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时间:2016-08-12 09:40来源:www.ukassignment.org 作者:cinq 点击:
Relationship Between Malaysias Foreign Exchange Rate 
In essence, currency exchange rate is defined as the price of one countrys currency when exchanged into another country's currency. The importance of exchange rates in free economy is immeasurable. Nowadays, countless of corporations globalize their businesses all over the world to maximize their respective objectives. The preponderance of investors involved in investment around the globe is to diversify their portfolio. Besides, travellers also need to exchange their currency for journey purposes. All of them simultaneously engage in the activity of exchanging their currencies. However, exchange rate was highly volatile and unstable due to internal and external factors, especially in the post-Bretton Woods era in which the origin of the floating rate exchange rate regime starts here. The purpose of this research study is to examine the factors that trigger the exchange rates in Malaysia. Hence, four independent variables have been chosen, namely foreign direct investment, inflation rate, interest rate and trade balance.
Research Background 研究背景
The term 'Exchange Rates' is referred as the relative prices of national currencies. Under a floating-rate regime, exchange rates are largely determined by the market forces, which is the supply and demand in the foreign exchange markets. In a large scale, it determines the relative of economic health of a given countries. Exchange rates always play an indispensable role in a country's level of trade. Due to these reasons, exchange rates hugely analyzed, watched and governmentally controlled economic approaches. But in a smaller scale, they may as well impact the investor's real return in a portfolio. In fact, any analyse attempted to determine or describe the behaviour of the exchange rate would state that it is a complex process which is cumbersome to researcher (Graham, 1983). However, it would be helpful empirically if succeed.
Malaysia 马来西亚
Prior to the notorious 1997 Asian financial crisis, Malaysia has maintained its high growth rates averaging 8.9 percent during 1988 till 1996. In addition, Malaysia attained low inflation rate about 3-4 percent per year. High employments were happening in country as well, rendering Malaysia as one of the miracle economies in East Asia. However, all this fairy tales soon became nightmares when the financial crisis emerged. The crisis originated from Thailand and Thai baht had suffered an intense selling pressure in May 1997. This onslaught had a domino-effect, and finally affected our ringgit in Malaysia.
During the first year of the crisis, the value of Malaysia currency, Ringgit, fell nearly 50 percent while the stock market shrank about 60 percent in value. To be precise, Malaysia Ringgit contracted from an average ratio of RM 2.42 to one U.S dollar in April 1997 to the new low of RM 4.88 to the U.S dollar in January 1998. As a consequent, high inflation, increasing unemployment from business closure led economy to experience a severe recession for the first time since 1985. The property bubble bursts consequently follow by crisis, and to make things worse, a huge capital outflows as investor and markets losses confidence. In the public sector, there is a cut down in both the expenditure and investment. Several infrastructure mega-projects have been postponed or /and cancelled follow by the crisis. With those negative incidents, the government can only depend on the net exports as a source of income (Mohamed and Syarisa, 1999). Depreciation in Malaysian Ringgit reduces the imports of luxury goods as the local demands contracted.
After the crisis permeated, Dr Mahathir imposed selective exchange measures to regain control of its economy from the crisis, so that Malaysia can destined its own fate. There are three measures that are under the selective exchange control: first, offshore ringgit market was extinguished thus speculators have no access to ringgit funds. Second, the government fixed the exchange rate at RM 3.80 to a U.S dollar. Third, a "twelve month rule" was executed to forbid the capital outflows for twelve months. As a result, these measures slowly revive and improved Malaysia's economy.
From the brief history of the Malaysia currency crisis, it able to discovered the importance of foreign direct investment (FDI), inflation rate, interest rate and trade balance that play an important role in determining the exchange rates. Therefore, the research study examines the relationship between exchange rates and macroeconomic variable that are stated above.
Relationship between Malaysia's Foreign Exchange Rate and Foreign Direct Investment (FDI)马来西亚的对外直接投资与对外直接投资的关系
Foreign direct investment (FDI) is an international flow of capital that provides a parent company or multinational firms with control over foreign business activities. According to Marial & Ngie (2009), at 2005, inflows of FDI around the world rose to $916 billion, with more than half of these flows received by businesses within developing countries.
Furthermore, foreign direct investment (FDI) is one of the elements that could affect the exchange rates, and thus the FDI activities are either highly active or hibernate. That might be influencing or causing the exchange rates to fluctuate. Making transactions using foreign currency for import or export of goods, foreigners make an investment on production or collaboration project, saving purpose and much more that are relevant to using monetary. Since gaining independence in 1957, Malaysia has taken advantage of tangible assets like natural resources, abundant labour as well as intangible assets like trade status under Generalized System of Preferences (GSP), macroeconomic stability, liberal trade regime, and a resourceful legal infrastructure to bring in FDI. For example, Intel established its Malaysia company located at Penang Island, DELL established a factory at Bayan Lepas Industrial Area, Penang Island and much more multinational company operated in Malaysia. All these can boost up the Malaysia's economic and bring in new technology to production or development.
Relationship between Malaysia's Foreign Exchange Rate and Inflation Rate马来西亚外汇汇率与通货膨胀率的关系
Inflation is a sustained increase in the average price of all goods and services produced in an economy. Inflation's effects on economy are various and can be positive and neither negative. However, a consistent of high inflation will depress the value of the exchange rates. As the higher the price rises, the lesser the value of money and hence reducing the people's purchasing power relative to other country. Consumers need to spend and it directly affects the money supply, vice versa. When the value of money decreases, consumers' spending declines and trading sentiment for its currency turns sour, leading a decline in Malaysia's currency against other currencies that have stronger economies. Besides, inflation is usually accompanied by higher interest rates.
Relationship between Malaysia's Foreign Exchange Rate and Interest Rate 马来西亚外汇汇率与利率的关系
Interest rates and exchange rates are highly correlated. By controlling the interest rate, Central Bank can influence both inflation and exchange rates. High interest rates can provide higher return for lenders relative to other countries. As a result, high interest rate will attract foreign investors to invest and will affect the exchange rates to be appreciated as the demand for currency increases.
In contrast, based on the International Fisher Effect theory, the home currency will be depreciated when the home interest rate is higher than foreign interest rate because interest rate reflects an expectation of inflation. In other word, high interest rate in home country indicates high inflationary expectations in the country; hence the home currency will depreciate against the foreign currency with relatively low interest rate.
Relationship between Malaysia's Foreign Exchange Rate and Trade Balance 马来西亚汇率与贸易平衡的关系
Exports and imports play an important role in influencing the demand for the currency. A trade surplus (export is more than import) indicates that an increase demand for the country currency by the foreigners. For example, if Malaysia is in the trade surplus, it means that there will be more demand for the Malaysian Ringgit to pay for purchasing goods. Therefore, a trade deficit will have the vice-versa effects.

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