Abstract
Staff Studies is the bi-annual (March and September) peer-reviewed journal of the Central Bank of Sri Lanka. The Journal aims at stimulating innovative research for the analysis of current macroeconomic issues and policy challenges faced by central banks while providing a forum to present recent theoretical and empirical research.
Highlights
The exchange rate of a country’s currency is the value of its money for international trade in goods, services and finance
Using the Ordinary Least Squares (OLS) model, I found that my result shows a negative relationship between the exchange rate and inflation as the coefficient is negative, when inflation increases by 1 per cent rupee appreciates by 0.002 per cent
This study finds that the terms of trade is a determinant of the nominal exchange rate in Sri Lanka
Summary
The exchange rate of a country’s currency is the value of its money for international trade in goods, services and finance. It is part and parcel of the monetary condition of a country. The central banks, being the monetary authorities, have been given discretionary powers under the relevant statutes to manage the exchange rate as part of its monetary, financial and economic development policies. Various public views are often expressed as to how the central banks should manage the exchange rate and what factors should be taken into consideration. The changes in exchange rates will have both favorable and unfavorable impacts on economic activities and living standard of the public because of the largely globalized trade and finance involving the exchange of currencies. Appreciation of a country’s currency will have the following effects, whereas depreciation will have the opposite effects:
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