Analyzing Bilateral Currency Exchange Rates in Predicting Economic Output‪.‬

INTRODUCTION This paper examines correlations between currency exchange rates and economic output in a country. Economic output is illustrated through Gross Domestic Product (GDP). Currency exchange relationships are explored between the United States and the following countries: Canada, Japan, and Sweden. The focus of the analysis is to what extent currency exchange rates and economic output, as measured by Gross Domestic Product (GDP), correlate either positively or negatively. If a country's currency appreciates relative to another country's currency, bilateral trade between each country finds prices cheaper in the country with the weaker currency relative to the country with the stronger currency. Thus, imports into the country with the weaker currency are less expensive and more desirable, while exports from that country are more expensive and less desirable to consumers in the country with weaker currency (Taylor, 2001).