Balčiūnas, Andrius

The purpose of this article is to assess exchange rate forecasting possibilities with an information flow approach model. In the model the three types of information flows are distinguished: fundamental analysis information flow through particular macroeconomic determinants, microstructure approach information flow through dealer clients’ positioning data, technical analysis information flow through technical indicators. By using regression analysis it is shown that the composed model can forecast the exchange rate, the most significant information flows are distinguished. The results lead to further development of the information flow approach as a tool to forecast exchange rate fluctuations.

Trading in foreign exchange market is becoming more and more popular for retail traders while the segment composes 8-10 % of the overall foreign exchange market turnover. On the other hand, based on brokers‘ survey, less than half of the retail trading accounts were profi table in Q4, 2014. This fact raises a question why so many traders are unable to make profits while trading in foreign exchange markets. With technical analysis is gaining popularity in foreign exchange markets, an attempt to make a forex trading strategy based on technical analysis tools is done in the study. After presenting the research in the technical analysis field and discussing on essential components of a proper trading strategy, a forex trading strategy was composed. Although during the randomly selected period for the research the trading rules based on the technical analysis showed negative results, the performance of the strategy was improved by applying stop loss positions for the trades. Therefore it is showed that negative performance of the trading strategy can be solved by managing losses from the trades, on the other hand, the position might be stopped out because of market volatility.

This research shows how U.S. and German government bond yields can determine the EUR/USD exchange rate in the short run. After presenting the discussion on fundamental, technical and microstructure approach exchange rate determination models, a conclusion is made that out of the components of fundamental models the interest rates could be the best determinants for explaining exchange rate fluctuations in the short term. For the research the mostly traded currency pair, the EUR/USD, was chosen and 2-year, 10-year U.S. and German government bond yields were selected as determinants of the exchange rate. After performing the linear regression procedure it has shown that the model can determine 5 per cent of the daily EUR/USD fluctuations with a change in 2-year U.S. government debt yield being the greatest determinant in the model. It affects the exchange rate as it is stated in the uncovered interest rate parity model – when the yield increases, the USD declines against the euro and vice versa. Another finding is that an increase in the German 10-year government bond yield increases the price of the euro and the increase in the U.S. 10-year debt yield leads to an appreciation of the USD.

The purpose of this article is to analyze the evidence of social responsibility among the foreign exchange brokers’ activities. Since socially responsible activities are becoming more and more common in nowadays world, most of the studies in the field focus on social responsibility of financial institutions, whilst there are few studies covering the activities of foreign exchange brokers. While trading in foreign exchange market is becoming more and more popular for retail investors, there is a reason to assess the social responsibility of foreign exchange brokers. In the article, after performing the analysis of previous studies regarding social responsibility in the financial sector, the evidence of social responsibility among foreign exchange brokers is analyzed. For this research the activities presented in the websites of the most popular Lithuanian Forex brokers were compared to the information provided by the largest foreign exchange brokers. It is showed that the largest brokers involve themselves into socially responsible activities more than the popular ones operating in Lithuania.

The two approaches to exchange rate determination are presented in the article. After analyzing the previous research in microstructure approach ant technical analysis to exchange rate determination fields a model of the two information sources is composed. Dealer retail clients’ positioning ratio was chosen as a proxy for order flow information, two moving average indicators and a difference between them are used as technical analysis information source. While the purpose of the research is to show the exchange rate determination possibilities of the model, after performing linear regression for the three mostly traded exchange rates it is showed that the model can determine up to 54.4 per cent of the fluctuations in the exchange rates. The best results were obtained for the EUR/USD exchange rat, while the determination coefficients for USD/JPY and GBP/USD were 36.5 per cent and 40.5 per cent respectively.

The main fundamental models for nominal exchange rate forecasting are discussed in this article. After presenting purchasing power parity, interest rate parity, Mundell-Fleming, flexible price and sticky price monetary, portfolio balance and microstructure models, the main drawbacks and advantages of these models are presented. The authors conclude, that exchange rate forecasting field still requires more studies, because so far the most promising microstructure approach has serious drawbacks which might affect the validity of the model, moreover, there is no clear theoretical classification of fundamental and alternative models.