The value of a country’s currency is linked to its economic policies and that’s why the situation gets so volatile and dynamic at times. There are numerous fundamental and technical reasons which influence the exchange rate of one currency versus another. Along with affecting the domestic economy, currency fluctuations can have a wide-ranging impact on the global economy as well. A change in the currency levels also affect a majority of key economic variables, including the typical consumer. Although forecasting exchange rates is a very daunting and multi – faceted task, economists and investors have always looked for viable options to derive the exact monetary value. The existing methods of forecasting are complex and none have been shown to be superior to any other. Although there have been theories to predict future exchange rates; all of them have their own limitations.
Breaking this jinx, a father-son duo has hit the market with an ‘Advisory Service’ model. The model is conceptualized and designed by the father-son duo of Vinay Kshirasagar (father) who is the CFO of Indian Register of Shipping and Omkar Kshirasagar (son) who works as an Equity Research and Trading Desk Manager with Axis Bank. They are the pioneers in formulating this forecasting model which is driven by mathematical and statistical values. They have picked seven quantifiable factors like interest rates, inflation, growth rate, CAD, as a percentage of GDP and crude oil consumption, per capita income and FDI as a percentage to GDP to develop this model. “We have plotted all the seven macro-economic factors from 1980 to 2016 and calculated their differentials and worked out a model from which mathematical exchange rate is calculated from 1980 to 2016” asserts Vinay.
Based on key macro-economic factors of the US and India, they have come up with a statistical and mathematical model which has a great degree of accuracy. This model provides a forecast based on inputs filled by the users with the help of software. The forecast is available in three modes – quarterly, half-yearly, and annually. The related information about the model and the forecast, including an e-book can be fetched through ‘www.usdinrforecast.com’. It also assists in imparting knowledge about advisory services in foreign currency transactions to financial students and industry professionals. This exchange rate forecast can provide valuable input to take informed decisions and helps to minimize risk and maximize returns. As they are predictions of future events, it carries huge relevance for everyone – business conglomerates, MNC’s, entrepreneur, or even an individual.
Goal and Motive
With a professional journey spanning over three decades, Vinay is an exceptional leader with an ingenious mind. His passion to innovate a model of foreign currency forecast which can mitigate the risks and limitations is an effort to create a secure and positive business environment. He believes that minimizing the currency loss for business houses can assist in increasing the exchequer of the nation. Further, he feels that wrong prediction of exchange rates especially in imports and exports have led to inflation. He gets motivated by the dynamic changing economic scenario which prevails in the country. When asked about the one thing which keeps him motivated, Vinay articulates, “No theory can sustain for a long time in this dynamic changing economic environment as businesses face new challenge every day. Companies are forced to develop strategies on a continuous basis as a result of the external risk changing scenarios”.
Industry Scenario from the Experts’ Point of View
Vinay is a perfect example of an exemplary leader and a seasoned professional. His association with Shreyas Shipping and logistics as a CFO for twelve years and as a GM in Chowgule Steamship for fourteen years prior joining IRS has enriched his knowledge about the ongoing economic trends in the country. Explaining the present industry scenario Vinay feels that the industry is in a challenging and competitive state at the moment. With globalization, majority of companies are partnering with foreign brands and have a lot of foreign currency exposure in the form of loans, imports, exports to name a few. This has an adverse effect on the economy as it has increased the foreign currency fluctuation risk. Additionally, it has become imperative to manage the internal and external financial environment of the country.
In-Depth Research – 1st Step towards Innovation
In-depth analysis and statistical logics are the foundations of this research. Years of research and neck-deep analysis of the micro-economic data of the US and Indian economy has provided the breakthrough results. To be logical and accurate, the duo took the mammoth task of comparing and researching the data available for last thirty-six years. Extensive study of key factors like lending rate, inflation, growth rate, crude oil, PCI, FDI, and CAD as a percentage of GDP led to project the actual figures which were precise and accurate.
This research proved that based on the above factors, this model can calculate the exchange rate with more than ninety percent accuracy. Further, these model variables were tested using the regression analysis method which led to a perfect correlation and an equation was derived for forecasting the exchange rates. To attain maximum accuracy, the duo further refined the model using ‘Exponential Smoothing’ and ‘Moving Average Methods’. The regression test combining the earlier model and the two new methods made the Kshirasagar’s highly ecstatic and convinced of their research. The result showed ninety-six percent correlations and ninety-three percent dependencies with only approx. 3.5% standard error which was a milestone achievement.
Key Components of USD INR forecast Model
Exponential smoothing and Moving average method are the key components which have been used by the duo to build the forecast model. Elaborating on the two components, Vinay explains “Exponential smoothing is used for making some determination based on prior assumptions by the user, such as seasonality. Thus, to give the impact of seasonality, lag variables can be used to resolve the short-term volatility in the data so that to make the data more immune to short term hiccups. We have performed exponential smoothing on the arithmetic model by giving certain weights to the value derived by respective models of the current year and previous year (lag variable). A Moving Average is a calculation to analyze data points by creating a series of averages of different subsets of the full data set. This subset is revised by shifting forward; which refers to exclude the first number of the series and including the next number following the original subset in the series”. In their endeavor to build a stringent model, the duo collected the moving average data for four years to include the variance of multiple years. This model has also been vetted by a senior reputed Statistician for its practical implementation and mass usage in forecasting exchange rates.
Awards, Accolades and Achievements
As a business leader, Vinay’s business acumen is unmatched. His domain expertise has won him various awards and recognition over the years. Some of the mentionable awards include:
- CFO 100 Awards for four consecutive years from 2010 to 2013
- Indira Super Finance Achiever Award in 2013
- The Pride of India – Bhaskar Award in 2015
- Most influential CFO Award by CIMA, London in 2015 and 2016
In 2015, the model had predicted the exchange rates for 2016, 2017 and 2018 and so far the results are ninety-six percent accurate. No other existing model can match up this level of precision which puts it ahead of the league.
A Leader cum Successful Author
Vinay has authored a book in 2015 entitled as ‘INR-USD forecast an Innovative Thought’ which has been well-acclaimed by readers. The book was well-received and prominent companies, banks; management institutes requested Vinay to conduct exclusive interactive sessions regarding the model and the book. The book focuses on the advisory services model and talks in detail about the economic parameters affecting the exchange rate. All the seven parameters are explained and their relevance is discussed. It talks about how to build a mathematical model based on the seven parameters and perform the regression test for the same.
Motivated by the enormous response and accolades received for his first book, Vinay authored a revised and updated second edition of the book titled as ‘USD INR FORECAST AND RISK MANAGEMENT TECHNIQUES’. This book introduces and decodes the concept of exponential smoothing and moving average method along with explaining the outcome of the regression tests combining these parameters.
Advice for the Budding Entrepreneurs
Vinay wants the upcoming entrepreneurs to have a clear focus on their venture along with defining a strategy for the business. He feels that an entrepreneur must be agile and swift to adapt the changing business environment and take necessary actions. He also feels that entrepreneurs should nurture the habit of creating values based on their good governance.
True to his business instincts, Vinay is unstoppable! Currently, he is engaged in collecting information and knowledge to establish a relationship of euro and pound with US dollars. He also plans to develop a software platform which will dynamically forecast the exchange rates.
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