International Research Journal of Engineering and Technology (IRJET)
e-ISSN: 2395-0056
Volume: 11 Issue: 03 | Mar 2024
p-ISSN: 2395-0072
www.irjet.net
Exchange Rate Dynamics and Their Influence on International Trade: A Comprehensive Analysis Nosheen Mumtaz1, Tuaha Nasim2, 1Nosheen Mumtaz, Dept. of Economics and Management, Anhui University of Science and Technology, Huainan,
China
2 Tuaha Nasim, Dept. of Economics and Management, Chang'an University Xi'An, Shaanxi, China.
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Abstract - This study intends to investigate the relationship
have both favorable and unfavorable consequences, the exchange rate additionally serves a big part in international trade. Maintaining international trade requires fostering an environment that encourages competition. Authorities may purposefully keep exchange rates high in order to shield their products for export or domestic industry from competition from overseas markets. Their local currency might likewise be artificially devalued by them. As a result, local goods seem cheaper in overseas markets while foreign goods get more expensive in the home market. While taxing domestic consumers, this helps domestic manufacturers. Long-term sustainability of this approach is challenging, though. Central banks have to take specific steps and may have an impact on trade imbalances and other areas of the economy in order to sustain the elevated exchange rate. Examining again how exchange rates affect trade is a useful exercise for decision-makers. Distinguishing systematic effects based on concept and empirical evidence from perspectives or biases is helpful. It is crucial to differentiate among whatever "is" and what "ought to occur," as David Hume could have put it. It is also crucial to avoid poorly thought-out policy reactions by irritated nations, like protectionism regarding trade, which may be predicated on (at least partially legitimate) claims of beggar-thy-neighbor strategy conduct by nations with whom they trade. A country's exchange rate affects many aspects of its financial system, particularly international trade, and is a good indicator of that country's financial stability. Due to rising expenses for transactions and possible trade interest reductions brought on by fluctuations in exchange rates, there is a serious risk to the mechanics of global commerce that could lead to De-internationalization. Exchange rate volatility is the result of swings in a nation's currency's value in relation to other nations. These swings can be caused by a variety of variables, including inflation, interest rate changes, political unpredictability, economic activity, and investment. In recent years, world leadership has made the problem of restructuring the global economy a top priority for policy. Since theories anticipates that real exchange rates will change, regardless through nominal rates or prices, real exchange rate modification is unquestionably a component of global equilibrium. But there is much more to this argument than just how exchange rates affect commerce. Global imbalances are mostly caused by structural and macroeconomic distortions. Therefore, considering the
between oil prices and the US dollar exchange rate, as well as the impact of inflation and GDP growth rates on global commerce. It uses secondary time series data from 2014 to 2020 and statistical tools to evaluate the variables' significance, non-stationarity, and stationarity. Trade (% of GDP) is the analysis's dependent variable, and the actual exchange rate, growth in GDP rate, along inflation rate (% of the average consumer price index) are its independent factors. The study emphasizes how minor adjustments to the independent factors have a significant impact on the dependent variable. Numerous economic techniques are included in the analysis, including the Granger causality test, OLS, ADF, ARDL, multicollinearity test, correlation test, and descriptive analysis. The research contains important results that show a long-term negative connection between trade and inflation. It is believed that inflation as a variable is important and has a big effect on trade. The analysis also shows that the economy will adjust by 69.36% in the coming years to reach equilibrium, with the variables holding steady in the short and long terms. The comprehension of the complex relationship between inflation, exchange rates, and international trade is aided by these findings.
Key Words:
Oil Prices, US dollar, Exchange rate, Inflation rate, Relationship, GDP growth
1. INTRODUCTION In the past 15 years, there have been substantial changes to global trade, with a noticeable slowdown in growth following the global financial meltdown. Research has looked at the primary causes of this tendency and whether they are structural or cyclical. The research has focused mostly on two issues: the effects of exchange rates on trade and the efficiency of exchange rate regulations in controlling a nation's external position and internal economic stability. In the modern global economy, trade regulations, tariffs, and government initiatives to encourage domestic investment and trade are just a few of the variables that affect international trade. Economic unions, like the European Union, strive to improve trade between nations by lowering barriers and tariffs and allowing capital flows. However, since it is intimately related to the stock market and can
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