Business research methods

Business Research Methods
Research Design
Author: www.magcify.com
Date: 19-Sep-2014
Abstract
The entire information inside this document is all in relation to research design. This research design is all
about currency devaluation in Pakistan. In order to develop a research design the secondary data has
been taken from WDI. Only quantitative data has been utilized. The core purpose is to examine the
factors that are directly or indirectly responsible for the currency devaluation in Pakistan.
We are using independent variable e.g. economic instability, deficit financing and money supply. Our
objective is to check the impact of these variables on the currency devaluation in Pakistan. We are
applying regression method for analysis purpose.

Business Research Method Research Design
www.magcify.com Page | 2
Table of Contents
1. RESEARCH DESIGN ----------------------------------------------------------------------------------------------------------- 3
1.1 INTRODUCTION---------------------------------------------------------------------------------------------------------------- 3
1.2 PURPOSE STATEMENT------------------------------------------------------------------------------------------------------- 4
1.3 RESEARCH OBJECTIVE ------------------------------------------------------------------------------------------------------ 4
1.4 SIGNIFICANCE OF STUDY---------------------------------------------------------------------------------------------------- 4
1.5 HYPOTHESIS ------------------------------------------------------------------------------------------------------------------ 5
1.6 LITERATURE REVIEW --------------------------------------------------------------------------------------------------------- 5
1.7 THEORETICAL MODEL-------------------------------------------------------------------------------------------------------- 8
1.8 RESEARCH METHODOLOGY------------------------------------------------------------------------------------------------- 8
1.9 LIMITATIONS AND DELIMITATION -------------------------------------------------------------------------------------------- 8
1.10 ETHICAL CONSIDERATIONS-------------------------------------------------------------------------------------------------- 9
1.11 REFERENCES ----------------------------------------------------------------------------------------------------------------- 9

1. Research Design
1.1 Introduction
Pakistan being a developing country its economy gets affected by the rise and fall of
Pakistani currency against dollar. During the time of Prime Minister Shaukat Aziz in power
dollar was stable for 60 rupee. When the government changed Pakistani currency
immediately fell seven rupee against dollar. Since then Pakistani currency is falling and
nowadays the value is 104 and the speculation is that it will keep on falling. The devaluation
of currency has a direct impact on local Pakistan traders. Foreign trade such as eatable oil,
raw materials, petroleum and electronics gets expensive. This creates problems for the
traders. Pakistan imports 80 percent of petroleum for its consumption. According to the
Former Finance Minister Dr. Salman Shah, Pakistan spends 13 billion dollar on imports of
crude oil and eatable oil. This provides a boost for domestic demands as exports become
cheaper and more competitive to foreign buyers. Higher level of exports should lead to an
improvement in the current account deficit. This was important in the case of the UK who had
a large current account deficit of over 3% of GDP in 2008. Higher exports and aggregate
demand can lead to higher rates of economic growth. Deficit financing, economic instability
and money supply are the factors that influence our independent variable.
Devaluation means decreasing the value of nation's currency relative to gold or the
currencies of other nations. Devaluation occurs in terms of all other currencies, but it is best
illustrated in the case of only one other currency. Devaluation and Depreciation are
sometimes used interchangeably, but they always refer to values in terms of other currencies
and the value of currency is determined by the interplay of money supply and money
demand. In common modern usage, it specifically implies an official lowering of the value of a
country's currency within a fixed exchange rate system, by which the monetary authority
formally sets a new fixed rate with respect to a foreign currency. In contrast, (currency)
depreciation is most often used for the unofficial decrease in the exchange rate in a floating
exchange rate system.
Sidney, S. A. (2009), examine the relationship between expenditure and real income. The
intent of his study the elasticity’s Approach, the income-absorption approach, effect of
devaluation on income, international monetary fund staff papers, direct effect on absorption
and devaluation compared with other methods. He worked on expenditure and real income.
He used data of 1983-2008. He used Reducing absorption relative to production method for
analysis purpose. At the last he come to know that most fruitful approach to the general
problem of obtaining a satisfactory foreign balance, and in particular of appraising the effects
on the foreign balance of a devaluation, is via the analysis of the income-absorption
relationship. Guillermo, A. C. & Frederic, S. M. (2003) examine the relationship between
domestic output and sticky prices. The focus of their study was on the standard theory of
choosing an exchange rate regime, the Mendel challenge, the realities of emerging market
economies, the ability to have domestic monetary policy & reducing inflation. They variables
were domestic output and sticky prices. They used data of 1967-2002. They used Maximum
likelihood estimation method for analysis purpose. The conclusion of their study was that
floating exchange rate system could avoid the cost of these reserves. Ricardo. H., (1999)
examined the relationship between currency crises and exchange rate. The intent of his study
was the observation that modern economies have not yet been able to function without some
kind of money. The main variable of his study were currency crises and exchange rate. The
used data of 1958-1998. He used Reducing absorption relative to production method for
analysis purpose. They finally concluded that a hard peg exchange rate system, like a

currency board, may require a substantial war chest of international reserves. It may seem
that a floating exchange rate system could avoid the cost of these reserves, but this
conclusion would be too simple. The studies on our topic are very few in numbers that have
been conducted ever before. There are some studies on this topic but they could not reflect
the right reasons of currency devaluation in Pakistan and these studies are also based on the
old pattern and reason. They give some reasons of devaluation that are not much logical and
enough. In our study there are the major and logical reasons of currency devaluation in
Pakistan that are directly affecting the value of the currency of Pakistan.
1.2 Purpose Statement
The purpose of this proposed study is to examine the factors that affect Currency
Devaluation. The independent variables of the study includes deficit financing, economic
instability and money supply. However, currency devaluation is the dependent variable in the
study. Quantitative research approach will be used for data collection and analysis. The
dependent variable currency devaluation of the study will be generally define as reduction in
the value of a currency with respect to those goods, services or other monetary units with
which that currency can be exchanged.
1.3 Research Objective
 To examine the impact of Deficit Financing on Currency Devaluation.
 To examine the impact of Economic Instability on Currency Devaluation.
 To examine the impact of Money Supply on Currency Devaluation.
1.4 Significance of Study
The rupee was first devalued in 1950 in response to a similar move by India. Later in 1972,
Z.A. Bhutto’s government massively devalued the rupee by 133%. The rupee was further
devalued in early 1980s during General Zia regime. Moeen Qureshi’s caretaker government
in 1993 also devalued the rupee by 7%. No Study has been conduct on currency devaluation
more efficiently before. Since 2008, we’ve seen a 25-30% devaluation in Sterling and we are
left with only very weak recovery, cost push inflation and a surprisingly large current account
deficit. This suggests that the argument of imported inflation may not be valid in case of
Pakistan, which means that there is no evidence of a significant pass-through of rupee
depreciations to consumer prices in the short-run. This finding is consistent with recent
theoretical analysis that suggests that a weak short-run association between exchange rate
changes and inflation. Furthermore the unique findings of the study may also help to
understand the relation between currency devaluation and inflation. We have use quantitative
method which has not been used in this area and hence this will be a significant
methodological advancement. We have tell that Exports become cheaper, more competitive
to foreign buyers. Therefore, this provides a boost for domestic demand. It reduces the
purchasing power of citizens abroad e.g. more expensive to holiday in Europe. However the
present study will aim to provide guideline to the economy to come up with the policies which
would enable them to attract and retain their top level. This study focus that the devaluation is
a measure to correct a fundamental disequilibrium in country balance of payment. Reluctance
to adjust the exchange rate in downward direction is due to its possible contractionary impact
on output and employment, re-distribution of income from wages earner to property owners,
cost-push inflationary pressure and the initial favorable effect on the balance of payment. . All
of the above will eventually reserve through a process of domestic inflation and larger
imports. When quantitative controls on imports duties are reduced along with the devaluation,
imports and exports are not particularly sensitive to price changes especially in the short run.
This is particularly applicable in the case of UDC’s whose imports are often consist of

essential capital goods, intermediate inputs including fuel and fertilizer and sometimes basic
consumer goods like food grains, edible oils etc. There is little scope for cutting down these
imports.
1.5 Hypothesis
 There is a significance relationship between Deficit Financing on Currency
Devaluation.
 There is a significance relationship between Economic Instability on Currency
Devaluation.
 There is a significance relationship between Money Supply on Currency Devaluation.
1.6 Literature review
Baig, Taimur & Goldfajn, (1999) examine the relationship between exports and currency
devaluation. The main purpose of this study is to describe the effects of exports on currency
devaluation and inadequate supervision of banking sector. The main variables of this study
are currency devaluation and exports of a country. They collected data from 1978-1998. They
used Ordinary least square method for analysis. They finally concluded the central role of the
financial sector has led to a reassessment of the optimal pace of financial liberalization, due
to the necessity of setting up adequate supervisory and regulatory mechanism and being
able to enforce the as preconditions for the removal of obstacles to international borrowing
and lending.
Obstfeld, M. & Rogoff, K. (2013) examined the relationship between exchange rate and
currency devaluation. Their study focuses on flexible prices, preferences, technology, and
market structure, individual maximization, comparing steady state & exchange rate dynamics.
Currency devaluation is their dependent variable and exchange rate is their independent
variable. They took data of 1982-2012. They used weighted average method for analysis.
The key findings of theirs study is to use essentially static approach in offering a framework
that simultaneously handles current-account and exchange rate issues, as well as the
dynamic repercussions of fiscal shifts.
Sidney, S. A. (2009), examine the relationship between expenditure and real income. The
intent of his study the elasticity’s Approach, the income-absorption approach, effect of
devaluation on income, international monetary fund staff papers, direct effect on absorption
and devaluation compared with other methods. He worked on expenditure and real income.
He used data of 1983-2008. He used Reducing absorption relative to production method for
analysis purpose. At the last he come to know that most fruitful approach to the general
problem of obtaining a satisfactory foreign balance, and in particular of appraising the effects
on the foreign balance of a devaluation, is via the analysis of the income-absorption
relationship.
Aizenman, Joshua and Jinjarak, Y. (2009) examine the relationship between interst rates and
currency devaluation. The purpose of theirs study is the interaction among the Fed’s
monetary stance, global real interest rates, credit market distortions, financial innovation
created the toxic mix of conditions & exchange rate and other economic policies. They
variables on which they focus are interest rates and currency devaluation. They used data of
1978-2008. They used t-test for analysis purpose. The finding of their study was that risks to
financial stability had become less pronounced since late 2003 in part because of strength in
the real economy.
Guillermo, A. C. & Frederic, S. M. (2003) examine the relationship between domestic output
and sticky prices. The focus of their study was on the standard theory of choosing an

exchange rate regime, the Mendel challenge, the realities of emerging market economies, the
ability to have domestic monetary policy & reducing inflation. They variables were domestic
output and sticky prices. They used data of 1967-2002. They used Maximum likelihood
estimation method for analysis purpose. The conclusion of their study was that floating
exchange rate system could avoid the cost of these reserves.
Banerjee, A. (2000) examine the relationship between interest rate and foreign debts. The
core objective of his study was to focus on the monetary sector, output, entrepreneur’ debt,
currency crises and monetary policy. The variables on which he focused were interest rates
and foreign debts. They used data of 1979-2009. He used Malmquist Index method for
analysis purpose. He found that if monetary policy is expected to be more permanent, there
will be a larger exchange rate effect, making an interest rate increase more desirable.
Johnson, G. H. (1977) examine the relationship between monetary approach and balance of
payment. The aim of his study was alternative approaches to devaluation theory, policy
implication and some developments of the monetary approach. His main variables were
monetary approach and balance of payment. He used data of 1957-1976. For analysis they
used the elasticity’s and the Keynesian multiplier method. He concluded the empirical study
of the determination and control of the world money supply under fixed exchange rates,
which reaches the important general conclusions that the growth of the world money supply
in the study period was influenced in an important and predictable way by the growth of world
reserve money.
Rogoff, K. (1999) examine the relationship between financial instability and currency
devaluation. The main objective of his study was an international financial crises manage,
chinks in the theoretical case for a domestic lender of last resort, an international bankruptcy
court & a global financial regulator. His variables were financial instability and currency
devaluation. He used data of 1973-1998. T-test has been applied to test the data. He found
that most of the grand schemes considered here fall into three categories, those that are
politically infeasible given the absence of a supranational legal authority and those that would
raise costs to lenders or add protections for borrowers.
Mccombie, J. D. (2011) examine the growth rate and currency devaluation. His study focuses
on the growth rates of countries are interlinked, the ineffectiveness of floating exchange
rates, EMU & common currency areas and the balance-of-payments constraint. He worked
on growth rate and lcurrency devaluation variables. He used data of 1970-2010. Supply
oriented and demand oriented method had been used for analysis purpose. At the last he
come to know that if a major country reduces its growth for policy reasons, it will induce a
slower rate of growth of the other countries because of the balance-of- payments constraint.
Salant, W. (2001) examine the relationship between dollar rate and currency devaluation.
The main of his study was to describe the Dutch disease and protectionism, the international
dollar standard & financial fragility. Dollar rate and currency devaluation were their variable
on which he worked. He used data of 1975-2000. He used auto-regressive distributed lag
method for analysis. He finally conclude that if the American current account deficit remains
high, capital flight from the dollar, higher U.S. interest, and a weak dollar should now be with
us or eventually will be. But a sustained flight from the dollar to force a correction in the
American current account deficit would also undermine the international dollar standard.
Robert E. H. (1982) examined the relationship between inflation and currency devaluation.
The purpose of his study was to check the effect the rapid rise in the "high-powered" money
supply in the months and years after the rapid inflation had ended, the immediacy with which
the price level and suddenly stabilized. His variables were unemployment and currency
devaluation. He used data of 1951-1981. He used correlation and regression method. The

finding of their study was that if we make strategies to avoid inflation and other natural crises
we can control money supply due to which currency devaluation can be reduced.
Bardhan, P. (1970) examined the relationship between issuance of notes and currency
devaluation. The purpose of his study was to use of infant industry protection to expand
market share, the problems resulting from natural resource discoveries and the long run
effects of monetary policy. He worked on issuance of notes and currency devaluation. He
used data of 1949-1969. Multiple regression method had been used for analysis. The key
finding of his study was that the use of infant industry protection to expand market share, the
problems resulting from natural resource discoveries, and the long run effects of monetary
policy. Yet we were able to show that alarmist concerns in each case can be given their most
plausible grounding by a model in which dynamic economies of scale play a crucial role.
Ricardo. H., (1999) examined the relationship between currency crises and exchange rate.
The intent of his study was the observation that modern economies have not yet been able to
function without some kind of money. The main variable of his study were currency crises
and exchange rate. The used data of 1958-1998. He used Reducing absorption relative to
production method for analysis purpose. They finally concluded that a hard peg exchange
rate system, like a currency board, may require a substantial war chest of international
reserves. It may seem that a floating exchange rate system could avoid the cost of these
reserves, but this conclusion would be too simple.
Hubbard, G. R. (1991) examined the relationship between monetary expansion and
performance of countries. The main objective of this study was to analyze that the monetary
expansion was a reason for the better performance of countries. His study’s variables were
monetary expansion and performance of country. They used data of 1965-1990. He use
weighted average method for analysis. The finding of his study was that the monetary and
financial arrangements in the interwar period were badly flawed and were a major source of
the fall in real output. Banking panics were one mechanism through which deflation had its
effects on real output, and panics in the United States may have contributed to the severity of
the world deflation.
Shambaugh, C. J. (2008) examined the relationship between financial instability and currency
devaluation. The intent of his study was to test the financial instability and country
development and role of currency devaluation in financial instability. Financial instability and
currency devaluation were his variables. He used data of 1967-2007. He used Tornqvist-Thiel
index number methodology for analysis. The key finding of his study was that the recent and
rapid accumulation of reserves by emerging markets with pegged or quasi-pegged exchange
rates is often considered inexplicable. The practice of emerging central banks seems far
ahead of any coherent theory—and hence appears to be an economic puzzle, if not a policy
problem.

1.7 Theoretical Model
Currency
Devaluation
Deficit
Financing
Economic
Instability
Money
Supply
1.8 Research Methodology
Paradigm is a theory or a group of ideas about how something should be done, made, or
thought about. There are three types of paradigm: Positivism, Interepritivism and Pragmatism
but in our research we will use positivism paradigm because we are examining cause and
effect relationship in our proposed model and the second reason of using positivism
paradigm is that many researches are already available based on the interpretivism and
pragmatism paradigm. We are using quantitative research approach in this research.
There are two types of data collection method primary and secondary. Primary data is that is
first time is collected and not easily available at somewhere where as the secondary data is
easily available at somewhere and it has already been collected by someone. In our studies
secondary data collection method is being used because past data is being used in our
research. We are applying different kinds of test e.g. regression and correlation because
regression clearly defines the cause and effects between the variable and correlation defines
that how much they are affecting each other.
1.9 Limitations and delimitation
 We are using secondary data.
 We are using quantitative data.
 We have collected our data for research from WDI.
 We collect a much narrower and sometimes superficial dataset.
 Our results are limited as they provide numerical descriptions rather than detailed
narrative and generally provide less elaborate accounts of human perception.
 In addition preset answers will not necessarily reflect how people really feel about a
subject and in some cases might just be the closest match.

1.10 Ethical considerations
Ethical consideration is an accumulation of values and principles that address questions of
what is good or bad in human affairs. Ethics searches for reasons for acting or refraining from
acting; for approvers not approving conduct; for believing or denying something about
virtuous or vicious conduct or good or evil rules. Ethics is a major branch of philosophy that
has occupied great minds for many centuries. This study will help to identify core ethical
principles related to currency devaluation. In our studies we are giving references where we
are taking data from other researches. We are using quantitative method for this. In our
research we ask questions to the respondent which are according to their expectations. Our
focus is to discuss intellectual property very frankly so that it would not hurt, we try to
maintain anonymity and confidentiality. In our research we are not pressurizing our
respondent as we avoid to ask those questions in which the respondent don’t feel good to
answer. It is sometimes assumed that secondary analysis raises few ethical considerations,
but that view is rarely taken by ethics committees, and so it is worth spending some time
thinking about the specific ethical considerations of our planned research. Our
considerations are depend on the nature of the data set (quantitative data sets), as we
conduct historical and archival research. The consideration of our studies is that we
maximizes possible benefits and minimize possible harms.
1.11 References
Baig, Taimur, and Goldfajn, I. (1999). Financial Market Contagion in the Asian Crisis.
International Monetary Fund Staff Papers, 46(2), 167-95.
Obstfeld, M. & Rogoff, K. (2013). Exchange Rate Dynamics Redux, Journal of Political
Economy, Vol. 103(3), 624-660
Sidney, S. A. (2009). Effects of a Devaluation on a Trade Balance, international Monetary
Fund, Vol. 2(2), 263-278
Aizenman, Joshua and Jinjarak, Y. (2009). “Current Account Patterns and National Real
Estate Markets,” Journal of Urban Economics 66 (2), 75-89.
Guillermo, A. C. & Frederic, S. M. (2003). The Mirage of Exchange Rate Regimes for
Emerging Market Countries, The Journal of Economic Perspectives, Vol. 17(4), page 99-118.
Banerjee, A. (2000). A simple model of monetary policy and currency crises, European
Economic Review 44, 728-738
JOHNS0N, G. H. (1977). The monetary approach to the balance of payments, Journal of
International Economics 7, 251-268.
Rogoff, K. (1999). International Institutions for Reducing Global Financial Instability, the
Journal of Economic Perspectives, Vol. 13(4), 21-42.
Mccombie, J. D. (2011). Economic Growth and the Balance-of-Payments Constraint, the
PSL Quarterly Review, vol. 64, No 259
Salant, W. (2001). “The Dollar and World Liquidity A Minority View”, The Economist, vol. 5(3),
526-29.
Robert E. H. (1982). Causes and Effects of Currency Devaluation, Volume ISBN: 0-226-
31323-9, pp 41 – 98
Bardhan, P. (1970). Economic growth, development, and foreign trade, Journal of
International Economics 18, 83-100.

Ricardo. H., (1999) "Should There be 5 Currencies or 103", Foreign Policy Vol. 7, 63-79.
Hubbard, G. R. (1991). Financial Markets and Financial Crises, International Finance
Research, Vol. 2(4), 221-236
Shambaugh, C. J. (2008). Financial Stability, the Trilemma, and International Reserves,
Effects of Currency Crises, Vol. 6(2), 122-151
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