Exchange Market Research Articles

Analysing the Factors Behind Exchange Rate Fluctuations in India

Abstract: The study gives an overview of the various determinants of the exchange rate movements in India. Out of the multiple factors affecting the Rupee-Dollar value the impact of Interest rate differential, Trade deficit of India, Foreign Net investment inflows to India, Oil prices, and Gold prices (in the short term) on the exchange rate has been studied using Regression analysis and correlation and the role they played by the above mentioned variables in determining the exchange rate during the Global Financial Crisis of 2008-2010 and during the Covid-19 Period from 2020-2023. Exchange rate fluctuations play a crucial role in shaping the economy of a country, and India is no exception. The exchange rate of the Indian rupee against major world currencies is subject to constant fluctuations, influenced by a multitude of domestic and global factors. These fluctuations have significant implications for various stakeholders, including businesses, consumers, investors, and policymakers. Several factors contribute to the exchange rate fluctuations in India. One of the primary factors is the demand and supply dynamics of foreign exchange. Factors such as trade balance, foreign direct investments, portfolio investments, remittances impact the demand for and supply of foreign currency, Crude oil prices, Gold prices, and thereby affecting the exchange rate. In addition, macroeconomic variables like inflation, interest rates, and economic growth also play a crucial role in determining exchange rate movements. For instance, a high inflation rate in India compared to trading partner countries can lead to a depreciation of the rupee. Global economic conditions and geopolitical events are other significant factors influencing exchange rate fluctuations in India. Economic developments in major trading partners, changes in global commodity prices, and geopolitical tensions can all impact investor sentiment and capital flows, leading to fluctuations in the exchange rate. For example, uncertainties related to Brexit or trade tensions between major economies can trigger volatility in currency markets. Monetary policy decisions by the Reserve Bank of India (RBI) also play a crucial role in influencing exchange rates. Interest rate changes, open market operations, and forex interventions by the central bank can impact the value of the rupee visa-vis other currencies. The RBI often intervenes in the foreign exchange market to stabilize the rupee or prevent extreme volatility. Apart from these factors, market speculation, investor sentiment, and technological advancements in the financial markets can also contribute to exchange rate fluctuations. High-frequency trading, algorithmic trading, and the use of complex financial instruments by market participants can amplify exchange rate movements and increase volatility

Production VAT elasticity on Nepalese economy without agriculture

Abstract This paper aims to investigate the flexibility of production Value Added Tax (PVAT) on Nepalese economy (excluding agriculture) by analyzing its impact on the production sector's Gross Domestic Product (PGDP). The study utilizes an explanatory research design to determine the relationship between PVAT and PGDP, exchange rate, market capitalization, money supply, and government spending as intervening variables. To establish a cointegrated regression model with time series data for the 20-year period from 2003/04 to 2022/23, a model specification is employed. The variables are converted into real prices using the GDP deflator, with the GDP deflator and CPI year 2013/14 considered equivalent to the base year 2013/14 according to the Nepalese fiscal year. Due to the presence of non-normal distribution, autocorrelation, and multicollinearity issues in the model, the data is transformed into first differences, and an error correction model is run. The F-test is significant at a confidence limit of over 99 percent, while the coefficient of determination is 0.245, indicating that 24.5 percent of the variations in the production sector PGDP are explained by the variables included in the regression model. Keywords: Elasticity, production, GDP, VAT, Economy

Forecasting the Performance of the Energy Sector at the Saudi Stock Exchange Market by Using GBM and GFBM Models

Future index prices are viewed as a critical issue for any trader and investor. In the literature, various models have been developed for forecasting index prices. For example, the geometric Brownian motion (GBM) model is one of the most popular tools. This work examined four types of GBM models in terms of the presence of memory and the kind of volatility estimations. These models include the classical GBM model with memoryless and constant volatility assumptions, the SVGBM model with memoryless and stochastic volatility assumptions, the GFBM model with memory and constant volatility assumptions, and the SVGFBM model with memory and stochastic volatility assumptions. In this study, these models were utilized in an empirical study to forecast the future index price of the energy sector in the Saudi Stock Exchange Market. The assessment was led by utilizing two error standards, the mean square error (MSE) and mean absolute percentage error (MAPE). The results show that the SVGFBM model demonstrates the highest accuracy, resulting in the lowest MSE and MAPE, while the GBM model was the least accurate of all the models under study. These results affirm the benefits of combining memory and stochastic volatility assumptions into the GBM model, which is also supported by the findings of numerous earlier studies. Furthermore, the findings of this study show that GFBM models are more accurate than GBM models, regardless of the type of volatility. Furthermore, under the same type of memory, the models with a stochastic volatility assumption are more accurate than the corresponding models with a constant volatility assumption. In general, all models considered in this work showed a high accuracy, with MAPE ≤ 10%. This indicates that these models can be applied in real financial environments. Based on the results of this empirical study, the future of the energy sector in Saudi Arabia is forecast to be predictable and stable, and we urge financial investors and stockholders to trade and invest in this sector.

Analysis of Trade Effects of Parallel Exchange Rate in Nigeria

Aims: The study examines the potency of parallel exchange rates in the movement of international trade in Nigeria. The monetary authorities have embarked on various exchange rate regimes basically because the supply of foreign exchange is not enough to meet the demand. Consequently, a parallel market for exchange rates exists and has become a strong and functional market in the country. But the reason for managing foreign exchange and by extension, introducing various exchange rate regimes was to correct the balance of trade disequilibrium. Yet the balance of trade deteriorates, particularly that of non-oil trade balance. Does the parallel exchange rate contribute to this or does it ameliorate it? Study Design: Descriptive, Correlation, and Regression analysis on time series data. Place and Duration of Study: Sample: Monthly data from January 2007 to December 2022 (2007:1-2022:12) were extracted from the online data repository of the Central Bank of Nigeria. Methodology: The autoregressive distributed lag technique was employed on monthly data between January 2007 and December 2022 (2007:1-2022:12). Results: The result indicates that the short-run dynamics of total exports (total imports) are negatively (positively) and significantly affected by parallel exchange rate. Generally, depreciation of the parallel exchange rate is detrimental to export particularly non-oil exports. Further, depreciation of parallel exchange rate encourages imports and highly persistent in influencing non-oil imports. The J-curve phenomenon breaks down for total balance of trade. However, the J-curve phenomenon cannot be confirmed in the case of oil trade balance because there is no information about the long run effect of parallel exchange rate on oil export due to the non-integration of the model. In the case of non-oil trade balance, the short-run outcome confirms the existence of the J-curve prediction. Conclusion: Following these results, it is recommended among others that government should activate a single market (window) for foreign exchange. Also, the authorities should ensure that importation of non-oil products such as exotic cars by government officials be stemmed.

Extreme weather, climate risk, and the lead–lag role of carbon

This study employs the thermal optimal path method to establish a framework for dynamic nonlinear connections between Chinese carbon and foreign exchange markets. Subsequently, it examines the effects of extreme weather events on the lead–lag role played by carbon. The empirical results indicate that China's carbon market typically lags behind its currency exchange market. Compared to the Hubei carbon market, the Guangdong carbon market experiences synchronized price movements between carbon and foreign exchange due to high pricing efficiency. Furthermore, shocks from extreme weather events can attract public attention to the carbon market and cause the typical lead–lag structure to reverse, whereupon the carbon market leads the foreign exchange market under such shocks, especially during heat waves. Our findings have implications for investors aiming for positive cumulative returns on hedging portfolios and policymakers wishing to bolster the financial market's ability to withstand exogenous shocks.

IS DE-DOLLARIZATION INEVITABLE?

Relying on relevant studies of internationally recognized economists, using content analysis, synthesis, and comparison methods, we monitor the process of de-dollarization, i.e. phenomenon of establishing a new balance of power in the global financial order. The main intention of the work is to project future directions of international monetary policy by pointing out the institutional and other barriers to the internationalization of the main contender for the status of global currency — the Chinese renminbi. The aim of the work is to provide guidelines to the creators of domestic economic policy in the context of the increased importance of non-Western currencies, and consequently, the need to rebalance the foreign exchange reserves and create the necessary infrastructure for the increased use of the Chinese currency on the domestic foreign exchange market. We conclude that despite a certain weakening of the global importance of the US currency — especially from the beginning of 2022 — the process of dedollarization is in its initial phase, and that could last for decades. Namely, in order to form a multilateral currency system, taking into account the current hegemonic status of the dollar, a substantial increase in the use of other currencies is necessary. This applies to world trade crediting, where the greatest, but still limited, progress of the yuan is seen, but also to the other domains such as the allocation of central bank’s foreign exchange reserves, the securities’ denomination, and the invoicing of financial transactions in bilateral trade and other arrangements.

Does Self-Control and Over-Confidence Influence Investment Decision: The Mediating Role of Fundamental and Technical Analysis

This study investigates the influence of self-control and over-confidence on investment decision-making, with a focus on the mediating role of fundamental and technical analysis. The respondents of the study are institutional investors operating in the Pakistan Stock Exchange Market (PSX), which includes the Lahore Stock Exchange, Karachi Stock Exchange, and Islamabad Stock Exchange. The behavior of these investors is assessed to determine the impact of stock market fluctuations on their investing decisions. The unit of analysis in this research is the institutional investors themselves. The study aims to examine the behavioral consequences of integrating self-control and overconfidence variables in investment decisions, particularly in relation to market instability and variations in fundamental and technical analysis. To select the sample, both stratified sampling and cluster sampling techniques were employed. Cluster sampling was used to save costs, while stratified sampling ensured that the sample accurately reflects the population. The states were divided into clusters to facilitate the use of cluster sampling. In terms of sample size, the study solely focuses on institutional investors in the Pakistan stock exchange PSX. Therefore, the sample consists of 375 institutional investors. Data collection for this study utilized a 5-point Likert scale, which is a commonly used measurement instrument for determining the relationship between variables. The scale allows respondents to provide their opinions on a continuum from strongly disagree to strongly agree. This approach enhances the originality and reliability of the data while minimizing respondent annoyance. Overall, this study aims to contribute to the understanding of how self-control and over-confidence influence investment decisions, with fundamental and technical analysis serving as mediators in the context of the Pakistan Stock Exchange Market. The findings from this research can provide valuable insights for institutional investors in their decision-making processes. Integrating self-control and over-confidence in investment decision-making aligns with SDG Goal 8: Decent Work and Economic Growth, by promoting responsible and sustainable investment practices.

Bond yield spreads and exchange market pressure in emerging countries

Bond yield spreads and exchange market pressure in emerging countries

The Military Rise of China: The Real Defence Budget Over Two Decades

ABSTRACT Despite growing tensions over China’s military build-up and modernization, there is little understanding of China’s defense budget. Published estimates vary implausibly from one quarter of the USA’s defense budget to near parity, and there are very few attempts to understand how its size or composition has changed over time. This paper uses index number techniques to quantify China’s real defense spending over time and relative to the USA. I construct price deflators and show that overall growth has been slower than thought, but also that there has been extremely rapid growth in real military equipment spending that has transformed China’s defense forces. China’s real defense purchasing power is also found to be 60% larger than commonly used market exchange rate estimates and equal to 59% of the USA’s defense budget in 2021. Notwithstanding the rapid growth in equipment, the high relative purchasing power mostly reflects China’s far larger number of active personnel.

High-Accuracy Forex Trading Prediction Model Using Machine Learning Algorithms

The foreign exchange (Forex) market, the largest financial market globally, involves the simultaneous buying and selling of currency pairs such as the United States Dollar (USD) and the Japanese Yen (JPY). Due to the high leverage and volatility inherent in Forex trading, retail investors and traders face significant financial risks. To mitigate this, a predictive model was developed using supervised machine learning to improve trading outcomes. A dataset comprising EUR/USD currency pair data from MetaTrader5, covering a period of 7 years (2015–2022), was streamlined to 5 years (2017–2022) for relevance. The dataset contained 13 features and 1,029 records, which underwent data cleaning and processing. Feature selection was performed using the Boruta package in R, and various machine learning algorithms were employed for model training and testing. The model’s accuracy was evaluated using the ROC curve and the Kappa statistic. The inclusion of the Simple Moving Average indicator improved forecast accuracy. Among the algorithms tested, the Generalized Linear Model (Logistic Model) performed best, achieving an accuracy of 86.28%, a specificity of 87.42%, a sensitivity of 86.5%, and an AUC (ROC) score of 86.97%. This predictive model has the potential to optimize profits, particularly in the context of binary options trading within the Forex market.

Formation of an Effective System of Currency Regulation and Control in Russia

In the course of the conducted research, specific problems of the system of currency regulation and control related to negative trends in the Russian foreign exchange market in modern realities have been identified. Based on the evolution of the global and domestic system of currency regulation and control, trends and priority directions of its development have been identifi ed. Measures have been formulated to improve the system of currency regulation and control and increase their effectiveness, which can be used to develop drafts of existing regulatory legal acts and to form the main directions of monetary policy in our country. The categorical apparatus of currency issues has been supplemented on the basis of a comprehensive review of the system of currency control and currency regulation from various points of view. The concepts of "currency control", "currency regulation" and "currency off ense" have been clarifi ed. The consolidation of the basic concepts at the legislative level,the introduction of a currency monitoring system will minimize the number of currency violations and reduce labor costs when working out violations. The study confirmed the need to develop alternative channels of work in connection with the shutdown of the SWIFT system and the promotion of integration processes within the EAEU, which will eliminate many economic risks and ensure Russia’s resistance to sanctions. The proposed innovations will help to develop foreign economic relations between the countries more efficiently, dynamically and qualitatively.

Whether the Corporation's Agency Costs Could Be Influenced by Marketization

As several financial Scandals happened in the last two decades, internal control become important in corporate governance. Most scholars illustrate that internal control is the key factor in improving the firm performance by reducing agency costs. The research mainly tests that agency costs, as the mediator of internal control and firm performance, could be influenced by marketization. And use the market index as the creative point in measuring marketization. Then the empirical evidence has been developed by listed corporations from the Shanghai Stock Exchange Market. The results showed that agency costs are effective in reducing the market with higher marketization. Agency costs are less significant in increasing firm value in provinces with lower marketization (governments with higher power over law). The fair value of the information disclosure, strict regulation and monitors, and less power of government over the law on the market are all important factors to influence agency costs.

What Makes HFTs Tick? Tick Size Changes and Information Advantage in a Market with Fast and Slow Traders

We study the impact of two changes in the minimum tick size, a reduction and a subsequent increase, on the trading behavior of fast and slow traders in the spot foreign exchange market. We find that the most notable impact of the tick size reduction is a substantial increase in the liquidity demand of high-frequency traders (HFTs) and not the decrease in their liquidity provision discussed by prior literature. We show that this change in behavior is linked to the higher frequency of price signals that arises with the smaller tick size and to the ability of fast traders to profit from it, often at the detriment of slower traders. Following the tick size decrease and the increase in liquidity demand by HFTs in the spot market, the role of the spot market in price discovery drops relative to that of the futures market. We discuss these findings in the context of the impact of HFTs on the information content of financial markets. This paper was accepted by Agostino Capponi, finance. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2022.02935 .

Pearson Correlation and Ordered Weighted Average Operator in The World Stock Exchange Market

Due to the large number of transactions carried out in the stock market, it becomes of great importance for the financial development of a country. Analyzing the correlation between indices in the world helps us to know the way towards the variables that impact. This paper proposes the use of ordered weighted average (OWA) operators in combination with Pearson Coefficient to create a measure of correlation that can analyze a wide range of possible scenarios that go minimum to maximum. The new frameworks can add additional information to the process of correlation. The work presents an application in ten of the largest stock exchanges in the world. The results suggest a broad positive correlation between them that is reinforced in times of instability.

Stochastic Exchange Rate Dynamics, Intervention Dynamics and the Market Efficiency Hypothesis

AbstractSince currency price fluctuations hinder economic activity, exchange rate dynamics have an effect on national economies. To have a proper exchange rate policy in place, these dynamics are essential for nations with a trade economy. This study presents and examines a distinctive stochastic dynamics exchange rate model (ESI) in order to address the challenges associated with predicting the behavior of participants in some complex economic systems, which might lead to the system’s collapse. To address the issue of ESI stability by central bank interventions (managed currency) in a specified target value, a target value technique is also provided and tested. Last but not least, we examine the noise traders’ role as a major source of market uncertainty as we look at the market efficiency hypothesis for the foreign exchange market (FX).

The Impact of the Monetary Policy of the US Federal Reserve on the Ratio of the US Dollar To the Japanese Yen in the Foreign Exchange Market during 2015-2023

The information base of the study is the time series of the daily exchange rate of the currency pair USD/JPY, the US 10-year Treasury bond (TB 10), the Japanese government bond 10-year (JGB 10), the volatility index (VIX) of the Chicago Board Options Exchange (CBOE), which calculated by Bloomberg. Study period: December 1, 2015 (the date the Federal Reserve raised interest rates, which initiated a new regime – began easing its ZIRP zero interest rate policy) to December 29, 2023. The relationship between monetary policy and the currency pair USD/JPY is evaluated using 3 approaches: 1) a rally dynamic system based on the standard theory of nonlinear differential equations aimed at eliminating psychological noise (1/f noise, pink noise, trend noise with spectrum capacity); 2) regression of instrumental variables with heteroskedasticity aimed at managing unobservable sources of variability; 3) an event tracking method to measure anomalous asset price response, analyzing the daily price action of USD/JPY to detect market-related fluctuations in the exchange rate and separate the impact of general market trends from related differences in interest rates. The study found that the US Federal Reserve’s (Fed’s) monetary policy only occasionally affects the USD/JPY exchange rate, and it changes mainly when monetary policy deviates from expected future trajectories. Within the studied period, this happened only 3 times: growth on December 16, 2015; emergency rate reduction due to COVID-19 on March 15, 2020; and the first increase of 75 basis points on June 15, 2022 (the article estimates the impact of each of these episodes on the exchange rate). Statements by the Fed on monetary policy affect the price dynamics of the USD/JPY pair in the short term (since short-term psychological expectations play a decisive role in shaping the dynamics of the currency market), but not often (if the statement on monetary policy is consistent with market forecasts, it is practically will not affect exchange rates). The Fed’s adoption of tools such as “forward guidance” and official statements to inform the future course of monetary policy indirectly affects the price dynamics of USD/JPY. The price action of USD/JPY was driven by the fundamentals of the difference in interest rates between the US and Japanese bonds, which are influenced by the monetary policy of the US Federal Reserve and the Bank of Japan (BoJ). In 2023, it could be hard to attempt to challenge FX intervention except to curb “excess volatility and disorderly movements in exchange rates” like the Minister of Finance’s (MoF) 2022 intervention.

The role of foreign reserves in inflation dynamics

Purpose – Central banks’ foreign reserve stocks in emerging markets have increased substantially in recent decades. Foreign reserves accumulation has been widely believed as a shock absorber to prevent financial crises. Meanwhile, accelerating foreign reserves might be contradictory to the monetary policy objectives. This research aims to investigate the impact of foreign reserves on the inflation dynamics.Method – We apply the inflation-expectation augmented Phillips curve on the monthly data over the period of 2005(7) to 2020(12) in the case of Indonesia. Findings – We show that stockpiling foreign exchange reserves indeed has an inflationary pressure impact. The central bank's intervention in the foreign exchange market is more significant in selling rather than purchasing foreign exchange. However, the non-monetary factors also play an important role in determining inflation. Implications – Considering channels through which foreign reserves might affect inflation, our findings suggest the monetary authority should be concerned with inflationary expectations in the short term as one of the major policy-driven goals to maintain price stability in the long run.Originality – This paper contributes to the literature on monetary policy in developing countries. Unlike other empirical studies, this research employs the inflation-expectation augmented Phillips curve and accommodates the issue of asymmetric effects of the change in foreign reserves.

Python for financial engineers: Mastering four moments in portfolio management

This research conducts a comprehensive analysis aimed at optimizing portfolios comprising 14 stocks listed on the Moroccan stock exchange. Our journey culminates in the construction of portfolios that are meticulously designed to maximize returns while prudently managing risk. These portfolios are the result of an exhaustive Monte Carlo simulation that explored over three million unique portfolio combinations. The simulations take into account the skewness and kurtosis of the return distributions, offering investors a robust framework for decision-making. We collected historical data for theses 14 stocks on the Moroccan market exchange by accessing 5 years' worth of historical data from investing.com.We explore the concepts of Modern Portfolio Theory (MPT), which forms the backbone of our approach, and we employ the power of mathematics and Python programming to bring forth insights that can inform sound investment decisions. The primary focus of this study centers on the incorporation of higher statistical moments from the returns of key financial indices, with a particular emphasis on their skewness and kurtosis characteristics. To achieve this goal, various evaluative criteria derived from these statistical parameters are introduced and thoroughly investigated. Within this research framework, we confront a spectrum of optimization challenges, including the maximization of skewness, and minimization of kurtosis.

Effect of Selected Macro-Economic Variables on Securities Performance at the Nairobi Securities Exchange, Kenya

The equity securities market is an integral component of any country's financial system, and its performance is intertwined with the broader macro-economic environment. Equity securities market determines the state of the economy; this is through stock and asset prices fluctuations as well as company earnings with corresponding dividend policies, and multiple macroeconomic variables. The inherent problem has been how do changes in specific macro-economic variables affect the performance of the equity securities market at the Security Exchange. This study sought to establish the influence of the selected macro-economic variables on equity securities market performance at Nairobi Securities Exchange (NSE). The specific objectives were to establish the effects of exchange rate; interest rate; inflation rate; money supply; and Gross Domestic Product on equity share prices fluctuations based on the NSE-20 from when the economy was liberalized. The study was guided by the Capital Asset Pricing Model, the Arbitrage Pricing Theory and the Efficient Market Hypothesis. An explanatory research design was used to determine the effect of selected macro-economic variables on securities exchange market performance. Annual time series secondary data for the periods 1986 to 2022 was used. Findings of diagnostic test demonstrated that there was no multicollinearity among the independent variables, residuals were homoscedastic, and there was no autocorrelation among the residuals. The results of Shapiro wilk normality test showed that the study's variables were normally distributed. The Augmented dickey fuller unit root test both showed that there was no unit root and that the variables had a short run relationship. The study findings were: the exchange rate (indicating negative and significant effect on equity security indices; the interest rate indicating negative and significant effect on equity security indices; inflation rate indicating positive and significant effect on equity security indices; money supply which indicates a negative and significant effect on equity security indices; and gross domestic product had a positive and significant effect on equity security indices. The study concluded that exchange rate, interest rate and money supply significantly affect equity security indices negatively while inflation rate and gross domestic product significantly affect equity security indices positively. The study therefore recommends the Central bank of Kenya to employ measures intervening foreign exchange markets to stabilize the currency, implement appropriate interest rate policies, and maintaining adequate foreign exchange reserves. The policy makers should prioritize price stability and monitor the growth of money supply to ensure it remains in line with the country's economic fundamentals. Policy makers should also strike a delicate balance between controlling inflation and supporting economic growth by closely monitoring economic indicators and adjusting interest rates accordingly.

مراجعة قوائم وتقارير الشركة المساهمة خارجياً: بين حقٍ مبينٍ وسرابٍ مستحيلٍ

The separation of ownership and management in the corporate model resulted in the need for an external party to certify the representation of the financial statements prepared by the corporation’s executive management of its financial position and the financial, cash and operational performance of its executive management. The existence of the corporation whose shares are traded in the market and stock exchanges also resulted in the emergence of a class in society, lurking for price fluctuation. Accounting has founded a concept that it is the servant of every rational decision maker. However, the concept of 'decision makers' in accounting is imaginary. Financial accounting has not been able for more than a century and until our present moment to provide a model for the financial statements and reports that the corporation is required to prepare and publish in response to their so-called needs of its financiers. The financial statements are prepared based on financial accounting standards, which represent the contemporary accounting truth. Such truth is impossible and is not a reflection of the economic reality on which the accounting entity is constructed. The external auditor’s approval of the corporate financial statements prepared by its executive management makes him its partner in preparing the financial statements and reports. What gives value to the opinion of the external party is his possession of the technical knowledge that gives him an advantage over the rest of the members of his society, and his independence from the executive management is the foundation of his work and professionalism. However, academic research in accounting and auditing casts doubt on the objectivity of the external auditor and even his ability to be independent, as their relationship is closer to cooperation than to opposition, representing the interests of the party absent from the contractual relationship between them. External auditing is the only profession whose practitioner must monitor whom he receives his fees in service to watch the interest a part that is absent in the contractual relationship. The external auditor does not provide the service of auditing the financial statements and reports of corporations as a community or voluntary service, but rather it is a service in exchange for covering his expenses and achieving a source of income. Also, work skills and dealing with the audit firm’s clients are of great importance in the audit firm, and leadership. Reliance on the one-partner model in implementing audit engagements is a source of risk. The external auditor is a product of his society. The doctrine that his society follows is his belief, and it is what affects his decisions. It is the balance of matters. Strengthening the independence of the external auditor, even in the presence of legislation, is not sufficient for the independence of the mind of the external auditor.