Impact Of Exchange Rate Movements Research Articles

Impact of Exchange Rate Movements on Foreign Direct Investment in Pakistan

Impact of Exchange Rate Movements on Foreign Direct Investment in Pakistan

Exchange rate, distribution, and outward direct investment

This paper examines the impact of exchange rate movements on firm outward direct investment (ODI), by taking into account the heterogeneous effects between distribution and production ODI. Overall, homecurrency depreciation tends to increase ODI due, in large part, to the growing emergence of distribution ODI as predicted by a theoretical model. Using rich Chinese firm-level ODI decision data over the period between 2000 and 2008, the intensive empirical search shows strong supports to the model prediction on the complementary relationship between distribution ODI and export. In response to home depreciation, Chinese firms set up more distribution trade affiliates to promote exports. Such results are robust to different econometric methodologies, empirical specifications, and time spans.

An investigation of the impact of exchange rate movements on consumer prices in the Southern African Customs Union (SACU)

An investigation of the impact of exchange rate movements on consumer prices in the Southern African Customs Union (SACU)

The Regime Changing Behavior of Exchange Rates and Stock Market Prices of Selected Emerging Countries: An application of the Markov Switching Vector Autoregressive model (MS-VAR)

This article aims to analyze the dynamic relationship between stock market returns and exchange rate movements for emerging countries (Brazil, Argentina, Mexico and India), from January 2005 to December 2021, using Markov Switching Vector Autoregressive model, with regime change. The impact of exchange rate movements on stock returns is not statistically significant in all emerging countries. This reveals that fluctuations in US dollar exchange rates do not have a strong influence on the dynamics of stock market returns during normal and turbulent periods. On the other hand, the impacts of stock returns on exchange rate movements are significant only for the Brazilian and Mexican markets.

Measuring non-linear effects of exchange rate movements on reserve holdings

Due to flaws in fiscal and financial structures, currency rate changes have detrimental effects on emerging economies. The lack of financial protection tools and insufficient levels of financial market development leaves African nations exposed to such harmful consequences of rates of exchange volatility. This study attempted to investigate the impact of exchange rate movements on the volume of reserves held by African countries struggling to maintain enough earnings to warrant floating their currency against the dollar. The non-linear autoregressive distributed lag (NARDL) of Shin et al. (2014) filters movements in exchange rates into the negative and positive partial sum, respectively. We found that devaluation weakens reserve volume in Morocco, Namibia, Nigeria, South Africa, Zambia, Kenya, Malawi and Mauritius. Exchange rate appreciation significantly decreases Ghana, Kenya, South Africa, and Mauritius reserves. The magnitude of exchange rate devaluation, 0.94, 0.85, and 0.91 in Nigeria, Malawi, and Zambia, as reported by the positive cumulative sum of the changes in the exchange rate, exceeded the magnitude of appreciation, 0.12, 0.10, and 0.17, respectively. Accordingly, the effects of exchange rates on reserves in Ghana, Malawi, Morocco, Nigeria, Namibia, and Zambia are asymmetric, while the impact in Egypt, Kenya, South Africa, and Mauritius is symmetric.

Revisiting the asymmetry between the exchange rate and domestic production in South Asian Economies: Evidence from Nonlinear ARDL Approach

: Many of the early studies that investigate the impact of exchange rate movements on domestic production report mixed findings in terms of the effect on economic growth. However, the majority of these studies had were limited in that they relied on a prior assumption of linear adjustment of the exchange rate fluctuations toward domestic output. We suspect that a prior assumption of linearity may mask the empirical results. We, therefore, bring nonlinearity into the adjustment process through the partial sum approach to the exchange rate by decomposing the exchange rate into depreciation and appreciation. We investigate both the symmetric and asymmetric effect of exchange rate changes on economic growth of the selected South Asian economies. Our results show significant evidence of the asymmetric effects of exchange rate changes on domestic production both in the short and long run in the case of all the selected economies.

Промените във валутния курс и експортният сектор: нови емпирични доказателства от Нигерия

The impact of exchange rate movements on the export sector in Nigeria is examined in this study through the use of time series data and the classical linear regression model (CLRM) estimation technique. The variables employed in this study are exchange rate, agric. output, manufacturing output, total export earnings, government capital expenditure, foreign direct investment and broad money supply (M2). From the result, it becomes apparent that exchange rate movements play a significant role in the performance of the export sector in Nigeria. More specifically, the findings show that exchange rate, manufacturing output, agric. output, government capital expenditure and foreign direct investment are positively related to export earnings while the broad money supply (M2) is negatively related. It is therefore recommended that the apex bank should keep a close watch on exchange rate developments in order to enhance exchange rate stability, which will in turn contribute to the development of the export sector in Nigeria.

Understanding the exchange rate pass-through to consumer prices in Vietnam: the SVAR approach

PurposeThe purpose of this paper is to examine the degree of the exchange rate pass-through (ERPT) to the consumer price index (CPI) at both aggregated and disaggregated levels in Vietnam. Updated data of the nominal effective exchange rate (NEER) and bilateral exchange rate (BiER) have been utilized in this study for the comparison purposes.Design/methodology/approachAdvanced time-series approaches such as a structural vector autoregressive framework, structural impulse response functions (SIRFs), and structural forecast-error variance decomposition (SFEVD) are utilized in this paper.FindingsEmpirical findings from this paper present an incomplete degree of the ERPT to the aggregated CPI. The ERPT based on the BiER is observed to have substantially larger magnitude than the NEER-based pass-through. For the disaggregated level, the degree of the ERPT varies considerably across sub-components of the CPI, with a higher magnitude of the ERPT elasticity being found from the BiER estimations. The index of housing and construction materials has the largest ERPT based on the BiER, followed by the food and foodstuffs (1.00 and 0.56, respectively). The macroeconomic and financial environments as well as an economic integration into the global market may be the main causes of a higher ERPT in Vietnam in comparison with other ASEAN countries.Research limitations/implicationsThe significant and incomplete pass-through of the exchange rate in Vietnam can affect firms’ and households’ budget planning, savings and profits. This finding generally implies that the cost of devaluation of the domestic currency affects the society as the whole in terms of welfare. The State Bank of Vietnam should carefully consider the overall effect of welfares when formulating and implementing strategies of currency devaluation. In addition, the Vietnamese economy becomes more sensitive to external vulnerabilities via changes of the exchange rate during an increasingly economic integration into the global market. In order to maintain inflation stability, it is vitally important to reduce the impact of exchange rate movements on the domestic prices, both aggregated and disaggregated levels, by pursuing either monetary policy credibility or inflation targeting.Originality/valuePrevious studies on the ERPT literature in the Asia region or for emerging countries focus mainly on the aggregated data of the CPI. Previous studies were conducted before the global financial crisis in 2008/2009. The current paper is the first of its kind to examine the pass-through from exchange rates to consumer prices in Vietnam using both aggregated and disaggregated data.

The Impact of Exchange Rate Movements on Stock Returns: Evidence from Commercial Banks in Sri Lanka

Foreign exchange rate is the price of the local currency stated in terms of another currency. Exchange rate movements is a crucial cause which creates risk in banking institutions. This paper investigates the impact of exchange rate movements on stock returns of commercial banks listed in Colombo Stock Exchange. Data were extracted from the Central Bank of Sri Lanka (CBSL) and Colombo Stock exchange (CSE). Data were analyzed using linear regression analysis for the period of July 2013 to June 2018 using monthly observations. The results of the study indicate that there is significant exposure of Sri Lankan commercial banks to exchange rate movements of US Dollars, Japanese Yen and Market Rate of Return. All banking institutions from the selected sample banking firms are sensitive to the US Dollar exchange rate movements. As per the results, depreciation of domestic currency value against US Dollar delineates negative as well as impact on stock returns of the selected banking institutions. Moreover, Japanese Yen exchange rate movement found to be sensitive towards two of the selected banks stock returns. Results indicate that movements in Japanese Yen exchange rate affects stock returns of respective banking institutions either positively or negatively. None of the selected banks stock returns are sensitive to Euro and Great Britain Pounds exchange rate movements. Importantly Market rate of return is found to sensitive towards the stock return generating process of all the selected banking institutions.

Phillips Curve for the Asian Economies: A Nonlinear Perspective

ABSTRACT This paper examines the impact of exchange-rate movements on inflation in eight Asian countries. Results from an open-economy Phillips curve are; first, the Markov-switching open-economy model confirm that the two-state Phillips curve outperforms alternative models to study inflation dynamics. There is considerable heterogeneity in the pass-through estimates for Asian countries, with Singapore exhibiting the lowest exchange rate pass-through (ERPT). Regime-dependent pass-through estimates are sensitive to average inflation and it should be factored in when forecasting inflation rates. Second, the extent of pass-through is considerably lower and far from complete in a low-inflation regime, endorsing Taylor hypothesis. Third, in the majority of the countries, we find support for global disinflation in domestic inflation that has strengthened over time. The main takeaway is that globalization matters for Asian inflation dynamics.

The impact of exchange rate movements on mergers and acquisitions FDI

This paper investigates the effect of exchange rate movements on return outcomes associated with mergers and acquisitions FDI. We examine this relationship for cross-border mergers and acquisitions undertaken in 2001-2010 by 591 U.S. firms using both real and nominal bilateral exchange rates. The analysis of abnormal returns reveals no consistent relationship between the real exchange rate movements and bidder returns. However, we do find a statistically significant positive impact of exchange rate volatility on bidder returns. In addition, we find support for a significant relationship between bidder’s overseas experience with bidder returns and deal size with bidder returns.

Exchange rate uncertainty and import prices in the euro area

AbstractThis paper analyzes the effects of exchange rate uncertainty on the pricing behavior of import firms in the euro area. Uncertainty is measured via the volatility of the structural shocks to the exchange rate in a nonlinear vector‐autoregressive model framework and is an important determinant of import prices. An increase in exchange rate uncertainty is associated with a fall in prices on average, which suggests that the exchange rate risk is borne by the importers. Controlling for the origin of imports (within or outside the euro area) is important for assessing the impact of exchange rate movements on prices.

Real Exchange Rate Misalignment and Economic Growth: The Case of Trinidad and Tobago

Empirical studies outline developing countries’ experience economic growth through an undervalued exchange rate and that exchange rate overvaluations have negative long term effects on economic growth. This paper examined the impact of exchange rate movements as well as exchange rate misalignments on economic growth for the Trinidad and Tobago economy over the period 1960 to 2016. We find statistically significant evidence that both exchange rate appreciation and misalignments impact negatively on economic growth in the T&T economy. Drilling deeper, we find interestingly that there exist no non-linear effects of exchange rate misalignments on growth. Specifically, we find statistically significant evidence that both overvaluations and under valuations hamper economic growth in the Trinidad and Tobago economy. We attribute this to T&T’s small and underdeveloped manufacturing sector that tends to be overlooked on account of its energy resources, in addition to the fact that its manufacturing sector is highly import oriented. A major policy recommendation would be for the critical reassessment of the rules governing the Heritage and Stabilization Fund (HSF), as government expenditure was allowed to follow energy revenues due to its current limitations.

Impact of Exchange Rate Movements on Indian Firm Performance

This paper presents the research results on the impact of real effective exchange rate (REER) on Indian firm performance. The analysis is based on a multivariate regression model, for the time period from 1 Dec 2011 to 1 Dec 2012 for the top 242 Indian firms of Bombay Stock Market. Our empirical analysis reveals that significant relationships between real effective exchange rate (REER) changes (fluctuations) and firm performance indexes through changes imports as well as foreign exchange liabilities sector. The impact size of imports indexes is different so that stores and spares imports and capital goods imports are more effective than other imports indexes to firm performance. The firm performance indexes such as growth performance (internal growth), profitability (EBIT), firm specifics (Capacity Utilization), and stock performance (P/E) have an obvious relationship to the changes of imports, foreign currency borrowings and total forex spending indexes. Other indexes that decrease the effect changes in exchange rate have on Indian firms include: bigger (P/E) ratio and higher internal growth rate.We also found a weak relationship between the real effective exchange rate (REER) and stock price per book value, stock price per sales, total assets value/shares outstanding and degree of operating leverage.

The Impact of Exchange Rate Movements on Trade Balance between Vietnam and Japan: J Curve Effect Test

The Impact of Exchange Rate Movements on Trade Balance between Vietnam and Japan: J Curve Effect Test

The Impact of Exchange Rate Movements on Firm Value in Visegrad Countries

Company’s involvement in global activities through international trade is the primary source of their foreign exchange exposure. Many empirical studies suggest the negative impact of uncertainty about the development of the exchange rate on cash flow and profitability of companies, and thus their market values. Some economic studies show that foreign revenues are positively correlated with the exchange rate exposure and in a short period, currency depreciation negatively affects the market value of listed companies. On the other hand, there are studies that show no statistically significant links between the value of the companies and exchange rates. The aim of this paper is to evaluate the effect of exchange rates on the value of companies listed on stock exchanges in the Visegrad countries. Paper applies Jorion’s model and panel data regression for the sample period 2002 – 2016. Estimations for the whole period revealed negative relationship between exchange rate and value of stock companies. The highest exposure is observed in case of Hungary and Czechia. Positive tendency can be seen in comparison of pre‑crisis and post‑crisis period. Except the case of Hungary, all markets showed decreased exchange rate exposure in time.

Exchange rate exposure revisited in Malaysia: a tale of two measures

This paper investigates a tale of two measures, which are market portfolio returns and exchange rate movements. The two measures are important risk factors which affect firm share returns. This study also demonstrates that the orthogonalized exchange rate exposure model is better at capturing the effects of exchange rate movements towards large Malaysian firm share returns. In addition to this, it was found that there were not significant differences in terms of number of exposed firms to exchange rate movements, when the Trade Weighted Index (TWI) and multi bilateral exchange rates were used, both in nominal and real terms. The study results also have shown that large Malaysian firms, including financial firms, were exposed to exchange rate movements regardless their level of foreign involvement. Interestingly, most of the exposed large firms are negatively affected when there is depreciation on home currency especially to the US Dollar (USD) and Japanese Yen (JPY). Even though the exchange rate volatility has failed to solve the exchange rate exposure puzzle among large firms in Malaysia, but the high level of sensitivity for most of the firm share returns to exchange rate volatility should not be ignored. Policymakers and financial managers should closely monitor the foreign exchange markets to mitigate the negative impact of exchange rate movements. Future research should also look into the possibility that the relationship between exchange rate movements and share returns is asymmetric.

Impact of Exchange Rate Movements, Global Economic Activity, and the BDI Volatility on Loaded Port Cargo Throughput in South Korea

This study examines the effects of exchange rate movements, global economic activity, and the volatility of the Baltic Dry Index (BDI) on South Korea's loaded port cargo throughput, based on monthly data for the period from January 2000 to October 2014. The results indicate that the BDI volatility has a negative effect on the loaded cargo throughput, while increases in the nominal exchange rate and in global economy activity have a positive effect. In addition, the error correction model results show that the error correction term is statistically significant with the negative sign.

Micro, macro, and strategic forces in international trade invoicing: Synthesis and novel patterns

The currency used in invoicing international trade matters for the impact of exchange rate movements in the presence of price rigidities. We present stylized facts on specific macro, micro and other drivers of invoicing based on 45 million Canadian import transactions. Four main results emerge. First, a large share of invoicing takes place in “vehicle” currencies that are neither the exporters nor the importers. Second, we document a novel link between the size of individual transactions and invoicing. Both the absolute value of a transaction and its relative size at the industry level matter. Third, the exchange rate plays an important role along three dimensions: exchange rate volatility, exchange rate regime, and currency transaction volumes in foreign exchange markets. Finally, we confirm the role of the market share of an exporting country at the industry level. Our results identify the most salient patterns in order to guide further developments in theoretical models of invoicing currency choice.

Impact of exchange rate movement and macro-economic factors on exports of software and services from India

Purpose – The information technology (IT) sector in India is the leading exporter from the service sector domain and also is a significant contributor to the overall export kitty of India. The IT sector’s contribution in total Indian exports (merchandise plus services) increased from less than 4 percent in FY1998-1999 to about 25 percent in FY2011-2012 as per IT industry nodal body National Association of Software and Services Companies and the central bank of the country, the Reserve Bank of India (RBI). As this industry earns most of its revenue in foreign currencies it is exposed to the foreign exchange risks. The purpose of this paper is to validate the macro-economic theory that depreciation in domestic currency boosts export as it makes domestic good and services cheaper and appreciation in domestic currency deters export as it makes domestic good and services costlier. The authors are validating this theory for Indian rupee and keeping software services export in the focus. Design/methodology/approach – In this study the authors have done the multiple regression analysis on the obtained time-series data. The research was totally based on the secondary data from Quarter1 (April-June) of FY 2000-2001 to Quarter4 (January-March) of FY 2011-2012. It comprises of data for 48 consecutive quarters. The authors have taken the growth rate, so the final data set consist of data of 47 quarters. The main source of data are published data by RBI. Data have been collected for export of software services, merchandise export, real effective exchange rate, US-dollar-Indian rupee exchange rate, gross domestic product of India and selected countries. Findings – Data analysis leads the authors to the following findings: real effective exchange rate has no significant impact on software services export; US-dollar-Indian rupee exchange rate has no significant impact on software services export; external gross domestic product growth has no significant impact on software services export; and gross domestic product growth of India has no significant impact on software services export. The results obtained from multiple regression analysis are also supported by the results obtained from Granger Causality test. It does not identify any single factor as a major cause of software export. Results shows that the external GDP is having the statistically significant impact on the software export but the low value of R2 denotes that the impact is very low. Originality/value – There are no published studies available which has attempted similar kind of an approach to study using aggregated export data and other macro-economic variables like real effective exchange rate (REER) and GDP growth rate. All previous literatures used REER to measure the impact of the exchange rate on export.