Determinants of the exchange rate in developing country: evidence from Malaysia

• Main Authors: Lee, Lip Man, Lee, Yuen Yie, Ng, Chia Hau, Teoh, Yi Min
• Format: Final Year Project / Dissertation / Thesis
• Published: 2019
• Subjects: HG Finance
• Online Access: http://eprints.utar.edu.my/3537/1/fyp_FN_2019_LLM.pdf; http://eprints.utar.edu.my/3537/

This research is to investigate the relationship between the exchange rate and independent variables which are inflation, government expenditure, gross domestic product (GDP) and interest rate in Malaysia. The secondary data was sourced from the period of 1987 to 2016, which was obtained from World Bank which consists from International Monetary Fund (IMF), International Financial Statistic (IFS), Organization for Economic Co-operation and Development (OECD) data files. In addition, the approach that implemented to evaluate the model was Ordinary Least Square (OLS). The result showed that the macroeconomic factors of exchange rate was influencing by inflation, government expenditure, gross domestic product (GDP) and interest rate and result in a direct relationship and statistically significant and insignificant to the exchange rate. In addition, the diagnostic checking procedure was carried out by using E-View 10 software and ran through sample 30 years from 1987 to 2016. Furthermore, according to the literature review, the studies show positively insignificant between inflation and interest rate with exchange rate; negatively significant between government expenditure with exchange rate; and positively significant between gross domestic products (GDP) with exchange rate. However, this research experienced and occurred some limitations, but still useful for government, policy makers, investors and international traders.