Relationship Between Macroeconomic Variables And Exchange Rates

Changes in exchange rates are the result of changes in demand and supply factors for goods and services, such as changes in tastes, relative incomes, and relative prices. Under a flexible-rate policy, all domestic prices are linked with foreign prices. Any change in the exchange rate automatically alters the prices of all foreign goods to domestic goods. The price change alters the relative attractiveness of imports and exports and maintains equilibrium in each trading partner's balance of

This study is designed to examine the causes of exchange rate fluctuations and their impact on the Nigerian economy since there is scarcely any country that lives in absolute autarky in this globalised world. The economies of all the countries of the world are linked directly or indirectly through asset or/and goods markets. This linkage is made possible through trade and facilitated by foreign exchange. The price of foreign currencies in terms of a local currency (i.e. foreign exchange) is therefore important to the understanding of the growth trajectory of all countries of the world.

The new liberalisation regime with interest rates and capital mobility changing means that the manipulation of the currency dampens monetary policy independence, so, I would recommend the author to focus on the wider context of macroeconomic variables and whether it is successful.

Such a process can be very time consuming and imprecise, without, of course, having a market currency price to begin with. The exchange-rate system is an important topic in international economic policy. Policymakers and journalists often seem to treat the choice of exchange-rate system as one of the most important economic policy choices that a national government makes, on a par with free international trade. Under most circumstances and for most countries, a system of freely floating exchange rates is likely to be a better choice than attempting to peg the exchange rate.

Currency is unreliable. In some countries the United States dollar is worth more than that countries currency, while in other countries the U.S. dollar is worth less. The exchange rate fluctuates on a continuous base which makes the term “funny money” more realistic each day. The purpose of this paper is to discuss hard and soft currency, the South African rand, Cuban pesos, and why the exchange rates fluctuate.

Various fundamental approaches exist in forecasting future exchange rates. The key approaches discussed below will include Purchasing Power Parity (PPP) and Asset Market Approach. The balance of payment approach will be utilised instantaneously with other methodologies in order to establish a forecasting methodology for EUR and USD against the AUD. Emphasis will be placed on PPP, International Fisher Effect and the Asset Market Approach.

An example is given in the figure 1 where the equilibrium of the foreign exchange and the domestic money market is reached simultaneously when the exchnge rate is fixed at E0 and have to stay on E0 in the future.

We chose Japanese Yen as are benchmark exchange rate because Japan is part of the G-10 Countries with U.S. and one of the major economies in the world. Japan is also a Key U.S. Business Partner in importing and exporting goods and services. Through our findings we have developed our insight of the Japanese Yen being very volatile to the dollar. In the graph shown below, we can conclude that from 1995 till 1999 the Japanese yen was weaker against Dollar. The process has been repeated between the years 2001-03 and 2006-recent.

Current account balances necessitate a one-way offsetting capital flow of equal magnitude to prevent exchange rate fluctuations. Capital flows are, however, not homogenous. Consequently, the financial media often falls into the trap of solely stressing the perceived power of interest rate differentials in driving capital flows and, therefore, exchange rates. The reality is, however, that the role of "hot money" flows between banking centres is much over-hyped in exchange rate determination, particularly during periods devoid of financial stress.

Assessing the merits of the paper, it explores an interesting and crucial phenomenon which can further be developed to create several other hypothesis and lead to revelations in the macroeconomic and monetary front. Hence, it is significant to its field and also appropriate for the Journal of International Money and Finance.

There are many theories developed by economist trying to explain how exchange rate move, but none of them has so far proved to be very accurate with the future exchange rate moves predicted.

I first describe the forces behind the movements in the exchange rate through macroeconomic model. I, then, use these models to suggest an exchange rate policy for the US economy that can help its transition from the Great Recession.

Floating exchange rates and fixed exchange rates each provide distinct advantages and disadvantages for a given regime. In any given state of the global economy, one given country may be better suited for one system. But there are a number of factors that influence this, and there is therefore no universal correct system for all international economies.

Exchange rates fluctuated as countries widely used “predatory” depreciations of their currencies as a means of gaining advantage in the world export market. Attempts were made to restore the gold standard, but participants lacked the political will to “follow the rules of the game”. The result for international trade and investment was profoundly detrimental.

Monotonously, economist of the International monetary system focused their mind on the outline of either fixed or a flexible exchange rate system. At the end of the Bretton woods system, many countries are adopted managed floating exchange rate system, in particularly a number of emerging countries try to preserve their currencies from increased volatility in foreign exchange markets triggered by monetary alleviating measures from highly developed countries.