The relationship between the interest rate and exchange rate has long been a key focus of international economics. This also explains the theoretical and empirical literature proves that there exist a relationship between interest rate and exchange rate. Some studies found out that in the short run, there exit a negative relationship and positive relationship in the long run. Moreover, most papers and articles in countries deliberate on the impact of these economic variables (exchange rate and interest rate) in equally determining a country’s economic growth, inflation, levels of international trade and other economic determinants. In terms of dealing with the global markets (international trade), the link between these are realistic and
The reason behind this is the huge turnover and the liquidity making prices of currencies oscillating every second. When the investors and traders trade the currencies, they trade the national currency of one nation against the other currency. The investors and traders are required to review significant factors affecting the representative currencies in the form of pairs because they are traded in the form of pairs. Therefore, the comprehensive knowledge regarding the different microeconomic variables, macroeconomic variables, monetary variables, political variables, and psychological variables are required for investors as well as traders for gaining the clear picture of the currencies prices to head towards the future. With the approximate variables and the appropriate use of approach, people are enabled to gain the competitive advantage in the forecasting of currencies prices along with their
1.INTRODUCTION The European credit crisis has stimulated an intense debate about the usefulness of the Sovereign Credit Default Swaps (SCDS) as an essential tool in credit risk management, and their use as market credit risk’s indicator. According to Coudert and Gex (2010), the high liquidity feature of SCDS and their lead in price discovery, which make it more decisive compared to sovereign bond derivatives, emphasize its importance of managing sovereign risk. Thus, pricing the SCDS spread is a great step to gain a deeper understanding of how to manage them. This research builds on two strands of SCDS literature to price the SCDS spreads. First, I consider the empirical studies of macroeconomic fundamentals, which is a part of local factors on SCDS spreads.
1.1 Research Background Volatility can be defined in several terms. Statistically, it refers to a level of uncertainty or variation of financial assets varying over time, which measured by standard deviation or variance (Baybogan, 2013). It is commonly applied in order to evaluate the risk of financial assets. Generally, assets with high volatility, the prices of these assets could dramatically fluctuate in a wider range over a short period of time. In the other word, it can be said that a higher volatility implies a higher risk of assets.
Horngren (1995) explained a relationship between monetary policy, its instruments and price formation through the monetary transmission mechanism. He stated that, like in many other countries, price stability is the main role of the monetary policy of Sweden. Peersman and Smets (2001) have used the VAR techniques to study the macroeconomic effects of a monetary policy shock in Eurozone. They uncovered some credible responses of the main macroeconomic variables i.e. interest rate, exchange rate, and output, to an unexpected monetary policy tightening by using monetary policy transmission mechanism.
Apart from positive impact of domestic factors like GDP, influence of exchange rate is a testable proposition since it may cause dual effect on money demand which had been proposed by wealth effect and substitution effect. A measure of uncertainty of future level of price, as proposed by M.Blejer (1979) is also tested for its possible dual effect which is defined as- Index(n) = 1n |π(t−i)ni=1− π t−i−1 | ( i
INTRODUCTION: Volatility is one the most important variable in finance. It involves wide categories of theories and application in risk management, derivatives, assets pricing, portfolio theory, financial econometrics and investment derivatives. Because of the nature of volatility as it continuously changes over time this makes the volatility as latent variable i-e variable that cannot be directly measured or observed. Different research and academic methods have adapted to measure volatility. Changes in volatility arises volatility risk.
The relationship between oil prices and exchange rate of oil producing countries is extensive , moreover many people found that the price of the oil effects the value of currency in
Introduction Foreign exchange market is an important element in determinant of exchange rate and economic growth, foreign exchange market can be defined as a market which participants are able to buy, sell, exchange and also to speculate on currencies. Foreign exchange markets are a component of banks, commercial companies, central banks, hedge funds, and retail brokers and investors. According to (Yasir Yasin Raja, Mr. Naeem-Ullah, 2014) the foreign exchange market have mentioned as a market for business of foreign currency. Foreign Exchange takes account of foreign currency outline, demand for payment, and, and writings of credit, travellers cheque with the intention of denominated and allocated in foreign currency. In this paper also the
Exchange rate plays a significant role in international economic relations in open economy. The changes in the exchange rate have many different effects on macroeconomic variables such as interest rate, inflation rate, unemployment, money supply, output etc. Due to these facts every nation opens its doors to international trade in goods and services for economic well-being. Model of exchange rate on balance of payment (Oladipupo, A. and Onotaniyohuwo, F. 2011) exchange rate links the price systems of two different countries through international trade to make direct comparison of traded goods; it links domestic prices with international prices. Through its effects on the volume of imports and exports, exchange rate exerts a powerful influence