Usd/Cad Exchange Rate Volatility

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COMPUTATIONAL TECHNIQUES
IN
BUSINESS
USD/CAD EXCHANGE RATE VOLATILITY

Name: Raghav Verma
College Roll no.2242
Examination Roll no.10830
Enrolment Number:2K10BE2242
Email id: vermaraghav@hotmail.co.in
BBE 5th Semester
College: College of Vocational Studies, Delhi University
Triveni, Sheikh Sarai Phase-2
New Delhi

INDEX

TABLE OF CONTENTS
1. ABSTRACT
2. INTRODUCTION
3. REVIEW OF LITERATURE
4. OBJECTIVE
5. SCOPE AND COVERAGE
6. DATA AND METHODOLOGY
7. EMPIRICAL ANALYSIS
8. CONCLUSION
9. LIMITATIONS
10. REFERENCES
ABSTRACT
The relationship between the U.S. dollar and Canadian dollar is one of the most watched currency relationships in North America. Over the last decade, the exchange rate between these two currencies has fluctuated significantly. The objective behind this study is to understand the relationship and check fluctuations and volatility between the exchange rate of US Dollar and Canadian dollar over a span of 2008 to 2012, through GARCH/ARCH model on EVIEWS 6. The aim is to theorize the statistical results to understand the behaviour of foreign exchange market with respect to these two currencies and also know which currency has performed better in terms of appreciation.

INTRODUCTION
This study tries to infer the volatility in the relation between the exchange rates of the US Dollar (USD) and the Canadian dollar (CAD). The USD-CAD rate signifies the amount of CAD required to buy 1 USD. Moreover, the USD/CAD exchange rate has changed wildly from one period to another according to the economic reforms,policies and primarily oil trading. Relationship between USD and CAD in past years

The Canadian dollar followed floating exchange rate from 1950 to 1962. From 1952 till ‘60, the currency was bought and sold at a slight premium over the U.S. dollar, and during this time it also managed to reach a high point of 1.0613-14 United States Dollar as at the end of third week of August 20, during 1957. Then came 1960, and the year saw the Canadian currency take a considerable hit after this phase, and this finally lead to election defeat of the then Prime Minister John Diefenbaker. This was 1963 election time. The Canadian dollar saw a come back to its fixed exchange rate management during ‘62 and its value was decided at US$0.925. It remained unmoved and stable on this position until 1970. And then came inflation, and to fight the overall rise in the cost of living, the Canadian dollar shifted its floating exchange rate again in 1970. And this time round it saw an upgrade in its value and it was valued more than the U.S. dollar and enjoyed a pretty good innings during the 1970s. The peak came on 25th April in 1974, when the Canadian dollar t was equaled to US$1.0443. Again the Canadian currency went downhill against its American counterpart at the time of technological boom in the1990s and this was the time when CAD traded for a mere 61.79¢ USD. This was 21.1.2002, which was the all-time low that CAD had experienced since its inception. Since then, Canadian dollar has been growing in value consistently has been doing reasonably well against all major currencies of the world. This has been possible mainly due to high prices for commodities, with special reference to oil that Canada supplies to various nations across the globe. The CAD’s value as compared to the U.S. dollar went up quite a bit during 2007 because of the sustained potency of the economy in Canada along with the other reason comprising the U.S. currency’s limitations and its failure in the world market platform. During 2007 in September Canadian Dollar for the first time met the U.S. greenback at equivalence after November 25, 1976. Inflation was fairly low since 1990, which...
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