Hedge between Dollar Index and Oil Pricing

By

ACKNOWLEDGEMENT

My thanks go out to all who have helped me complete this study and with whom this project may have not been possible. In particular, my gratitude goes out to friends, facilitator and family for extensive and helpful comments on early drafts. I am also deeply indebted to the authors who have shared my interest and preceded me. Their works provided me with a host of information to learn from and build upon, also served as examples to emulate.

DECLARATION

I, (), would like to declare that all contents included in this thesis/dissertation stand for my individual work without any aid, and this thesis/dissertation has not been submitted for any examination at academic as well as professional level previously. It is also representing my very own views and not essentially which are associated with university.

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ABSTRACT

This research is an attempt to study the hedge between the oil prices and the dollar value. Dollar is used a medium for pricing oil, and as the value of dollar reduces; the individual's power to purchase oil also reduces. The producers of oil also reduce their supplies in the market for the purpose of pushing the prices of oil in the market and restoring the power to purchase. This research has adopted a secondary quantitative approach and the data has been collected for the period of ten year for oil price and the dollar value (yearly average). Correlation has been tested between both the variables. The results of this research study showed that the relationship between dollar value and oil prices is 78.2 percent. Therefore, this means that there is significant relationship between the oil prices and the value of dollars over the period of ten years.

ACKNOWLEDGEMENTII

DECLARATIONIII

ABSTRACTIV

CHAPTER 01: INTRODUCTION1

1.1 Background of the Study1

1.2 Aim and Objectives2

1.3 Research Questions3

1.4 Hypothesis3

1.4 Layout of the Dissertation3

CHAPTER 02: LITERATURE REVIEW4

2.1 Introduction4

2.2. Oil Prices4

2.3 Oil Prices and Dollar Index5

2.4 Hedge between Dollar Index and Oil Prices6

CHAPTER 03: RESEARCH METHODOLOGY9

3.1 Introduction9

3.2 Overview of the Quantitative Method9

3.3 Overview of Secondary Method9

3.4 Correlation Analysis10

3.5 Sample11

CHAPTER 04: DISCUSSION AND ANALYSIS12

4.1 Introduction12

4.2 Correlation Analysis12

4.3 Factors that Affect the Oil prices and the Dollar Value12

4.3.1 Nominal and Real Oil Prices12

4.3.2 Dollar Value in Relation to Major Currencies14

4.4 Supply and Demand of Oil19

4.5 Discussion22

CHAPTER 05: CONCLUSION24

REFERENCES26

APPENDIX29

Data29

CHAPTER 01: INTRODUCTION

1.1 Background of the Study

According to Zhang& Fan (2008) it is obvious that an rise in prices of oil and the reduction in the value of dollar exchange are connected to a number of events, which causes the relationship between these two. Dollar is used a medium for pricing oil, and as the value of dollar reduces; the individual's power to purchase oil also reduces. The producers of oil also reduce their supplies in the market for the purpose of pushing the prices of oil in the market and restoring the power to purchase. This thinking as been reasoned by a number of researchers by highlighted the events that took place in the year 1973 and the years 1979, where the prices of oil increased ...