Currency Exchange Prediction using Artificial

Neural Network

Ridhima Ajay Sawant
Department of CSE, ACE
Mumbai, India
Dipali Pendhari Varshini Ramaraj
Department of CSE, ACE Department of CSE, ACE
Mumbai, India Mumbai, India


Abstract In today's global economy, accuracy in forecasting
the foreign exchange rate or at least predicting the trend
correctly is of crucial importance for any future investment. The
use of computational intelligence based techniques for forecasting
has been proved extremely successful in recent times. In this
paper we use Artificial Neural Network to predict the exchange
rates of four major currencies, namely USD (US Dollar), JPY
(Japanese YEN), EURO and GBP (Great Britain Pound) with
respect to INR (Indian Rupee).
KeywordsArtificial Neural Network; Support Vector
Machine; style; styling; insert (key words)
I. INTRODUCTION
The prediction of financial time series is a topical problem
of economics because different economic parameters influence
the changing currency exchange rates. It was previously
assumed that financial time series are random but in the 1980s
the theory of deterministic chaos suggests that a financial time
series is a dynamic system and that there are many hidden
conformities which characterize the system condition and
allows us to calculate system values at every point of time from
initial values by some special convention. It is possible to solve
this task using different methods, for example, a technical
analysis or a neural network analysis. The objective of this
paper is to show the use of an Artificial Neural Network in
predicting the currency exchange rate.
Currency exchange is the trading of one currency against
another, thats why it is also called foreign exchange or forex,
in short. A very common example of this is when someone say,
an Indian travels to USA, he converts his home currency ,ie
INR to USD.
The forex market is the place which determines the relative
value of the currencies. By now we would have easily guessed
that Forex is the largest and most liquid of the financial
markets in the world, with an approximate $4 trillion traded
every day.
II. COMPARISON
A. With Traditional System
Predicting currency exchange rate and handling enormous
data with traditional time series analysis has proven to be
difficult. Thats why we want to design our system using an
artificial neural network. An artificial neural network is more
suitable for the task because no assumption about a suitable
mathematical model has to be made prior to forecasting. Also
being a stochastic method it can reach the near optimum
solution in relatively lesser time. Furthermore, a neural
network has the ability to extract useful information from large
sets of data, which is required for a satisfying description of a
financial time series.
B. With Existing System
Our system is designed in such a way that all the major
currencies are converted with respect to Indian Rupees. The
system allows the prediction of major currencies like USD(US
Dollar), GBP (Great Britain Pound), JPY (Japanese Yen) and
EURO. The user is also given an option to select the currencies
that he wants to convert rather than having all the currencies
converted simultaneously which would make the system
slower.
III. IMPLEMENTATION
Our system is divided into four basic modules. The first one
is the Input collection. They are also known as Indicators as
they indicate the economic conditions of a country as well as
the value of its currency. The secnd module is necessary
because we soon realized that there were too many indicators
available. So we decided to optimize our indicators beforehand
so that we process only those indicators that atleast marginally
affect the exchange rates. For this purpose, we use a method
called as Support Vector Machine. The final indicators are then
given to the ANN for processing. This is the third module and
it is the training phase of our system and like any other
software development life cycle it is followed by the testing
phase which tells us exactly how accurate our system is.
Finally, lets see all these modules in more deyail.

A. Input Collection
Using financially renowned sites like RBI archive, Yahoo
Finance and World Economics, we try to figure out the
INPUT OPTIMIZE PROCESS TEST
technical and fundamental indicators which are the reason for
the currency exchange rates plummeting or rising daily. We
also derive the historical data from previous years so as to use
it for training our system. Since we have multiple inputs for the
same currency exchange rate, we use a clustering algorithm
like K-means.
B. Pruning of Indicators
In this module, we optimize our indicators before
processing them. This which technical indicators give us
the highest probability of prediction. We will have an array
of data at our disposal, and it gives us the highest
probability of indicators which we would use in the later
modules. We use Support Vector Machine for this module
as it is used for optimization. It is intended for the
maximization of profit and thus will give us the optimum
indicators needed.

C. Processing
We use ANN in order to get us a predicted value for the
currency exchange rate. We program the network using
MATLAB functions in such a way that it gives us our desired
output. We are using BackPropagation Algorithm for this
purpose. In this algorithm, there are three stages- Input layer,
Hidden layer and Output layer. In the first stage, we input all
the indicators from the previos module. From here, the sigmoid
function in the hidden layer will then calculate the value and
give us an output that is the predicted rate of exchange.In the
output layer, the predicted rate is then compared with the actual
rate that we have collected as input and the margin difference is
noted down. This value is then sent back to the input layer. The
weights in the hidden layer are corrected so as to minimize the
difference between the two.
After all the tuning of the neural networks, we get a value
which is as close as possible to the actual value. Now, we can
use the system to predict the exchange rates. The system is a
self-adjusting ,self-correcting, self-learning program which will
give a high accuracy.

D. Testing
Finally, we have the Testing module. From all the data we
have collected, about 80% goes into the training module.
The rest of the data (20%) is used for testing the data and
confirming that the system works well.
IV. HARDWARE & SOFTWARE REQUIREMENTS
Our system uses no extraneous hardware components for
either collecting date or processing it. We are creating our
system on a Windows operating ssystem. Our system will work
on a Windows 7/XP/8 opearting sytem. For collecting data, we
are using Weka software. Similarly, Matlab software will be
used for processing the input data.
V. FUTURE SCOPE
Our system can be used by everyone from international
traders and investors to students who want go abroad to pursue
higher studies. If a business exports or imports goods or
services, the management needs to consider how they will
protect themselves against changes in the exchange rate. A
tiny variation in the exchange rate could cost their business
lakhs of Rupees. Theyll also need to decide how to make and
receive payments in foreign currencies. Our system would
therefore be helpful to them.
VI. CONCLUSION
As researchers and investors strive to out-perform the
market, the use of neural networks to forecast currency
exchange rates will be a continuing area of research. The
ultimate goal is to increase the profit from the investment. It
has been proven already through research that the evaluation
of the return on investment in forex markets through any of
the traditional techniques is tedious, expensive and a time
consuming process. In conclusion we can say that if we
train our system with a large input data set it will generate a
minimal error prediction exchange rate.

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