Exchange Rate and Determinants of Balance of Trade, Its Impact on Balance of Payment
An endogenous search for the relationship between exchange rate and determinants of balance of trade and its impact on balance of payment is made. Exchange rate is affected by certain factors like balance of trade and balance of payment. Balance of trade is measured using different factors like exports, imports, capital goods, consumption level, oil prices and political uncertainty. This study is not yet been conducted in Pakistan and we have done this research to evaluate the impact of different factors on exchange rate. Exchange rates help a country while making imports and exports and balance of trade tells about the imports and exports of that country during any particular time period. The paper looks at how the exchange rate is affected by the balance of trade of a country and also explores the relationship between exchange rate and balance of payments. Balance of payment is taken as dependent variable in this paper. Both balance of trade and balance of payment affects the exchange rate and similarly manufacturing growth rate is also affected through variation in exchange rate. The results have shown that there is significant relationship between exchange rate and balance of trade and balance of payment. Both balance of trade and balance of payment have strong relationship with exchange rate.
Exchange Rate, Balance of Trade, Balance of Payment
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