Forecasting Thai Baht vs U.S. Dollar Rates Using the ARIMA Model

Abstract

Since Thailand adjusted to implement a floating exchange rate regime, the exchange rate of the Thai baht against the U.S. dollar has been changing all the time. This has affected loss or gain profits for international business transactions as a result of foreign exchange rate fluctuations. This study aims to create a model to estimate and forecast the exchange rate of the Thai baht against the U.S. dollar based on analysis of the time series using the ARIMA model and a data collection from )anuary 2011 to November 2014. The findings reveal that during the study period the THB/USD exchange rate fell between THB 29-33 / USD. The findings also indicate that the appropriate ARIMA model for forecasting the exchange rate of THB/USD is (1, 0, 0) (1, 1, 0). When using this model to predict the exchange rate of THB/USD in the second half of the year 2015, it turns out that the exchange rate tends to be stronger, reaching THB 33-34 / USD. This currency movement is consistent with the fact that the U.S. economy is slowly recovering. Therefore, business transactions dealing with USD should be done with extreme care. Traders, especially importers, are recommended to have risk assessment and preventive measures because the U.S. currency is likely to become stronger.