Exchange rates are believed to be one of the major driving forces behind sustainable macroeconomic growth and it is therefore important to ensure that they are at an appropriate level. Exchange rate misalignment is a situation where the actual exchange rate differs significantly from its equilibrium value, resulting in either an overvalued or an undervalued currency. The problem with an undervalued currency is that it will increase the domestic price of tradable goods whereas an overvalued currency will cause a fall in the domestic prices of the tradable goods. Persistent exchange rate misalignment is thus expected to result in severe macroeconomic instability. The aim of this study is to estimate the equilibrium real exchange rate for both Ghana and Nigeria. After so doing, the equilibrium real exchange rate is compared to the actual real exchange rate, in order to assess the extent of real exchange rate misalignment in both countries, if any such exists. In order test the applicability of the equilibrium exchange rate models, the study draws from the simple monetary model as well as the Edwards (1989) and Montiel (1999) models. These models postulate that the variables which determine the real exchange rate are the terms of trade, trade restrictions, domestic interest rates, foreign aid inflow, income, money supply, world inflation, government consumption expenditure, world interest rates, capital controls and technological progress. Due to data limitations in Ghana and in Nigeria, not all the variables are utilised in the study. The study uses the Johansen (1995) model as well as the Vector Error Correction Model (VECM) to estimate the long- and the short-run relationships between the above-mentioned determinants and the real exchange rate. Thereafter the study employs the Hodrick-Prescott filter to estimate the permanent equilibrium exchange rate. The study estimates a real exchange rate model each for Ghana and Nigeria. Both the exchange rate models for Ghana and Nigeria provide evidence of exchange rate misalignment. The model for Ghana shows that from the first quarter of 1980 to the last quarter of 1983 the real exchange rate was overvalued; thereafter the exchange rate moved close to its equilibrium value and was generally undervalued with few and short-lived episodes of overvaluation. In regard to real exchange rate misalignment in Nigeria prior to the Structural Adjustment Program in 1986 there were episodes of undervaluation from the first quarter of 1980 to the first quarter of 1984 and overvaluation from the second quarter of 1984 to the third quarter of 1986; thereafter the exchange rate was generally and marginally undervalued.

This thesis describes possible effects of foreign exchange rates on financial information of accounting entities, methods of their realization and their reporting. Basic resources are the rules of International Financial Reporting Standards with accent on IAS 21 The effects of changes in foreign exchange rates.

Thesis (M.A. Commerce (Economics)) -- University of Limpopo, 2019 / South Africa had targeted the oil and gas sector for investment through the industrial action plan as a special economic zone. However, certain economic fundamentals might negate the anticipated sector financial development. This study investigate how economic risk exposure influence oil & gas sector stock market returns from 2007 to 2015 on a monthly basis. The four macroeconomic variables used to measure economic risk exposure are Brent crude oil prices, the USD/ZAR exchange rate, broad money supply and gold prices. The adopted techniques include the GARCH model to incorporate volatility, the Johansen cointegration and Granger causality techniques. The results of the study found that change in Brent crude oil prices and broad money supply had a positive and significant impact on changes in oil & gas sector stock returns. Changes in exchange rate and gold prices had a negative and significant impact on the sector returns. The long-run relationship established one cointegrating equation in the series. Only Brent crude oil prices indicated a bi-directional Granger causality on the sector returns. Based on the findings, it is recommended that government may use exchange rate as a policy tool to attract interest in the sector. Regarding money supply, the reserve bank should further preserve its effective regulatory infrastructure including the laws, regulations and standards towards the achievement and maintenance of a stable financial system. Portfolio managers, risk managers and investors should monitor the gold price to mitigate losses due to its strength as a safe haven asset.

In this study, we examine the dynamic link between returns and volatility of commodities and currency markets. Based on weekly data over the period from January 6, 1987 to July 22, 2014, we find the following empirical regularities. First, our results suggest that the information contents of gold, silver, platinum, and the CHF/USD and GBP/USD exchange rates can help improve forecast accuracy of returns and volatilities of palladium, crude oil and the EUR/CHF and GBP/USD exchange rates. Second, gold (CHF/USD) is the dominant commodity (currency) transmitter of return and volatility spillovers to the remaining assets in our model. Third, the analysis of dynamic spillovers shows time{ and event{specific patterns. For instance, the dynamic spillover effects originating in gold and silver (platinum) returns and volatility intensified (degraded) in the period marked by the global financial crisis. After the global financial crisis, the net transmitting role of gold and silver (platinum) returns shocks weakened (strengthened), while the net transmitting role of gold, silver and platinum volatility shocks remained relatively high. Overall, our findings reveal that, while the static analysis clearly classifies the aforementioned variables into net transmitters and net receivers, the dynamic analysis denotes episodes wherein the role of transmitters and receivers of return (volatility) spillovers can be interrupted or even reversed. Hence, even if certain commonalities prevail in each identified category of commodities, such commonalities are time - and event - dependent. (authors' abstract)

published_or_final_version / Economics and Finance / Doctoral / Doctor of Philosophy

The understanding of the mechanism determining exchange rates is still an unsolved puzzle in the field of international economics. In the search for the underlying causes of the failure of existing approaches to explain a large proportion of short term exchange rate movements, our review of methodology literature revealed that a significant number of scholars consider the methodological approach employed by mainstream economics as a main cause for the disappointing result of established approaches. In particular, the excessive use of formal modelling and quantitative data as well as the use of oversimplified assumptions has been criticized. In response to this critique we chose to use a more pluralistic approach in our research methodology by employing both qualitative as well as quantitative data analysis. For the analysis of qualitative data, we employed an approach based on grounded theory principles, where we analyze Reuters Foreign exchange market reports. The findings of the qualitative data analysis show that, based on market practitioners commentary, there are two predominant variables affecting exchange rates. First, expectations on interest rate changes appears to be a major variable affecting currency value. An upward revision of interest rate expectations usually suggests an increase in the value of the currency concerned and vice versa. Second major variable affecting exchange rates appear to be global equity returns. In contrast to interest rates, which is a country specific variable, global equity returns is a global variable affecting currencies based on their relative interest rate levels and safe haven attributes. In particular, it is suggested that higher yielding currencies’ value is positive related to global equity returns, while low/lower yielding and safe haven currencies’ value is negatively related to global equity returns. The empirical test we performed to explore the relationship between exchange rates and global equity returns suggest that they are indeed linked. The sign of the relationship depends on the characteristics of the currencies examined. When equity prices increase, currencies with higher interest rates tend to appreciate, whereas currencies with lower interest rates tend to depreciate and vice versa. In addition, the strength of the relationship depends to some extent on relative interest differentials. A stronger relationship is observed when interest differentials are relatively large, while the explanatory power of the model is reduced when interest rate differentials are relatively narrow. Our study presents evidence on the role of stock markets in exchange rate determination which is considerable different to the focus of current theory. Whereas current research focuses on stock market’s relative stock market returns in the respective countries, the findings of this thesis suggests that global stock market returns affect exchange rate movements based on differentiated characteristics of different currencies. Another important contribution of this thesis is that we illustrate the complexity of interactions and links among different variables. For example, whereas interest changes were seen as positively correlated to the home currency value, the relationship was seen as being reversed because of the possible effect of higher interest rates on the subprime crisis. Another example of complex links is the relationship between exchange rates and equity markets. For example, whereas the USD effective exchange rate was not related equity returns during the initial stages of the subprime crises, the strength of the relationship increased significantly when the crisis escalated and the demand for USD increased due to safe haven flows.

M.Comm. / The object of this study is to critically appraise the fundamental models, technical methods and statistical techniques that constitute the bulk of exchange rate forecasting methodology. Specifically, can any single approach, or combination of techniques, predict or explain the volatile currency movements characterising exchange rate behaviour in the modern international currency market? International currency markets are indeed complex in nature, and the layperson may be excused for not grasping the distinction between the fundamental, technical and statistical techniques described in the hypothesis. It is vital, however, for the comprehension of this study that the distinction between these approaches be explained, and the logic underlying their individual methodologies examined. It may prima facie seem that this study is based on a contradiction. Surely if one wants to predict an economic variable of any kind, one should refer to the economic theory upon which it is based as the starting point of an analysis. Consequently, if the objective is to forecast the future value of a currency, surely there are a great many economic texts that deal with this very question in voluminous detail. Why, then, should yet another paper be written when so much literature already exists? The answer lies not so much in the scope as in the purpose of this work. The aim of this study can be paraphrased. as follows: to provide a comprehensive and critical examination of the various methods of exchange rate forecasting and to explain why economic theory is still deficient in this important area. The question of whether or not short-term' exchange rates are able to be forecast at all will also be critically examined. This study will attempt to elucidate that while fundamental currency speculation models do provide a certain degree of guidance to currency-traders in their daily prognostications, these models are, in the context of modern capital markets, inadequate. At best, these models will be shown as trackers of long-term exchange rate trends, and not always accurate ones at that. Further, it will be demonstrated that the modern trading floors are characterised (if not defined) by split-second price changes, where the long-term'' can mean a minute, and he who hesitates is lost. It is in this setting that traders must do battle for profit, and where the fundamental models that seem to serve so well in textbooks are anachronisms. The study then shifts its focus to a subset of technical analysis known as charting, the objective being to fill the void which arises due to the fundamental models' inadequacies in the short-term. The charting techniques utilised in this study deviate from their fundamental counterparts in that they attempt to explain future exchangerate trends in terms of past performance. That is, exogenous changes are factored out of the forecasting equation, to give way to a methodology based on trendextrapolation. The performance of these models, especially as they pertain to the medium- and short-term., will then be determined. Finally, in an attempt to supplement the use of charts as a forecasting tool, statistical analysis will be considered. The model utilised in this section will be a rudimentary auto-regressive process. Its simplicity, however, belies its consequence. That is, considering that no ubiquitous statistical model dominates exchange rate theory, it is reasonable to assume that an auto-regressive process, such as the one contributed by this study, will not be subordinate to other, more complex, quantitative offerings. Thus this study attempts to provide the necessary insights in order to perspicaciously 1 It should be noted here that the terms "short-term" and "short run" are interchangeable. For the purposes of consistency, only the former term shall be employed throughout this study. 2 The terms "long-term" and "long run" are also interchangeable. For the purposes of consistency, only the former term shall be employed throughout this study. ascertain the proficiency of statistical analysis as an accurate forecaster of exchange rate fluctuations. All of the models and methods examined in this study adopt a pragmatic acid-test. That is to say, if the predictions made as a result of adherence to the models do not comply accurately and consistently with real findings, then the models themselves should be revised. This revision can be in terms of the time-frame to which the model pertains, the application of the model, or the model itself. It must, however, be stressed that a model whose very raison d'etre lies in its ability to predict exchange rate movements must be able to do so without qualifications or exceptions. The methodology adopted in analysing the models themselves is therefore positive as opposed to normative. Thus, even in the "organised chaos" of the modern exchange rate markets, the application of the models should yield satisfactory results. In other words, despite the unprecedented volumes, speed and volatility of the currencies that are traded in the modern arena, the models themselves should still be able to achieve their purpose - to forecast the extent and direction of changes in the par value of a currency. The next logical question is: what is meant by the "organised chaos", and specifically why should this influence the predictive ability of the fundamental, technical and statistical methods of exchange rate forecasting? The answer to this can be introduced as follows. On an almost daily basis, currency traders move an excess of one trillion dollars throughout the world. Adding to the gravity of this somewhat overwhelming statistic is that most of these are intercomputer transactions occurring instantaneously via inter-bank wire-transfers. In fact, the volume of currency traded is so great that if one were to sum the trading of all the Saudi oil, American wheat, European aircraft and Japanese cars, the monetary result would seem pithy in comparison (Millman, 1995:xxi). It is, however, not only the sheer volumes of currencies traded that characterise the international money markets. It is perhaps more importantly the unanticipated and unparalleled volatility of the markets themselves which provides the greatest quandary for those who conform to 'traditional' methods of exchange rate determination. It is all too common, in fact, for currency prices to change on a minute-to-minute or even second-to-second basis. Exchange rates are thus in a constant state of flux. The significant though infrequent changes of past years have been terminally disposed of. The inception of the microcomputer and the floating exchange rate system currently dominating the greater world economy has irrevocably altered what was considered a flawed order. It is this very metamorphosis which will be examined in detail, specifically how fundamental models have assumed a differing purpose to those used by modern speculators, hedgers and arbitrageurs in their specific fields of application. Thus it will be shown how the changing paradigm of the world economy and consequently the currency trading floors themselves necessitate neoteric predictive powers, that is, the power to forecast currency changes not in terms of years, months or even weeks, but rather in terms of days, minutes and seconds. The object of this thesis will therefore be to show that a definite dichotomy has developed between the exchange rate models espoused in economic textbooks and the techniques upon which the de facto day-to-day buying and selling of currencies depend. The efficacy of this study consequently hinges on one decisive question - is there truly a consistent and precise method of forecasting exchange rates?

The study was designed to examine the causal relationship between the Venezuelan inflation and the monetarist variables--money supply--and the structuralist variables-- exchange rate and balance of payments. The data (1964-1982) was gathered from the International Financial Statistic Yearbook, 1983 and the Statistical Yearbook, 1974, 1982. Chapter I is an introduction to the research problem. Chapter II does a review of the related literature. Chapter III deals with the methods and procedures for treating the data. Chapter IV presents an statistical analysis of the data. And, Chapter V contains a summary of the study and its findings, conclusions and recommendations. The study only found a significant relationship between inflation and the monetarist variables money supply and GNP, though supporting the monetarist theory. A similar investigation is suggested, but selecting a longer time period, other.variables, and more refined methodologies and analysis.

This thesis studies the equilibrium real effective exchange rates and the degree of misalignment of currencies. It focuses on the real effective exchange rates of Icelandic króna and Chinese renminbi, with special attention paid to the evolution of these exchange rates in the period of crisis. It identifies key factors influencing the real effective exchange rates of króna and renminbi, calculates their equilibrium level and confirms that these currencies were misaligned in the pre-crisis period. It stresses the impact of real interest rate differential in the case of króna and of sterilization operations applied by the People's Bank of China in the case of renminbi. It further examines whether the relationship between real exchange rates and economic fundamentals was distorted in the crisis. Finally, the thesis provides an insight into whether the crisis led to narrowing the degree of misalignment of renminbi and króna.

In practice, we often meet data in the form of observations of several variables at various points in time. These data are called time series. We present various approaches in time series analysis; graphical models, vector autoregres- sive models and vector moving-average models. We try to get information about mutual relationship of the variables and then to model their behavior. The used techniques are illustrated on log returns of monthly average exchange rates. The programs are processed in the software Mathematica 7 and can be found on the CD. 1