Essay Example | Topics and Well Written Essays - 1000 words - 39

Essay Example After the data collection, average method has been used to derive monthly averages of currency exchange rates. The analysis starts from correlation test to understand the nature of relationship. After that graphical interpretations have been developed to analyse the trends in data. Finally, criticism on data has been presented with a few recommendations to improve the method of data collection. Moreover, primary data collection sheets have been also presented to improve the quality of data. Correlation analysis has been done to analyse the nature of relationship between exports and imports and exchange rates of the countries. For example, how the collected eleven months data of Chinese Yuan is correlated with Chinese exports and imports. The correlation of Yuan with Chinese exports gives 0.59, which means that a positive correlation exists between Chinese exports and Yuan (Table IV – Appendix). In other words, with increase in the value of Chinese Yuan against Dollar, the exports of China to the United States will increase. Although the data has been collected from very reliable resource still, the derived values of correlation are giving very different results. According to economic concepts, the devaluation of currency is positively related to the exports and negatively related to imports of an economy. The reason is that devaluation of currency makes the products of the country cheaper in the international market and the demand of exports in international mar ket increases. Although the prices of the products decline however, the increased volume of exports enhances the exports value of the country. On the other hand, when goods become cheaper because of devaluation of currency, people need more money to buy the imported products therefore, the imports of the country from other states decline. Because of this relation between trade balance and currency exchange,