Taka 88.39939354 / USD
F = 88.39939354 (1+0.059553349)
= Taka 93.66387545 / USD
From our computation of exchange rate using Market base analysis, we have forecasted that the
exchange rate in December 2019 is going to be Taka 93.66387545 / USD. The exchange rate in
December 2018 was Taka 88.39939354 / USD. Now more Taka is required to purchase a USD.
Hence according to our forecast, we can conclude that the Taka will depreciate in December 2019.
4th Year (January 2020 to December 2020) - Spot Rate= Taka 93.66387545 / USD
F = 93.66387545 (1+0.059553349)
= Taka 99.24187291 / USD
From our computation of exchange rate using Market base analysis, we have forecasted that the
exchange rate in December 2020 is going to be Taka 99.24187291 / USD. The exchange rate in
December 2019 was Taka 93.66387545 / USD. Now more Taka is required to purchase a USD.
Hence according to our forecast, we can conclude that the Taka will depreciate in December 2020.
5h Year (January 2021 to December 2021) - Spot Rate= Taka 99.24187291 / USD
F = 99.24187291 (1+0.059553349)
= Taka 105.1520588/ USD
From our computation of exchange rate using Market base analysis, we have forecasted that the
exchange rate in December 2021 is going to be Taka 105.1520588/ USD. The exchange rate in
December 2020 was Taka 99.24187291 / USD. Now more Taka is required to purchase a USD.
Hence according to our forecast, we can conclude that the Taka will depreciate in December 2021.
6h Year (January 2022 to December 2022) - Spot Rate= Taka 105.1520588/ USD
F = 105.1520588 (1+0.059553349)
= Taka 111.4142161/ USD
From our computation of exchange rate using Market base analysis, we have forecasted that the
exchange rate in December 2022 is going to be Taka 111.4142161/ USD. The exchange rate in
December 2021 was Taka 105.1520588/ USD. Now more Taka is required to purchase a USD.
Hence according to our forecast, we can conclude that the Taka will depreciate in December 2022.
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7th Year (January 2023 to December 2023) - Spot Rate= 111.4142161/ USD
F = 111.4142161 (1+0.059553349)
= Taka 118.0493058/ USD
From our computation of exchange rate using Market base analysis, we have forecasted that the
exchange rate in December 2023 is going to be Taka 118.0493058/ USD. The exchange rate in
December 2022 was Taka 111.4142161/ USD. Now more Taka is required to purchase a USD.
Hence according to our forecast, we can conclude that the Taka will depreciate in December 2023.
8th Year (January 2024 to December 2024) - Spot Rate= 118.0493058/ USD
F = 118.0493058 (1+0.059553349)
= Taka 125.0795373/ USD
From our computation of exchange rate using Market base analysis, we have forecasted that the
exchange rate in December 2024 is going to be Taka 125.0795373/ USD. The exchange rate in
December 2023 was Taka 118.0493058/ USD. Now more Taka is required to purchase a USD.
Hence according to our forecast, we can conclude that the Taka will depreciate in December 2024.
9th Year (January 2025 to December 2025) - Spot Rate= 125.0795373/ USD
F = 125.0795373 (1+0.059553349)
= Taka 132.5284426/ USD
From our computation of exchange rate using Market base analysis, we have forecasted that the
exchange rate in December 2025 is going to be Taka 132.5284426/ USD. The exchange rate in
December 2024 was Taka 125.0795373/ USD. Now more Taka is required to purchase a USD.
Hence according to our forecast, we can conclude that the Taka will depreciate in December 2025.
10th Year (January 2026 to December 2026) - Spot Rate= 132.5284426/ USD
F = 132.5284426 (1+0.059553349)
= Taka 140.4209552/ USD
From our computation of exchange rate using Market base analysis, we have forecasted that the
exchange rate in December 2026 is going to be Taka 140.4209552/ USD. The exchange rate in
December 2025 was Taka 132.5284426/ USD. Now more Taka is required to purchase a USD.
Hence according to our forecast, we can conclude that the Taka will depreciate in December 2026.
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11th Year (January 2027 to December 2027) - Spot Rate= Taka 140.4209552/ USD
F = 140.4209552 (1+0.059553349)
= Taka 148.783493351939/ USD
From our computation of exchange rate using Market base analysis, we have forecasted that the
exchange rate in December 2027 is going to be Taka 148.783493351939/ USD. The exchange rate in
December 2026 was Taka 140.4209552 / USD. Now more Taka is required to purchase a USD.
Hence according to our forecast, we can conclude that the Taka will depreciate in December 2026.
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(TAKA) will be depreciated in that time foreign currency (USD) will be appreciated. In the
conversion time the Bangladesh investors will receive more amount of return.
Conclusion
From our forward rate calculation and speculation we can see that when spot rate 78.74159 BDT/
USD ( 30 December, 2016) and forward rate Taka 83.43080943 / USD the speculator will make
profit but when the Bangladesh speculator has to pay more TAKA to buy one USD in that case
they will face loss in upcoming year.
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Reference
https://www.poundsterlinglive.com/best-exchange-rates/us-dollar-to-bangladesh-taka-exchange-rate-
on-2017-03-12
http://www.tradingeconomics.com/bangladesh/deposit-interest-rate
http://www.tradingeconomics.com/united-states/interest-rate
http://www.xe.com/currencyconverter/convert/?Amount=1&From=USD&To=BDT
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