Forecasting of Indian Rupee (INR) / US Dollar (USD) Currency Exchange Rate Using Artificial Neural Network

A large part of the workforce, and growing every day, is originally from India. India one of the second largest populations in the world, they have a lot to offer in terms of jobs. The sheer number of IT workers makes them a formidable travelling force as well, easily picking up employment in English speaking countries. The beginning of the economic crises since 2008 September, many Indians have return homeland, and this has had a substantial impression on the Indian Rupee (INR) as liken to the US Dollar (USD). We are using numerational knowledge based techniques for forecasting has been proved highly successful in present time. The purpose of this paper is to examine the effects of several important neural network factors on model fitting and forecasting the behaviours. In this paper, Artificial Neural Network has successfully been used for exchange rate forecasting. This paper examines the effects of the number of inputs and hidden nodes and the size of the training sample on the in-sample and out-of-sample performance. The Indian Rupee (INR) / US Dollar (USD) is used for detailed examinations. The number of input nodes has a greater impact on performance than the number of hidden nodes, while a large number of observations do reduce forecast errors.Comment: 12 Pages, 3 Figures, ISSN:2230-9616(Online);2231-0088(Print

Artificial Neural Network and Time Series Modeling Based Approach to Forecasting the Exchange Rate in a Multivariate Framework

Any discussion on exchange rate movements and forecasting should include explanatory variables from both the current account and the capital account of the balance of payments. In this paper, we include such factors to forecast the value of the Indian rupee vis a vis the US Dollar. Further, factors reflecting political instability and lack of mechanism for enforcement of contracts that can affect both direct foreign investment and also portfolio investment, have been incorporated. The explanatory variables chosen are the 3 month Rupee Dollar futures exchange rate (FX4), NIFTY returns (NIFTYR), Dow Jones Industrial Average returns (DJIAR), Hang Seng returns (HSR), DAX returns (DR), crude oil price (COP), CBOE VIX (CV) and India VIX (IV). To forecast the exchange rate, we have used two different classes of frameworks namely, Artificial Neural Network (ANN) based models and Time Series Econometric models. Multilayer Feed Forward Neural Network (MLFFNN) and Nonlinear Autoregressive models with Exogenous Input (NARX) Neural Network are the approaches that we have used as ANN models. Generalized Autoregressive Conditional Heteroskedastic (GARCH) and Exponential Generalized Autoregressive Conditional Heteroskedastic (EGARCH) techniques are the ones that we have used as Time Series Econometric methods. Within our framework, our results indicate that, although the two different approaches are quite efficient in forecasting the exchange rate, MLFNN and NARX are the most efficient