A Study on the Change of U.S. and
European Foreign Exchange Rate in
Relation to the Industrial Price Index, Real
Gross Domestic Product, Civilian
Unemployment Rate, and the Total
Number of U.S. Workers in the Economy.
By, Maria Cumbe
Student #: 0379595
EC 311
Abstract
This study exams the relationship between the dependent variable, U.S. and
European Foreign Exchange Rates, and the independent variables, Industrial Price Index,
Real Gross Domestic Product, Civilian Unemployment Rate, and Number of U.S.
Workers in the Economy. The data consists of quarterly recorded data points for the
period 1999-2014, resulting in a sample size of 63. The data has been analyzed using the
method of Ordinary Least Squares (OLS). We find that for the sample size, an inverse
relationship exists between the U.S. and European Foreign Exchange Rates and the
Industrial Production Index, the Civilian Unemployment Rate, and the Number of U.S.
Workers in the Economy. And a direct relationship exists between The U.S. and European
Foreign Exchange Rates and the Real Gross Domestic Product.
I. Introduction
When people in one country demand products from firms located in another
country, they enter into another market first, to buy that nation’s currency. Supply and
demand for products must shift their demand or supply in order to adjust for the change
of prices for the products. The same relationship exists between the change in Price of a
Foreign Currency in U.S. Dollars and the quantity demanded. The price of foreign
currency, in terms of U.S. currency, is referred to as the foreign exchange rate. It tells
how many U.S. dollars are needed to purchase one unit of foreign currency.
