FORECASTING EXCHANGE RATE :A Uni-variate out of sample Approach

In this paper we tried to build univariate model to forecast exchange rate of Indian Rupee in terms of different currencies like SDR, USD, GBP, Euro and JPY. Paper uses Box-Jenkins Methodology of building ARIMA model. Sample data for the paper was taken from March 1992 to June 2004, out of which data till December 2002 were used to build the model while remaining data points were used to do out of sample forecasting and check the forecasting ability of the model. All the data were collected from Indiastat database. Result of the paper shows that ARIMA models provides a better forecasting of exchange rates than simple auto- regressive models or moving average models. We were able to build model for all the currencies, except USD, which shows the relative efficiency of the USD currency market.