Forecasting USD to INR foreign exchange rate using Time Series Analysis techniques like HoltWinters Simple Exponential Smoothing, ARIMA and Neural Networks Vipul Mehra December 20, 2017 Abstract Forecasting the exchange rates is both a challenging and important task for the modern traders, people working in the financial markets and general population across the globe. In this paper we will be utilizing the time series concepts to do an analysis and predict the daily exchange rates of the Indian Rupee (INR) against the United States Dollar (USD). This paper will investigate and compare different forecasting techniques like ARIMA, Holt-Winters simple exponential smoothing and Neural networks. Further, utilizing the above techniques investigate the behavior of daily exchange rates of the Indian Rupee (INR) against the United States Dollar. (Daily exchange rates from 19th November 2007 to 18th December 2017 were used for the analysis [1]. 1 Introduction Money in the form of currency, in today’s world is an essential component for our lives like food, water and air is required. It is used to intermediate the exchange of goods and services and also other money transactions among people, countries etc. Before we address the issue of Foreign exchange rate, we need to discuss why money as currency was adoped as a medium of exchange by people across the world and adopting of money in the form of currency by every nation. Why money adopted as medium of exchange: Money in fact has replaced the old barter sys- tem, where goods were exchanged according to individual needs. The barter system was very cumbersome and inefficient as it was based on "coincidence of wants", which was very problematic. The following explanation will clarify ’why Barter system was inefficient and problematic?’For instance, a person has goats but need mangoes, he then must find someone who has mangoes and also has the desire for goat meat. What if he finds someone who has the need for goat meat but doesn’t have mangoes and can only offer you cakes? Then to get your goat meat, he or she must find someone who has mangoes and wants cakes! oooff!...and so on -what a cumbersome, tiring process, just for having some mangoes! The problem doesn’t end here. Even if the person find someone with whom to exchange goat meat for mangoes, he may not find it feasible to buy a Kg of them in exchange of a whole goat. Then he is required to devise a way to divide his goat and determine how many mangoes he is willing to take for certain parts of his goat meat, a very very messy way to trade just for 1 Kg. of mangoes. Money as a commodity for exchange of goods and trade could solve all these issues and proven very convenient medium of exchange. Therefore nations adopted money in the form of currency of a nation. Why need for exchange rates Exchange rates for inter nation currencies are prices just like price of any other commodity. The exchange rates change based on the economics of supply and demand. The currency of nation ’A’ appreciates relative to currency of nation ’B’ if the citizens of nation ’B’ want to buy A’s currency. 1