5. 5
INTRODUCTION
Exchange rate is value of one currency with purpose of
conversion to another currency .
Exchange rate is important because lower currency rate make
its exports cheaper and higher make it expensive vice
versa.
Helps to calculate Appreciation or depreciation of currency
and assist in decision making which has greater impact on
foreign trade.
6. 6
Continue...
domestic currency appreciates( ), imported goods will be cheaper( )domestic market
and local companies would find that their foreign competitor's goods deamd ( ) .
Export > Import ....appreciate & import >Export devalue
Bangladesh started to maintain flexible exchange rate system from 2003
7. 7
objectives
General
Objective
To identify the factors that
affects foreign exchange
rate in Bangladesh .
To identify
the impact of
Inflation
To identify
the impact
of Interest
rate
To identify
the impact
of GDP
To identify the
impact of Per
capita
GDP(Income)
Specific Objectives
8. 8
Methodology
Research Approach:
Descriptive and causal.
Study Area:
Factors affecting the exchange
rate in Bangladesh.
Sampling:
Dependent and independent
variables is taken as a sample
which starts from 2000 to 2016.
11. Procedure of Data Analysis
Correlation analysis is
used to find out the
relationship .
Regression analysis is
used to find out the
impact of independent
variable on dependent
variable.
11
12. Regression Model-
Y it = α + B1 (INF) it + B2 (INT) it + B3
(GDP) it +B4 (INC) + 𝜺
12
Y = Exchange rate movement
B1 INT= coefficient for real Interest rate,
B2 INF = Inflation rate,
B3 GDP= GDP percentage
B4 INC= Per capita growth as a proxy of
income and
𝜺= error term.
13. Inflation VS Exchange Rate
13
Relatively
High
inflation in
Bangladesh
Import
Increase
Export
Decrease
Bangladeshi
currency
will
Depreciate
15. Interest rate VS Exchange Rate
Relatively
high interest
rate in
Bangladesh
Increase
demand for
Bangladeshi
currency
Bangladeshi
currency
will
Appreciate
15
24. Data analysis
We use annual data on exchange rate, interest rate, inflation rate, GDP & per capita
income of Bangladesh from the World Bank website
The regression analysis has been done with four independent variables (interest rate,
inflation rate, GDP & per capita income) and a dependent variable which is exchange rate.
Regression model:
Y = α + B1 (INF) it + B2 (INT) it + B3 (GDP) it +B4 (INC)
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Coefficientsa
Model
Unstandardized Coefficients
Standardized
Coefficients
t Sig.B Std. Error Beta
1 (Constant) 72.134 25.474 2.832 .015
Inflation_Rate .933 1.460 .159 .639 .535
Real_interest_rate 1.241 1.208 .210 1.027 .325
GDP_percentage -19.245 8.105 -1.902 -2.374 .035
Per_capita_growth 21.692 7.325 2.704 2.962 .012
a. Dependent Variable: Exchange_Rate Table 5.3:Coefficients
25. Coefficient shows Per capita income; real interest rate and inflation rate( ) on
exchange rate( ). & GDP ( ) ....exchange rate ( )
Per capita income has a great impact to increase Exchange rate
Model summary
25
Model R R Square
Adjusted R
Square
Std. Error of the
Estimate
1
.917a .841 .788 4.18562
a. Predictors: (Constant), Per_capita_growth, Inflation_Rate, Real_interest_rate,
GDP_percentage
26. 26
Regression
Coefficient of correlation, (R) is 0.917, it indicates that the
relations between the dependent variable and independent
variable are very strong.
(R2) value is .841 indicates that 84.1% of the variations in
Exchange Rate can be explained by the variation of exchange
rate, interest rate, inflation rate , GDP & per capita income.
Standard error 4.18562 indicated low scatter of data, it increases
the strength of relationship between the dependent and
independent variables.
Adjusted R square represents if we add more and more useless
variable adjusted R square will decrease. If we add most useful
variable adjusted R square will increase.
27. ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 1112.544 4 278.136 15.876 .000b
Residual 210.233 12 17.519
Total 1322.777 16
a. Dependent Variable: Exchange_Rate Table 5.5 Analysis of variance
b. Predictors: (Constant), Per_capita_growth, Inflation_Rate, Real_interest_rate, GDP_percentage
27
28. ANOVA
The analysis of variance explains further the relationship
between the independent and dependent variables.
significance value is 0.000 b (i.e., p = .000b), which is
below 0.05.
the value of F= 15.876 which is larger than the value of
significance 0.00, It means correlation between the
dependent and independent variables.
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29. Findings
Factors Influences the Exchange Rate-
inflation, interest rate, per capita income(+ )
Nature of Relationship
Gross Domestic product (+)
(Among all other independent variables, Per capita has greater impact on
exchange rate.The impact is positive)
(GDP increase means Exchange rate decrease)
30. CONCLUDING REMARKS
30
Primarily, inflation, interest rate, per capita income increase
the exchange rate.
Per capita growth impact on exchange rate than that of any
other factors.
GDP has a negative impact on Exchange Rate