The two most common methods used for money exchange rates forecast are the fundamental approach and technical approach. In the fundamental approach, the forecast is made after taking into consideration the numerous factors that rise to long term effects. The factors that are taken into consideration are a country's GDP, inflation rate, productivity index, the rate of unemployment, and balance of trade. This method of calculation believes that the true worth of a currency will be realized eventually. So, this is the method that is used when it comes to long-term investments.

In technical approach, the way investors invest and feel are the basis for determining the exchange rate and making the forecast. In addition, the approach also takes into consideration foreign exchange data, positioning surveys and moving average trend based on the trading rules. This method of calculating and predicting is used to make short-term investment decisions.

Some important models used to for money exchange rates forecasts are the Purchasing Power Parity Model, Uncovered Interest Rate Parity Model and Random Walk Model.

The Purchasing Power Parity Model studies the movements of the exchange rate based on the changes of the price level in the country. The Uncovered Interest Rate Parity Model predicts the exchange rate based on the returns realized from the investment in the two target currencies. While the Random Walk Model makes an assumption that all information available on the movement of the exchange rate in the future is suggested in the prevailing exchange rate. And, any event in the future that causes a change in the money exchange rate is random.

The best and most efficient way to predict exchange rates is by using all three models together.

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