Exchange Rate Fluctuations Research Articles

The Monetary Model of Exchange Rate Determination for South Africa

The disconnect between the exchange rate and its macroeconomic fundamentals has been extensively discussed in the literature. It nonetheless continues to pose theoretical and empirical challenges in the literature. This study examines the relationship between the exchange rate and its fundamentals. This study used the monetary model of exchange rate determination developed in the 1970s. The study used the TAR to estimate the exchange change rate behaviour in response to variations in monetary variables. We found that the exchange rates respond to the interest rate differential, consistent with the predictions of the monetary model of exchange rate determination. Furthermore, in all the regimes, the sizes of coefficients are different, which shows that the exchange rate behaviour is non-linear (asymmetric). While the impact of the interest rate differential in regime 1 and 2 leads to exchange rates appreciating although in regime 2 the results are insignificant, this occurs when the exchange rates fluctuate below 0.87 percentage points. In regime 3, on average, a marginal increase in interest rate deferential leads to an exchange rate depreciation. In some instances, the exchange rates respond to the monetary variables’ changes in line with the predictions of the monetary theory of exchange rate determination. An increase in interest rates in some instances leads to an improvement in the value of the exchange rate. However, the conditions are not constant—they vary depending on the state of exchange rate fluctuation.

Research on the Impact of RMB Exchange Rate Changes on China's Export Trade

The RMB exchange rate's fluctuation has become a critical element in China's export trade, due to the country's rapid economic growth and the quickening of global economic globalization. The potential of this exchange rate alteration to affect the cost of exports and the international market's competitiveness renders it one of the most influential regulatory forces in the export trade sector. To explore the impact of RMB exchange rate fluctuations on China's export trade, a linear regression model was constructed, based on panel data from 2001 to 2022 in 31 provinces (regions, cities) of China.A positive relationship between the real effective exchange rate index of RMB and China's total exports is evidenced by the results, and an appreciation of RMB can result in a rise in China's total exports. Therefore, the countermeasures and suggestions to stabilize exchange rate expectation, promote RMB internationalization and improve commodity competitiveness are put forward for reference.

Does the S-curve demonstrate an asymmetrical response to fluctuations in exchange rates?

Purpose This study aims to examine the asymmetric S-curve between the trade balances of Pakistan and China at the commodity level using disaggregated data. Design/methodology/approach This study focuses on Pakistan and China bilateral trade based on commodity-level data. This study delves into the S-curve phenomena by examining time series data from 1980 to 2023 across 32 three-digit industries/commodities. Findings The findings show significant evidence in favor of the “asymmetric S-curve” in 27 out of the 32 industries studied. This study confirms that the devaluation of home currency is not a viable solution always to improve trade balance. Research limitations/implications This study considers 32 three-digit industries limiting the generalizability of findings. Due to data unavailability, the authors fail to consider other industries. In the absence of quarterly data on industry-level trade between Pakistan and China, annual data from 1980 to 2023 were used in generating the cross-correlation functions. Previous literature frequently resorted to the general consumer price index with its inherent aggregation issues, whereas this study has opted for commodity price indices to overcome the shortcomings in the estimation of S-curves at the commodity level. Practical implications The findings have practical relevance in guiding policy decisions regarding commodity trade, whereas the industry-wise analysis enriches the understanding of the short-term effects of currency depreciation on trade balance dynamics. Originality/value The S-curve hypothesis predicts a negative cross-correlation between a country's current exchange rate and its past trade balance and a positive cross-correlation between the current exchange rate and its future trade balance. Previous empirical S-curve studies had the limitation of assuming symmetry in cross-correlation with both current and future trade balance values.

The Impact of Monetary Policy in Achieving Exchange Rate Stability in the Iraqi Economy for The Period (1990 - 2023) an Econometric Study

The exchange rate is a monetary economic indicator that expresses a country's economic performance. The exchange rate is the basic foundation on which the economies of any country in the world are built, whether developed or developing. As a result, most governments seek to implement regulations that ensure the currency exchange rate remains stable. To avoid the radical changes that currencies will endure during another period. The exchange rate also plays a prominent role in monetary policy, due to its use as an intermediate target, or as a tool, or simply as an indicator of the competitiveness of countries through its impact on components of economic growth such as investment, the degree of economic openness, the inflation rate, the narrow money supply, and the volume of exports. And the volume of imports, and foreign exchange reserves. Therefore, the primary goal of this study was to try to identify the nature of the exchange rate. As a result, in the first section, we discussed the concept of monetary policy, its most important tools, its most important goals, the exchange rate, and Iraq’s experience in the field of exchange during the period (1990-2023). While the second section was devoted to measuring the impact of monetary policy in achieving stability in the exchange rate of the Iraqi dinar against the US dollar using the vector model. correcting the mistake. The study concluded with some recommendations to reduce exchange rate fluctuations.

Pegged exchange rate regime and its impact on inflation in BRICS nations: Country-wise evidence

During the 1990s and 2000s, many developing nations accepted fixed exchange rate regimes to sustain price stability. By pegging their currencies to an anchor currency (i.e. US dollar), developing countries could bring credibility and confidence into their economies. The study tries to analyse the impact of the pegged exchange rate regime on inflation in BRICS countries for the period spanning from 2003 to 2022. The result points to the loss of monetary policy autonomy due to the ‘impossible trinity’ coming into play with a steady increase in capital inflows. The country’s large trade surpluses and extensive trade relationships may buffer the impact of exchange rate fluctuations on domestic prices, as changes in the exchange rate may be absorbed by changes in trade volumes or pricing strategies. Other factors like demographic trends or government interventions in markets could overshadow the influence of the exchange rate regime on inflation. The impact of changes in the exchange rate regimes on inflation may operate with lags, meaning that any effects may not be immediately observable in the data. The analysis in this study proposes that exchange rate regimes choice and money supply influence the inflation dynamics in the BRICS countries. It merely reflects the success of the central bank in neutralizing its very effort of maintaining the pegged rate, which gives rise to inflationary growth of the money supply.

Research on the Impact of Geopolitical Instability on Russian Trade

This study examines how global and country- specific geopolitical instability affects Russian trade using data from 1996 to 2021. A panel regression model analyzes trade between Russia and its 15 top trading partners, exploring both direct and indirect effects. The analysis focuses on how accumulated foreign direct investment (FDI) and exchange rate fluctuations mediate these relationships. The findings reveal that global geopolitical instability decrease Russian trade by 0.0558. Interestingly, this negative impact is partially mediated by a decrease in FDI (-0.0805). This aligns with the Structural Equation Modeling (SEM) results, which show a significant negative effect of global geopolitical instability on FDI (-1.209). This suggests that FDI acts as a key transmitter of the negative effects of global instability on Russian trade. The role of exchange rate fluctuations, however, is more complex. While the Sobel Test indicated a negative indirect effect, the SEM analysis shows a positive indirect effect through exchange rate fluctuations on trade. This suggests potentially countervailing effects of currency fluctuations, with depreciation potentially incentivizing exports while appreciation might make imports cheaper. The impact of country-specific geopolitical instability varies depending on the context. Industries like food products and textiles are significantly affected by geopolitical instability increase, while sectors such as fuels, metals and raw materials show resilience. Close trading partners are less affected by global instability but suffer from partner- specific instability. Geographically, Western Europe benefits from global instability but faces challenges from partner-specific instability, contrasting with Eastern Europe and Asia. Overall, this research contributes to the understanding of how geopolitical instability, mediated by FDI and exchange rates, shapes Russia's trade performance.

Financial Risk Identification and Control in the Openness Context: A System Dynamics Approach to Renminbi Internationalization

In an attempt to control a series of domestic and foreign financial risks amid the internationalization of Renminbi (RMB), China’s currency, this article categorizes these risks into five types: excessive volatility risk of exchange rate, balance of payments risks, policy risks, crisis contagion risks, and excessive volatility risk of financial asset prices. By employing system dynamics simulation models and sensitivity analysis, this paper examines strategies for financial risk control. Results indicate that the impacts of crisis contagion risk and balance of payments risk are the most significant, and that financial risks are extremely sensitive in such aspects as the degree of capital openness, exchange rate volatility, and foreign trade dependency. The paper suggests adopting strategies like gradually opening China’s capital accounts, maintaining its exchange rate fluctuations within a reasonable range, stabilizing its dependency on foreign trade, and ensuring that its growth rate of M2 matches that of the nominal GDP – a combined effort to control the complicated financial risks arising from various sources.

Does the Exchange Rate Have a Pass-Through Effect on Domestic Food Prices in Türkiye? An Empirical Study Using a Combined ANN Algorithm and VAR Method

Exchange rate fluctuations have far-reaching consequences for national economies, companies and, above all, consumers. It is therefore important to understand the mechanisms by which these fluctuations affect food prices in domestic markets. In this context, we examine the complex relationship between exchange rates and domestic food prices and attempt to calculate the pass-through effect of the exchange rate on domestic prices. To examine the pass-through effect of the exchange rate on food prices, we use monthly USD/TRY exchange rate data from January 2003 to July 2023 as well as the global food price index, the export-import rate for food and the producer price index for food in Türkiye. We employ the vector autoregression (VAR) method to determine the optimal lags of the variables included in the analysis and the artificial neural network (ANN) algorithm to calculate the overall pass-through effect of the USD/TRY exchange rate on domestic food prices. The results show that the pass-through effect of the variable on food prices persists for three months: the current month, the previous month and the two previous months. The total pass-through effect of the exchange rate on food prices reaches up to 27%. Half of this impact comes from the previous month's food prices. In addition, the ratio of food exports to imports accounts for about 12% of the increase in domestic food prices. The results also show that the variable with the highest pass-through effect is the producer price index and that 90% of the increase in food prices is due to domestic dynamics, while the effect of price increases in foreign markets is only about 10%.

Exchange rate in emerging markets: Shock absorber or source of shock?

This paper examines the stabilization role of flexible exchange rates for emerging economies within the Latin America and Asia regions. Based on a structural VAR model, we utilize zero, sign and exchange rate pass-through restrictions to identify structural macroeconomic shocks. Overall, we find that exogenous exchange rate shocks drive around half of total exchange rate fluctuations in emerging economies. Despite this predominant role, we find evidence that exchange rates do not act as a source of shocks to the real economy, but they instead absorb and reduce output growth and inflation volatilities. Based on counterfactual analyses, we further find that this shock-insulation property is highly shock-dependent, where the benefits of flexible exchange rates are sizable for demand and global monetary policy shocks, but are overall small in the face of supply shocks. Results also differ across time horizons, where the shock stabilization benefits are mainly limited to the short run for output, but also extend to the medium term for inflation. We also find that the net benefits of flexible exchange rates as a shock absorber are in general larger for emerging economies in Latin America than in Asia, particularly during crises periods. Finally, while we find that the stabilization role of exchange rates hinges upon the nature of underlying structural shocks, there is also a positive association with structural determinants such as a country's degree of exchange rate flexibility and trade openness.

Comparison of Nonparametric Regression Nadara - Watson Estimator Kernel Function And Local Polynomial Regression In Predicting USD Against IDR

Introduction: Macroeconomic problems such as inflation and exchange rates are often highlighted as benchmarks for achieving economic progress. The stability of both must be monitored by the government in order to control the inflation rate and exchange rate. This instability is a phenomenon of fluctuation, namely the phenomenon of the rise and fall of the exchange rate of a currency based on demand and supply. Given the large impact of exchange rate fluctuations on the economy, the prediction of the wage exchange rate against the US dollar is considered necessary because it is useful to anticipate and minimize bad possibilities that arise. Method: Methods that can be used to analyze fluctuating currency exchange rate data are nonparametric regression, Nadaraya-Watson estimator, Gaussian kernel function, and Local Polynomial Regression. Results and Discussion: The results of a nonparametric regression comparison between the Nadaraya-Watson estimator, Gaussian kernel function, and local polynomial regression were obtained by MAPE of 2.508% and 0.179%, respectively. This shows that the best model uses the local polynomial regression method and predicted USD exchange rate data against IDR using the best model, namely Local polynomial Regression where the MAPE value is less than 10%, which means the prediction rate is very good. Conclusion: The nonparametric regression method of the Nadaraya-Watrson estimator, Gaussian kernel function, and local polynomial regression shows that the best model uses the local polynomial regression method.

STRATEGIC PLANNING USING THE TOTAL COST OF OWNERSHIP MODEL

In a highly competitive global scenario, companies seek new ways to optimize production and implement continuous improvement mechanisms to reduce costs. An essential tool in this context is the Total Cost of Ownership model, applied to the acquisition processes of inputs to determine the costs involved and compare the economic viability between domestic and international suppliers. Given the unstable economic scenario and high exchange rate fluctuations, the possibility of nationalizing production is evaluated. The case study method is adopted, characterized as applied and exploratory research, with the objective of generating knowledge for practical application and solving specific problems. This method combines a literature review with exploratory field analysis. The studied company faces a loss of profitability due to rising import costs, reduced demand, and the loss of purchasing power of the national currency against international suppliers. The increase in costs resulting from exchange rate fluctuations necessitates the search for new supply options, primarily in the domestic market, where exchange rate influence is lower. Thus, the nationalization of inputs becomes crucial in business decisions to minimize costs and maintain competitiveness. The results indicate that the nationalization of production using the Total Cost of Ownership model is viable. This model considers all costs involved in the acquisition of inputs, unlike the traditional acquisition model, which focuses exclusively on the unit price.

Risks of managing financial resources of the agricultural sector of Ukraine in the zone of military conflict: Challenges, threats, ways of counteraction

This study was aimed at identifying the risks that affect financial management in the agro-industrial sector of Ukraine during military operations in order to develop effective countermeasures. The research methodology included an analysis of the main risks, such as exchange rate fluctuations, inflation, disruption of supply chains and political instability, as well as an assessment of strategies to minimise these risks. The main stages of risk management are identified as identification, assessment, and monitoring of risks, as well as development of appropriate strategies, such as investment diversification, insurance, and hedging. The study results showed that the key factors for ensuring stability are the introduction of technological innovations, government support, creation of reserve funds and diversification of funding sources. In particular, the development of modern agricultural technologies, subsidies, soft loans and investments in infrastructure significantly increase the resilience of the agricultural sector to crisis conditions. It is also important to plan cash flows to maintain liquidity and meet financial obligations in a timely manner. The experience of several countries, such as Israel and Georgia, which have faced similar challenges, was reviewed and analysed to see how they managed the financial resources of their agricultural sectors. The experience of these countries has shown that successful management of the financial resources of the agricultural sector in the context of military conflict requires a comprehensive approach that includes technological innovation, government support, financial planning and human capital development to ensure sustainable development of the agricultural sector in times of war. This approach allows not only preserving but also developing the agricultural sector, ensuring food security and economic stability of Ukraine

Rate of Return (RoR) and Return on Investment (RoI) of Indonesia and India

In the era of globalization and economic liberalization, cross-border investment has become the main strategy for developing countries to increase their economic growth and global competitiveness. This research aims to explore and compare RoR and RoI in Indonesia and India and identify key factors that influence the differences in RoR and RoI between the two countries. This research method uses literature study and conceptual analysis to collect and analyze data from various sources. The research results show that the comparison of RoR and RoI between Indonesia and India involves various factors such as macroeconomic conditions, infrastructure, political stability, investment regulations, labor market, market, and industry, as well as innovation and technology. The two countries show significant differences and similarities in these factors, which influence investment returns. Indonesia has relatively good political stability and a developed capital market, while India stands out in the technology sector and economic reform. However, challenges such as complex regulations, inadequate infrastructure, and fluctuations in currency exchange rates remain obstacles to achieving optimal ROI for investors.

Forward Contract Hedging Analysis as a Protection Effort Transaction Exposure

The purpose of this research is to identify the risks related to currency fluctuations that arise from transactions in foreign currencies or other currencies. A company must be capable of managing foreign exchange activities in order to reduce or eliminate risks. One way to do that is to carry out hedging trades. You may ensure that future fluctuations in foreign exchange rates won't affect the foreign exchange rate utilized for payments (outflow) or the amount of foreign currency received (inflow) by using hedging. Both a qualitative descriptive research design and a case study approach are used in this study. A case study called PT Akasha Wira International, Tbk was used

Analysis of Inflationary Burden Impact on The Consumption of Iraqi Households

The research focused on examining the connection between the inflationary burden and the consumption patterns of Iraqi families. Inflation significantly impacts consumption, and Iraq is grappling with rising prices, leading to a crisis in the cost of living due to increased prices for essential goods and reduced government subsidies. The study aimed to provide insights into the inflationary burden phenomenon, highlight the primary channels affecting Iraqi families, and explore short and long-term consequences. It also aimed to identify the variables and causes contributing to the wage-price gap. Ultimately, the research sought to address the issue of the inflationary burden in the Iraqi economy, which has adversely affected the standard of living for families, resulting in reduced consumption and a diminished real value of money. The goal was to propose solutions to enhance living standards and manage price stability. Key findings :Recent years have seen a sharp increase in consumer spending as a percentage of total income, reaching 70%. This reflects the high prices of essential goods and services. The Iraqi economy has faced various crises, including war, the COVID-19 pandemic, exchange rate fluctuations, and global conflicts, leading to economic decline and worsened family conditions. Recommendations :Promote consumer spending awareness among Iraqi families through visual and audio advertising, encouraging responsible consumption and savings for future crises. Protect local products by imposing customs taxes on imports, except for essential items. Ensure coordination between fiscal and monetary policies to maintain price stability and boost consumer goods production, granting the central bank independence for policy development.

Tác động của biến động tỷ giá hối đoái đến xuất khẩu nông nghiệp của Việt Nam và vai trò của tự do hóa tài chính tại nước đối tác

This study assesses the impact of real exchange rate volatility on Vietnam’s agricultural exports, considering the role financial liberalization in its trading partners. The author employs Poisson pseudomaximum likelihood estimators to estimate a gravity model covering bilateral agricultural exports from Vietnam to 187 its trading partners during 1996-2021. The empirical results of this study indicate that exchange rate volatility hampers agricultural exports of Vietnam and financial liberalization in its trading partners is crucial for alleviating this adverse nexus. Therefore, maintaining stable exchange rate is necessary to boost agricultural exports of Vietnam. In addition, under great turmoil in global economy with strong fluctuations in exchange rates, Vietnam still has a chance to increase its agricultural exports to countries that have high levels of financial liberalization. This finding has an important implication for selecting trading partners to improve export performance of agricultural sector in Vietnam.

Exchange Rate Disconnect and the Trade Balance

We propose a model with costly international financial intermediation that links exchange rate movements to shifts in the demand for domestically produced goods relative to the demand for imported goods (trade rebalancing). Our model is consistent with stylized facts of exchange rate dynamics, including those related to the trade balance, which is typically overlooked in the literature on exchange rate determination. In a quantitative assessment, trade rebalancing explains nearly 50 percent of exchange rate fluctuations over the business cycle, whereas exogenous deviations from the uncovered interest rate parity—the primary source of exchange rate fluctuations in the literature—account for just above 20 percent. Using data on trade flows or the trade balance is key to properly identifying the determinants of the exchange rate. Thus, our model overcomes the sharp dichotomy between the real exchange rate and the macroeconomy embedded in other models of exchange rate determination.

STATISTICAL METHODS FOR MANAGING RISKS IN PLANNING FOREIGN ECONOMIC AND LOGISTICS ACTIVITIES FOR SUSTAINABLE DEVELOPMENT OF THE ENTERPRISE

The article examines the topical issue of risk management in foreign economic and logistics activities, which is closely related to the enterprise’s chosen strategy and ensures its sustainable development. The study considers the issue of developing a hedging strategy using statistical methods since adequate forecasting allows predicting the impact of external environment factors on the exchange rate, which will allow the enterprise to timely predict and mitigate the risks in foreign economic and logistics activities. The authors have used general scientific and special methods of systemic and structural analysis to clarify the directions of sustainable performance and risk management tools; formulate the goals and steps in choosing a strategy of hedging; compare the methods of foreign exchange rate risk hedging and perform correlation and regression analysis of factors that impact exchange rate under crisis conditions. The purpose of the paper is to study the specifics of ensuring the sustainable performance of an enterprise using statistical methods in risk management for planning foreign economic and logistics activities. The authors have proposed a definition of a hedging strategy based on the concepts, approaches, and ideas of asset and/or investment management with the aim of reducing loss through hedging instruments, whose feasibility can be substantiated by statistical methods. It has been found that the formation and successful implementation of a hedging strategy requires the use of statistical analysis in order to timely predict fluctuations in exchange rates. The findings of the research were tested based on the performance of PrJSC "Linde Gas Ukraine". In the strategy of hedging the exchange rate risks, it has been proposed to simultaneously open a foreign currency deposit and take a loan in the national currency to replenish the company's working capital. The perspective of further research is the implementation of the proposed hedging strategy and assessment of its effectiveness.

Modeling Asymmetric Effects of Exchange Rate Fluctuations on Agricultural Trade Balance: Evidence from Iran and Iraq

The exchange rate plays a crucial role in foreign trade and has asymmetric effects. This study examines the asymmetric effects of exchange rate volatility on the trade balance in the agricultural sector between Iran and Iraq, using the non-linear ARDL model from 1998 to 2020. The results show that Iraq's GDP and oil price fluctuations positively affect the trade balance. In contrast, Iran's GDP and the U.S. economic sanctions against Iran have negative and significant effects on the trade balance of Iran with Iraq in the agriculture sector. The results do not confirm the existence of the J-curve effect in the trade relations between Iran and Iraq, because an increase in the bilateral exchange rate, in both the long-run and short-run, improves the trade balance of Iran with Iraq in the agriculture sector. Furthermore, the positive and negative fluctuations of the bilateral exchange rate have different effects on the trade balance. While the devaluation of the national currency does not cause a downward trend in the short run, the exchange rate policy can improve the trade balance from the beginning.

FACTORS AFFECTING THE FINANCIAL PERFOMANCE OF AGRICULTURAL COMPANY’S: EVIDENCE FROM THE INDONESIA STOCK EXCHANGE

The Indonesian economy is primarily based on the agriculture sector, even growing when other sectors are down. This role is supported by the existence of agricultural companies that run businesses with profit-oriented goals. The company's ability to generate profits reflects the company's financial performance and is influenced by various factors. Using panel data for the years 2015–2021 from 17 agricultural companies listed on the Indonesia Stock Exchange (IDX), this study aims to determine the influence of internal and external factors on the financial performance of agricultural companies in Indonesia. The results of static panel data regression found that the company's growth and the dummy of the Covid-19 pandemic had a positive and significant effect on the company's financial performance which was proxied through the profitability ratio (ROA). Debt asset ratio (DAR), COGS/sales, and exchange rate have a negative and significant effect on ROA. In general, these results confirm the pecking-order theory in the relationship between ROA and DAR, as well as the ability of agricultural companies in Indonesia to survive in the conditions of the Covid-19 pandemic. The implication for improving the performance of agricultural companies in Indonesia is that companies must be able to reduce the percentage of production costs (COGS/sales) and implement an optimal capital structure mix. Companies are also required to carry out good risk management to anticipate exchange rate fluctuations.