Foreign Exchange Market Case Study

1.1. Background of the Research Study

The frequently asked question of whether we can obtain excess profits from financial markets by forecasting financial time series is directly related to whether the financial markets themselves are predictable. After numerous tests and research, many financial economists have accepted the random-walk hypothesis, which states that financial market prices are indeed random because of market efficiency suggesting that prices of the financial market are unpredictable. However, others still believe that prices may move in trends and that past prices can be used to forecast future ones to some degree. Empirical studies, such as Muskan Karamchandani and Savera Jain’s “Indian Forex Market: Revisited through

In the Philippines, the country’s economy relies heavily on imports and exports and its currency highly affects these two. In the study of Agnes Yap and Cristeta Bagsic (2008), they examined evidence of significant changes in the volatility of the peso during 1980-2006. They also mentioned that the volatility of the currency in the Philippine foreign exchange market really affects a number of important variables specifically the profitability of the firms which they were focusing on. There are a lot of investors in the foreign exchange market such as the government, banks, companies and people. Yap and Bagsic also indicated in their study that even though there are regulations in the foreign currency transactions, market forces still determine the exchange rate which led to economic discussions about mechanisms to allow the economy to absorb shocks that a freely floating currency has (Yap & Bagsic, 2008). It was also mentioned by Karamchandani and Jain (2013), that a wider knowledge of functioning of the foreign exchange market is being demanded by the emerging dynamics of the worldwide