Exchange Rate Volatility Essay

The exchange rates risk that is associated with economic, transaction, and translation exposure in Indian market. From the analysis, anticipate the fluctuations that seem to occur in the next 24 months

Before we look at these forces, we should sketch out how exchange rate movements affect a nation 's trading relationships with other nations. A higher currency makes a country 's exports more expensive and imports cheaper in foreign markets; a lower currency makes a country 's exports cheaper and its imports more expensive in foreign markets. A higher exchange rate can be expected to lower the country 's balance of trade, while a lower exchange rate would increase it.

Exchange rates play a pivotal role in the relationships between individual economies and the global economy. Almost all financial flows are processed through the exchange rate, as a result the movements and fluctuations of the exchange have a significant impact on international competitiveness, trade flows, investment decisions and many other factors within the economy. Due to the increasing globalisation of the world economy, trade and financial flows are becoming more accessible

This research report is aimed at providing a comprehensive picture to the areas of Foreign Exchange operation of National Bank Limited. The report has been divided into twelve parts. These are- Introduction, Brief History of Banking Sector of Bangladesh, Corporate review of NBL, Foreign Exchange, Documents Used in Foreign Exchange Business, Letter of Credit (L/C), Import, Export, Foreign Remittance, Findings and Analysis, References.

It is well-known that currencies exchange rates is difficult to forecast accurately. There are a lot of models can be used to get relatively accurate estimating result of volatility. Using those models to research currency exchange rate volatility is necessary. A timely and accurate exchange rate estimating can provide valuable information in various fields, such as, economy, finance and polity, which is helpful to get more effective portfolio allocation, better foreign exchange rate investment result, more accurate assets pricing and more efficient politics administration.

Theoretically speaking there are three main types of exchange rates. The first type of exchange rate is the floating exchange rate. According to Sloman (2015, p. 457) a floating exchange rate system can be defined as “When the government does not intervene in the foreign exchange markets, but simply allows the exchange rate to be freely determined by demand and supply”. The second type of exchange rate is the fixed exchange rate whereby the government fixes its currency to that of another currency. Most countries which have a fixed exchange rate system usually fix their currency to the US dollar. The Chinese currency can be said to be a “managed floating exchange rate regime” (Spence.,2015) which

Due to fluctuating nature of Foreign Exchange Rate, forecasting of currency exchange rate has become an important factor in financial sector. By anticipating currency exchange rate investors can gain more profit into their business

The aim of this essay is to understand the problem of exchange rate. In order to answer to this problematic, various topics will be

The exchange rate is the price of a nation’s currency in terms of another currency. The domestic currency and the foreign currency are the two components of an exchange rate. In a direct quotation, the price of the foreign currency is expressed in terms of the domestic currency and the vise versa is the indirect currency. Most exchange rates use the US dollar as their base currency and other currencies as the counter currency. There a few exceptions, the Euro and commonwealth currencies such as the Australian dollar, the British pound and the New Zealand dollar (Investopedia, LLC., 2014).

In the next section, we will detail the advantages and disadvantages of floating and fixed exchange rate regimes. The possible exchange rate regimes are on a flexibility continuum of exchange rate regimes which Frankel (1999) describes in nine categories from the most rigid (the currency union) to the least (the clean float):

Forecasting exchange rates while operating in Bangladesh is a crucial task for every MNC. Basically two prime objectives are available in this scenario which justifies the necessity of forecasting exchange rates for our US based MNC Georgia Power. These objectives are:

In today’s global economy, accuracy in forecasting the foreign exchange rate or some predic- tions of its trend is very important for any future investment. Moreover, continuing volatility in currency values and increasing international transactions require to study and forecast cur- rency movement and exchange rates. Forecasting the exchange rate provides opportunities for exporters and importers to make better decisions considering costs and revenues from interna- tional operations.

Exchange rate represents the external value of a currency. Changes in exchange rates may affect the relative position of a country in the international trade. Politicians and economists concern about exchange rate variability for lots of reasons, among which that the exchange rate variability discourages trade comes first. However, a large empirical literature on this issue does not confirm a significant effect of exchange rate on the volume of trade [1]. Instead other variables such as employment should be much more important from a practical point of view, for it is closely related to people’s livelihood.

Now let us understand the correlation & interplay between foreign currency & the various economic parameters. In a floating regime of exchange rates, the interest rates in the country are adjusted so as to vary its real exchange rates & also as a measure to control inflation. Therefore a developing capitalist country will have its Central Bank adopt the policy of keeping its interest rate as low as possible. This will enable the entrepreneurs & the various economic actors to obtain capital at a cheaper rate. It will also help to maintain a low real exchange rate & hence boost domestic exports. Growing exports will see a positive trade balance or a Current Account Surplus. With a current account surplus the country can make strategic investments in the foreign markets or acquire factories. This will result in a negative Capital Account while indicating the presence in foreign markets. Such a cycle when sustained can provide a drive to the economy & increase the country’s GDP & improve the standard of living in it.

Focusing on impact of exchange rate, Siregar and Rajan (2002) study the impact of exchange rate volatility in Indonesia’s trade with