Abstract
This article seeks to examine the impact of the Bangladesh’s stock market development on its economic growth from the period of 1989-2012. We have used Johansen Cointegration test to estimate the long-run equilibrium relationship between the variables and the Granger causality test was conducted in order to establish causal relationship, while the model was estimated using the error correction model (ECM). Johansen co-integration test results show that the Bangladesh’s stock market development and economic growth are co-integrated. This indicates that a long run relationship exists between stock market development and economic growth in Bangladesh. The causality test results suggest a unidirectional causality from stock market development to the economic growth. On the other hand, there is no “reverse causation” from economic growth to stock market development. The evidence from this study reveals that the activities in the stock market tend to impact positively on the economy. It is recommended therefore that stock market regulatory authority should therefore address policy issues that are capable of boosting the investors’ confidence through improved policy formulation and creation of awareness.
Highlights
The movement of goods, services and financial assets take place across the frontiers of countries each with its own domestic currency
The exchange rate that is delivered immediately is known as spot rate as against forward exchange rate that is consummated in the future measured with premium or discount
First and foremost, let’s graphically describe the data to show the behaviour of exchange rate and to employ descriptive statistics to know the distribution of exchange rate in Nigeria
Summary
The movement of goods, services and financial assets take place across the frontiers of countries each with its own domestic currency. Economic interaction is only possible if there is a specific link between currencies so that the value of a particular or a given transaction can be determined by both parties in their own respective currencies This indispensable link is the foreign exchange rate; which is the price of a domestic currency to the currencies of other countries, or the price of a domestic currency in terms of foreign currency i.e. one unit of domestic currency can afford. The exchange rate that is delivered immediately is known as spot rate as against forward exchange rate that is consummated in the future measured with premium or discount This movement of goods and services involves foreign exchange risk because the value of transactions in different currencies is sensitive to exchange rate changes. It is possible to manage a firm’s foreign currency denominated assets and liabilities so as to avoid exposure to exchange rate changes; the cost involved is not always worth the effort (Husted and Melvin, 1993)
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