The Determinants Of Exchange Rate Essay - 2043 Words

A Time Series Analysis of the Determinants of Exchange Rate: The Case of Bangladesh Raafi Zakaria ID: 13105025 ECO 430: Econometric Analysis April 2015 Submitted to: Tanvir Sobhan This paper was prepared for a course requirement in ECO 430: Econometric Analysis in Spring 2015 at BRAC University. Abstract This study aims to formulate a model to determine Bangladesh’s exchange rate based on several economic indicators. By analyzing data from 1981 to 2013, it is observed that macroeconomic factors such as liquidity, net trade, debt and foreign exchange reserves relative to the US are significant in Bangladesh’s exchange rate determination. Interest rates, output and inflation are however insignificant, contrary to theory. This paper also discusses the relevance of unobserved effects and government interventions in exchange rate movements. . Engle-Granger Cointegration test does not exhibit a long run relationship between exchange rate and its determinants and therefore calls for further analysis. Introduction Exchange rate- the price of one country’s currency in terms of another, is one of the most keenly monitored, analyzed and governmentally manipulated economic indicators. For the free market economies of the world, exchange rates are hugely significant since they have a crucial part in determining the level of international trade and investment. According to Uddin, Quaosar Nandi (2013), the greater the exchange rate, the worse the circumstancesShow MoreRelatedForeign Direct Investment1674 Words   |  7 Pageswatch). The determinants of foreign direct investment may be the socio-economic, financial and the cultural factors which usually have positive and negative effect on the foreign direct investment. The risk is attached to the determinants of foreign direct investment. 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