Volatility of foreign exchange rate/currency has become a major challenge for both global and domestic businesses. Events like Brexit, Trade wars, oil price volatility, political leadership of democratic and autocratic, religious and terrorist-related factors, Technology disruptions are the factors that suddenly impact the currency movement and lead to business losses in spite of hedging tools. Interest rate policy changes also impact the treasury income of banks, financial institutions and investment banks. Even though it is difficult to predict currency volatility, it is necessary to understand the factors impacting volatility and model them using simple tools.
This tool tries to create a model that can capture holistically most of the factors that impact currency volatility and helps with a score that will guide taking policy or strategic decisions by the management or a regulator. It identifies all the factors and grouping them into five categories namely Technical, fundamental, News, Correlation among asset classes, policy and regulatory factors. Each of these factors is further divided into sub-groups, and quantitative information is collected and weights are assigned to these sub-factor and five factors. Scores are computed for category-wise and also as the total score. These scores will help in decision making in terms of trading, investment decisions of various currencies.
