Abstract
This paper attempts to provide an evaluation of the selection and assessment of exchange rate options for the economy of Saudi Arabia. It examines the impact of changes in oil and petroleum prices, the results specify that adjustment in foreign savings, supporting fixed real exchange rate in the context of changes in oil world prices, quite effectively can isolate the domestic economy from international price fluctuations. If the economy is forced to adjust to the fall in world prices without offsetting changes in foreign savings, the resulting loss of export earnings and associated depreciation have major impacts on aggregate absorption and the structure of production.
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