Impact Of Exchange Rate Volatility Research Articles

The Impact of Exchange Rate Volatility on Bank Profitability: An Empirical Analysis of the Egyptian Banking Sector Before and After the Egyptian Currency Devaluation

The Impact of Exchange Rate Volatility on Bank Profitability: An Empirical Analysis of the Egyptian Banking Sector Before and After the Egyptian Currency Devaluation

Effects of the Real Effective Exchange Rate Volatility on the Trade Balance, The Case of Vietnam for Sutainable Development Goals

Objective: The objective of this study is to analyze the impact of exchange rate volatility on the trade balance of Vietnam. Analyzing and evaluating the degree of exchange rate fluctuations of the VND from the first quarter of 2000 to the second quarter of 2019. Then, proposing the orientations and some solutions to regulate the exchange rate to ensure the trade balance surplus in the near future. Method: Exchange rate fluctuation is the conditional variance or unconditional variance or standard deviation of the base rate. Auto Regressive Conditional Heteroskedasticity (ARCH) model was used to calculate real effective exchange rate fluctuations in VND. The study also uses Ordinary Least Square regression (OLS) method to evaluate the impact of exchange rate volatility on Vietnam's trade balance. Results and Discussion: The results show that a stable long-term equilibrium relationship exists between exports. Quantitative results show that exchange rate volatility have a positive impact on exports but have not yet shown a clear impact on Vietnam's imports. The paper also points out that in addition to the exchange rate fluctuations, many other factors such as foreign income, domestic income, trade conditions ... could also affect the trade balance. Research Implications: To achieve the trade balance surplus, the proposed solutions need coordination among ministries and agencies. Finally, the flexible control of State Bank on exchange rate volatility will enhance Trade Balance of Vietnam.

Beyond GARCH: Intraday Insights Into the Exchange Rate and Stock PriceVolatility Dynamics in Borsa Istanbul Sectors

This study investigated the impact of exchange rate volatility on sectoral stockvolatility by employing the intraday volatility measure directly calculated fromthe original data, using daily data from 27 Borsa Istanbul sectors between April 29, 2003, and April 25, 2023. In the literature, GARCH models are commonly usedtostudy the volatility spillovers between exchange rates and stock prices, typicallyusing aggregate data. However, the GARCH family models provide inefficient andbiased estimates if they are misspecified. Moreover, using aggregate-level data maylead to biased and misleading conclusions. The research used intraday volatilitymeasures to overcome the shortcomings of GARCH models. The ordinary least squares (OLS), GARCH (1,1) methods, and Garman and Klass (1980) volatilityestimator are used. The empirical results showed that the estimates fromeachmethod vary significantly, and these disparities in the results might be due tomisspecification in GARCH (1,1) models. The intraday volatility model estimationresults showed that although stock price volatilities in all sectors are positively andsignificantly affected by exchange rate volatility, their magnitudes varysignificantly. Taken together, this implies the presence of vast heterogeneities inthe responses of sectoral stock price volatilities to exchange rate volatility. The results encourage policymakers to pay special attention to these heterogeneities toprevent capital flights and underinvestment. Additionally, the findings assist investors in making more effective decisions by helping themadapt their investment strategies to factor in exchange rate fluctuations and mitigate the impact of unexpected events in the exchange rate market

Bank cost efficiency and credit market structure under a volatile exchange rate

We study the impact of exchange rate volatility on cost efficiency and market structure in a cross-section of banks that have non-trivial exposures to foreign currency (FX) operations. We use unique data on quarterly revaluations of FX assets and liabilities (Revals) that Russian banks were reporting between 2004 Q1 and 2020 Q2. First, we document that Revals constitute the largest part of the banks’ total costs, 26.5% on average, with considerable variation across banks. Second, we find that stochastic estimates of cost efficiency are both severely downward biased – by 30% on average – and generally not rank preserving when Revals are ignored, except for the tails, as our nonparametric copulas reveal. To ensure generalizability to other emerging market economies, we suggest a two-stage approach that does not rely on Revals but is able to shrink the downward bias in cost efficiency estimates by two-thirds. Third, we show that Revals are triggered by the mismatch in the banks’ FX operations, which, in turn, is driven by household FX deposits and the instability of Ruble’s exchange rate. Fourth, we find that the failure to account for Revals leads to the erroneous conclusion that the credit market is inefficient, which is driven by the upper quartile of the banks’ distribution by total assets. Revals have considerable negative implications for financial stability which can be attenuated by the cross-border diversification of bank assets.

Does foreign portfolio investment moderate the impact of exchange rate volatility and investor sentiment on country index crash risk?

Does foreign portfolio investment moderate the impact of exchange rate volatility and investor sentiment on country index crash risk?

Impact of RMB Exchange Rate Fluctuations on the Performance of Cross-Border Mergers and Acquisitions of High-Tech Enterprises: A Moderated Mediation Model Based on Innovation Input

Cross-border mergers and acquisitions (M&A) serve as a crucial pathway for the international development of high-tech enterprises. However, currency exchange and foreign exchange transactions are frequent occurrences during cross-border M&A processes, making exchange rate fluctuations significantly influential on the success rate and performance of such endeavors. By analyzing the impact of exchange rate volatility on high-tech enterprises, this study introduces innovation input as a moderating mediating variable. The findings reveal that greater exchange rate fluctuations lead to poorer M&A performance. Moreover, innovation input acts as a mediating variable in the relationship between exchange rate volatility and M&A performance. The study contributes to strategic insights for the international M&A activities of enterprises.

Exchange Rate Volatility and Decision-Making in Rwanda’s Logistics Sector: A Case Study of Gorilla Logistics Limited

This study examines the impact of exchange rate volatility on decision-making within Rwanda’s logistics sector, focusing specifically on Gorilla Logistics Limited. The research addresses challenges in the sector, particularly how exchange rate fluctuations complicate financing, operating, and investing decisions. Utilizing a quantitative research design, data were collected from 41 employees through a structured questionnaire. The findings reveal a significant association between exchange rate volatility and decision-making, with notable effects on financing (Adj-R² = 0.65), operating (Adj-R² = 0.48), and investing decisions (Adj-R² = 0.72). The study concludes that increased exchange rate volatility complicates decision-making, a conclusion supported by qualitative insights. To mitigate these challenges, the study recommends that Gorilla Logistics Limited implement risk management strategies and improve its management of foreign exchange reserves to enhance decision-making processes and maintain competitiveness in Rwanda’s logistics sector.

Impact of Exchange Rate Volatility on Trade Balance: Evidence from Pakistan and its Major Trading Partners

Impact of Exchange Rate Volatility on Trade Balance: Evidence from Pakistan and its Major Trading Partners

Impact of Exchange Rate Volatility on the Manufacturing Sector Growth Performance in Nigeria

Impact of Exchange Rate Volatility on the Manufacturing Sector Growth Performance in Nigeria

Shifting the paradigm for securing efficient management of exchange rate in Nigeria: A GARCH and BEKK-MGARCH analysis

The influence of foreign exchange on all spheres of any economy is germane to determining its extent of development. Most developing countries have been subjected to managing the integrity of the exchange rate arising from their disadvantageous position in world trade. Nigeria is not an exemption either; this is due to its constant interventions in the foreign exchange market from time to time and by the policy of the existing government in power. However, the interventionist policy framework has been more harmful to Naira as the currency depreciates unabatedly. The pertinent question is whether monetary policy should be the only approach to effective exchange rate management or be combined with fiscal and income policies. Irrespective of the policy choice, the aim, target, and instrument must be complementary without unnecessary disruptions midway, as usually experienced in Nigeria. These inconsistencies have come to bear enormously on the country's exchange rate management. Rather than focusing on the impact of exchange rate volatility on industrial development that could warrant foreign exchange inflows, this paper considers industrialization as an approach to effectively managing exchange rates in Nigeria. This analysis employs a univariate GARCH and BEKK-MGARCH model, using high-frequency monthly time series data from 2000 to 2019, to examine the volatility transmission between the foreign exchange market and the industrial sector. The model estimation uses the Conditional Maximum Likelihood Technique (CMLT). It was discovered that industrial development positively influenced the official market exchange rate compared to the parallel market exchange rate, reducing its volatility. The study thus suggests the vigorous pursuit of foreign exchange earnings and usage policy by earning entities, floating Diaspora bonds, enhancing and encouraging remittances and repatriation of illicit financial outflows to enhance industrialization. This will discourage arbitraging, increasing foreign exchange inflows and stabilizing the economy.

Asymmetric effects of exchange rate volatility on the shadow economy: new evidence from OECD countries

ABSTRACT Assessing the shadow economy and its major determinants has been an important part of economic literature over the past few decades. In this article, we analyse the impact of exchange rate volatility on the presence of the shadow economy for the current 38 OECD countries over the period of 1991–2021 in both a linear and nonlinear manner. We provide the opportunity to test whether an exchange rate adjustment may follow a nonlinear path and analyse the asymmetric impact of exchange rate volatility on the shadow economy. We estimate a linear ARDL model for each country and find support that exchange rate variability significantly affects the shadow economy both in the short run and long run in most countries both in linear and nonlinear models. However, by estimating a nonlinear ARDL model, we find an asymmetric exchange rate volatility effect in all 38 countries concluding that exchange rate volatility and risks associated with it significantly affects the shadow economy. Thus, it is crucial that this group of nations adequately implement financial policies to minimize this risk.

Unpacking the asymmetric impact of exchange rate volatility on trade flows: A study of selected developed and developing Asian economies.

Maintaining a stable exchange rate is a challenging task for the world, especially for developing economies. This study examines the impact of asymmetric exchange rates on trade flows in selected Asian countries and finds that the effects of increased exchange rate volatility on exports and imports differ among Pakistan, Malaysia, Japan, and Korea. The quarterly data from the period 1980 to 2018 is collected from the International Financial Statistics (IFS) database maintained by the International Monetary Fund (IMF). We employ both linear and non-linear Autoregressive Distributed Lag (ARDL) models for estimation. The non-linear models yielded more significant findings, while the linear models did not indicate any significant effects of exchange rate volatility on trade flows. The results of the study suggest that in the case of Pakistan, both the linear and non-linear models indicate that increased exchange rate volatility adversely affects exports and imports, while decreased volatility enhances both. This implies that stabilizing the exchange rate would be beneficial for Pakistan's trade. In contrast, the linear model applied to Malaysia shows no long-run effects of exchange rate volatility on exports. However, the result suggests that decreased volatility stimulates Malaysia's exports. Therefore, in the case of Malaysia, stabilizing the exchange rate could contribute to boosting exports. We also found that increased exchange rate volatility boosts exports of Japan. On the other hand, decreased volatility hurts exports of Japan. As for the long-run effects of exchange rate volatility on imports, we found that increased volatility boosts imports of Korea. The study provides various policy implications regarding the impact of exchange rate volatility on trade flows in developing economies. The study highlights the importance of country-specific considerations in understanding the impact of exchange rate volatility on trade flows, and has important policy implications for promoting trade and economic growth in these nations. It emphasizes the need to model exchange rate volatility separately for developed and developing countries and to continue research and analysis to identify ways to mitigate its negative effects on the economy.

The Impact of Exchange Rate Volatility on Export Earnings: Evidence from Sri Lanka

In Sri Lanka, the relationship between exchange volatility and exports is a persistent issue in economic growth and development. Through uncertainty and adjustment costs, exchange rate volatility can have a direct impact on trade. The objective of this study is to analyze the exchange rate volatility on exports in Sri Lanka from 2001 to 2019. The motivation of this study is to investigate the relationship between exchange rate volatility on real export earnings in SriLanka after the implementing floating exchange rate policy. The study found a positive relationship between exchange rate volatility and export earnings in Sri Lanka.

Third-Country Exchange Rate Volatility and Pakistan-China Trade at the Commodity Level

ABSTRACT This study examines the impact of exchange rate volatility on China-Pakistan trade flows from 1980 to 2020. Using data from 42 import industries and 34 export sectors, bilateral trade between China and Pakistan is analyzed, with the US as the third country. Cointegration analysis reveals a strong relationship between Pakistan-China trade flows and exchange rate volatility. The yuan/dollar exchange rate negatively affects 22 import and 24 export industries in Pakistan, while the rupee/dollar exchange rate negatively impacts 31 import and 17 export industries. Findings suggest that the exchange rate volatility of the third country hampers bilateral trade between Pakistan and China.

Exchange Rate Volatility and Nigerian Stock Market Development

Purpose: The study aims to evaluate the impact of exchange rate volatility on the indicators of stock market, such as the returns, capitalization, liquidity, transaction volume, based on the Nigerian evidence. Theoretical framework: The paper considers extant model of exchange rate-stock market interactions. Because the diversity of the market is important the paper follows suggestions by El-Wassal (2013) to examine variety of stock market indicators in order to offer accurate depiction of how the stock market drives exchange rate volatility. Design/Methodology/Approach: The study employs a simple static regression model of stock market indicators with autoregressive adjustment component which absorb autocorrelation. The models are tested on annual data (1985-2020). Findings: The study finds that the exchange rate volatility has negative impact on stock market development - returns, capitalization and volume. The paper reveals further that other correlated controls factors impinge different impacts on the stock market indicators. Research, Practical & Social implications: One implication of the finding is that the volatility may discourage investors, reduce firm performance, and lead to reduction on the returns of firm shares. Policy makers should put in place growth-inducing infrastructural investments to make the business environment more conducive to attract foreign capital, while also positioning the capital market with several initiatives to increase trading activities. Originality/Value: The connection between the foreign exchange and financial markets is of policy importance. Although the focus is on the Nigerian markets, the evidence could be extended to other African and global markets, to serve as guide to foreign investors.

Addressing Balance of Payment Disequilibrium Through Non-Oil Export and Exchange Rate Stability in Nigeria: An Empirical Investigation

Abstract This study investigates the impact of non-oil export on the Nigeria balance of payment between 1981 and 2020. To achieve the broad objective, two specific objectives were set out, viz: investigate the impact of non-oil export on the Nigeria balance of payment; and examine the level of impact of exchange rate volatility on balance of payment in Nigeria. Using the Autoregressive Distributed Lagged (ARDL) and Error Correction Model (ECM), the findings of the study show that non-oil exports have had a strong positive impact on Nigeria’s balance of payment within the period under study both in the short and long-run. It shows that a percentage increase in non-oil export increases the balance of payment (surplus) by 31.47 % in the long-run. However, exchange rate was shown to have had a negative blow on Nigeria’s balance of payment, though not statistically significant. The study therefore recommend among others that, for Nigeria to enjoy a surplus balance of payment, which is one of her major macroeconomic goals, there is the need to shift attention to the non-oil sector which has always been the main source of her foreign exchange earnings prior to the discovery of crude oil.

한국-베트남 무역에서 환율변동의 비대칭적 영향에 관한 연구

Purpose – In past studies, exchange volatility was assumed to have a symmetric effect on trade, irrespective of exports and imports. In practice, however, the symmetry assumption is not credible. This is because responses to exchange rate uncertainty differ among countries or companies. Thus, this study examines the asymmetric effects of exchange rate volatility on exports and imports as well as in the short- and long terms. Design/Methodology/Approach – To investigate the asymmetric impact of exchange rate volatility on Korea’s trade with Vietnam, the nonlinear autoregressive distributed lag (NARDL) method was applied to export and import data disaggregated by 25 commodities for the period of January 2000 to December 2020. Findings – The results show that the ups and downs of exchange rate volatility have an asymmetric impact on some, though not all, types of Korea's commodities exported to and imported from Vietnam. In addition, asymmetries in exchange rate volatility seem more likely viewed as a short-tern phenomenon rather than a long-term period for Korea’s bilateral trade with Vietnam over the past two decades. Research Implications – Monetary authorities in Korea and Vietnam need to consider the short-run movement in the VND/KRW exchange rate as one of the main factors for determining bilateral trade flows.

Impact of Exchange Rate Volatility on Export in Nigeria: 2008 – 2021

This study examined the impact of exchange rate volatility on export in Nigeria. The specific objectives of the study were to evaluate the individual impacts of parallel market-, interbank, real and nominal-exchange rate volatilities on Nigeria’s export. The study employed the ARDL-Error Correction Model and Bound Test using secondary data sourced from the Statistics Database of the Central Bank of Nigeria. Bounds test results for each of the four models, showed long-run relationship among the variables. The results showed that in the long-run, all the exchange rate volatility measures showed negative sign as expected but only the real effective exchange rate volatility was statistically significant in the long run. In the short-run, the average impact of exchange rate volatility was negative in all the four models as expected. However, volatility in real effective exchange rate and nominal effective exchange rate were statistically significant. Finally, if the Nigeria’s export deviates from its long-run path due to short-run perturbations, the tendency for it to return to long-run equilibrium from the four models lied between 25% and 39%. Based on these results, this study recommended that efforts to improve Nigeria’s trade with other countries should consider stabilizing the Naira exchange rate. The Central Bank of Nigeria should shore up reserve accretion as well as diversify the country’s export basket and source for new export destinations.

MODELLING THE IMPACT OF EXCHANGE RATE VOLATILITY ON TRADE FLOWS IN NIGERIA

This study investigates the impact of the persistent exchange rate volatility on trade flows in Nigeria, for the period of 1970-2021, using secondary data obtained from various sources. Data were analyzed using descriptive tools like tables, graphs and other econometric methods, such as the Two Stage Least Squares method. Result of the trade flows equation indicates that though all the explanatory variables conformed to theoretical a priori expectation, none was statistically significant at 5% level. It confirms a negative and insignificant impact of exchange rate volatility on trade flows in Nigeria. Further findings from the EGARCH model indicate that exchange rate volatility in Nigeria has been high, persistent and asymmetric with positive leverage and high clustering effect over the study period. The study recommends pragmatic economic diversification away from oil to the tradable lagging sectors of agriculture, manufacturing and the services sector, in order to stabilize the long run value of the exchange rate. Also, appropriate monetary-fiscal policy measures should be adopted in order to reduce exchange rate volatility, particularly the supply-sided approach. Nigeria should also increasingly open up her economy to foreign trade in order to harness foreign direct investment inflow into the economy.

The Impact of Exchange Rate Volatility on Industrial Exports: A Case of Sri Lanka

The developing world witnessed the exchange rate fluctuations enormously to instability and a lack of economic confidence over the years. The relationship between exchange volatility and industrial exports in Sri Lanka is a continuing matter in economic growth and development. Many developing countries are engaging in a wide range of cross-border transactions with developed and emerging economic countries. This situation has led countries to witness exchange rate fluctuations, and the unpredictability of exchange rates affects the export earnings. The relationship between exchange rate volatility and industrial exports in Sri Lanka is a continuing matter in economic growth and development. The aim of this study is to analyze the exchange rate volatility on industrial exports in Sri Lanka from 2001 to 2018. The motivation of this study is to investigate the relationship between exchange rate volatility in industrial export earnings in Sri Lanka after implementing floating exchange rate policy. The ARDL model is employed to examine this phenomenon and the study found a positive relationship between exchange rate volatility and industrial exports in Sri Lanka in the short run and long run.