Exchange Rate System
OBJECTIVES
The objective of this paper is to investigate the exchange rate volatility and its effects on international Trade in Bangladesh during May 2003-Dec 2008. The concept of the study is taken from one off the working papers of Bangladesh Bureau of Statistics (BBS), Bangladesh Bank, Centre for Policy Dialogue (CPD) and leading English and Bengali Dailies in Bangladesh.
INTRODUCTION
The depth and intensity of exchange rate volatility and its impact on the volume of international trade was recognized during 1970s when the world economy shifted from fixed exchange rate to free floating exchange rate. The hypothesis may be that if the exchange rate volatility is higher then it will generate uncertainty of the future profit from export trade. To mitigate the uncertainty, investors can go for currency hedge and minimize the uncertainty related to international trade in short time. Exchange rate volatility may also affect trade indirectly by influencing firm’s investment decision in the long run.
In Bangladesh free floating exchange rate was adopted since May 31st. 2003. At the initial stage of the exchange rate, the fluctuation was very nominal. However, exports evolved largely in line with total world imports. Bangladesh’s share in world imports was more or less stable after adopting the floating exchange rate. In 2003, the total amount of export of Bangladesh was US$ 6548.44 million and in 2008 gradually it has increased to the amount of US$ 16333.04 million and the growth is almost 2.83 percent. On the other hand exchange rate was (US$1= Tk 50.31) in 1990 and in 2008 it was (US$ 1=Tk 68.50), which was increased by 1.36 percent in 18 years.
A PREVIEW OF EXCHANGE RATE
EXCHANGE RATE SYSTEMS
Exchange rate systems normally fall into one of the following categories:
i. Fixed Exchange Rate ii. Floating Exchange Rate iii. Managed Float Exchange Rate iv. Pegged Exchange Rate
i. Fixed Exchange Rate: In a fixed exchange rate system, exchange rates
The objective of this paper is to investigate the exchange rate volatility and its effects on international Trade in Bangladesh during May 2003-Dec 2008. The concept of the study is taken from one off the working papers of Bangladesh Bureau of Statistics (BBS), Bangladesh Bank, Centre for Policy Dialogue (CPD) and leading English and Bengali Dailies in Bangladesh.
INTRODUCTION
The depth and intensity of exchange rate volatility and its impact on the volume of international trade was recognized during 1970s when the world economy shifted from fixed exchange rate to free floating exchange rate. The hypothesis may be that if the exchange rate volatility is higher then it will generate uncertainty of the future profit from export trade. To mitigate the uncertainty, investors can go for currency hedge and minimize the uncertainty related to international trade in short time. Exchange rate volatility may also affect trade indirectly by influencing firm’s investment decision in the long run.
In Bangladesh free floating exchange rate was adopted since May 31st. 2003. At the initial stage of the exchange rate, the fluctuation was very nominal. However, exports evolved largely in line with total world imports. Bangladesh’s share in world imports was more or less stable after adopting the floating exchange rate. In 2003, the total amount of export of Bangladesh was US$ 6548.44 million and in 2008 gradually it has increased to the amount of US$ 16333.04 million and the growth is almost 2.83 percent. On the other hand exchange rate was (US$1= Tk 50.31) in 1990 and in 2008 it was (US$ 1=Tk 68.50), which was increased by 1.36 percent in 18 years.
A PREVIEW OF EXCHANGE RATE
EXCHANGE RATE SYSTEMS
Exchange rate systems normally fall into one of the following categories:
i. Fixed Exchange Rate ii. Floating Exchange Rate iii. Managed Float Exchange Rate iv. Pegged Exchange Rate
i. Fixed Exchange Rate: In a fixed exchange rate system, exchange rates
References: Ahmed, M., Haque, N., and Talukder, S. I. (1993), “Estimating Export Demand Function for Bangladesh: An Application of Co-integration and Error Correction Modeling”, The Bangladesh Arize, A. (1995), “The Effects of Exchange Rate Volatility on U.S. Exports: An Empirical Investigation”, Southern Economic Journal, 62, 34-43. Asseery, A., and Peel, D. A. (1991), “The Effects of Exchange Rate Volatility on Exports”, Economic Letters, 37, 173 -177. Bailey, M. J., Tavlas, G. S., and Ulan, M. (1987), “The Impact of Exchange Rate Volatility on Export Growth: Some Theoretical Consideration and Empirical Results”, Journal of Policy Modeling, 9, 225- Kabir, R. (1988), “Estimating Import and Export Demand Function: The case of Bangladesh”, The Bangladesh Development Studies, 115-127. Thursby, M. C., and Thursby, J. G. (1987), “Bilateral Trade Flows, Linders Hypothesis, and Exchange Risk”, The Review of Economics and Statistics