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Model for Currency Exchange Rates and Its Validation

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  • Precha Thavikulwat

    (Towson University)

Abstract

A volume-independent model for currency exchange rates in international business gaming simulations is presented that is shown to be stable, simple, and fair. Based on foreign holdings of money, the model pegs exchange rates to allow for currency speculation. The effects of international trade, deposits, loans, and investments are discussed. Proof is given that the model is self-limiting and risk compensating. An empirical study of the model was conducted with 116 undergraduates participating in an international-business gaming simulation. Results show that in the very long term, currency values of the model move in rough correspondence with monetary theory, and in the short term, a high degree of uncertainty with no repeating pattern is evident. Uncertainty rose with the elapse of time between observations at the rate of about 1% per period. The adequate model is sensitive, capable, stable, simple, and fair.

Suggested Citation

  • Precha Thavikulwat, 2002. "Model for Currency Exchange Rates and Its Validation," Simulation & Gaming, , vol. 33(1), pages 5-27, March.
    • Handle: RePEc:sae:simgam:v:33:y:2002:i:1:p:5-27
    DOI: 10.1177/1046878102033001001
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    References listed on IDEAS

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    1. Steve Bankes, 1993. "Exploratory Modeling for Policy Analysis," Operations Research, INFORMS, vol. 41(3), pages 435-449, June.
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    Cited by:

    1. Joseph Wolfe & Steven Gold, 2007. "A study of business game stock price algorithms," Simulation & Gaming, , vol. 38(2), pages 153-167, June.
    2. Precha Thavikulwat, 2004. "The Architecture of Computerized Business Gaming Simulations," Simulation & Gaming, , vol. 35(2), pages 242-269, June.
    3. Precha Thavikulwat, 2011. "A First Life With Computerized Business Simulations," Simulation & Gaming, , vol. 42(3), pages 372-383, June.

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