Determinants of Exchange Rate: A Case Study of Pakistan
Keywords:Exchange Rate, Factors Affecting Exchange Rate, Inflation Rate, KIBOR, Foreign Exchange Reserves, Exports, Imports, Pakistan Economy
The present research was conducted to study the impact of macro-economic variables on index value of currency. The main objective of this research was to investigate some major factors having their contribution towards influencing exchange rate of Pakistan. For this purpose, time series monthly data on five macro-economic variables, i.e. Inflation rate, KIBOR, Forex Reserves, Exports and Imports of Pakistan was collected for the period of 2001-2015. Correlation and Regression analysis techniques were used to analyze the relationship between criterion and predictor variables. Study divulged that Inflation rate; exports and imports remained significant and have their major contribution towards influencing currency rates in Pakistan. On the other hand, Forex reserves and KIBOR confirmed moderate relationship with exchange rate. Multiple regression analysis confirmed that inflation rate, KIBOR and exports have positive association while imports and Forex reserves demonstrated negative association with exchange rate.
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