From the
introduction part we have seen that the variation in exchange rate poses a
great challenge in the country’s economy. We cannot eradicate that problem but
we can at least reduce the impact by having the awareness and knowledge of the
future exchange rates. Tanzania introduced financial sector
reforms in early 1990s. As part of the reforms, efforts were made to develop,
broaden and deepen the financial sector. This included liberalization of
foreign currency whereby private companies and individuals were allowed to
hold, buy or sell foreign currencies to authorized dealer or a Bureau de
Change. When foreign currency started to circulate in the market, its exchange
rate also started to move up and down. Exchange rate is one of the key measures
of economic performance which shows growth (output), demand conditions, and the
levels and trends in monetary and fiscal policy stance. The exchange rate is
one of the most important determinants of a country’s relative level of
economic health.

Exchange rate
plays a vital role in a country’s level of trade, which is critical to most
every free market economy in the world. For this reason exchange rates are
among the most watched analyzed and governmentally manipulated economic
measures. But exchange rates matter on a smaller scale as well, they impact the
real return of an investor’s portfolio. In fact it is worth noting that
exchange rate movements affect the nations trading relationships with other
nations. A higher currency exchange rate makes a country’s exports more
expensive and imports cheaper in foreign markets, while a lower exchange rate makes
a country’s export cheaper and imports more expensive in foreign markets. A
higher exchange rate can be expected to lower the country’s balance of trade,
while a lower exchange rate would increase it.

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In Tanzania
and precise in this topic “forecasting
of exchange rates using box Jenkins”
has not been researched enough. For that reason I want to undertake a proper
study on this area. This will assist to bring awareness of the expected future
exchange rates. It will also help Institutions that are affected by the
exchange rates to have a proper knowledge of the future and have a proper
planning in time.

Author