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The Correlation Between The Exchange Rate And The Direct Foreign Investments

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  • Halmi Mirela

    ()
    (Carpatica Bank Satu Mare Branch, Romania, Carpatica Bank Satu Mare Branch, Romania)

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    Abstract

    Since the fall of the monetary system from Bretton Woods, based on a system of fixed rates, numerous theoretical and empirical articles have emerged through which the volatility of the exchange rate and the commercial influxes was analyzed and the identification of specific connections regarding the transmission of the effects of the modification of the exchange rapport of a currency in economy was tried. The general idea from these works start from the uncertainties regarding the evolution of a currency in comparison to another and their effects on the goods and services balance of a state. Important works from the domain are evaluated. The authors are renowned researchers in the area of international finances and some of them are part of the personnel of the most important international finance-banking institutions such as the International Monetary Fund and the Bank of International Settlements. The studies regarding the relation between the exchange rates and the direct foreign investments are contradictory: some do not find a significant influence of the exchange rate and other demonstrate that there is a strong connection between the two variables. If a connection between the two variables is established, it remains to be settled if the connection is direct or reversed. The Granger causality test identified the characteristics of the relation between the direct foreign investments and the exchange rate. The conclusions of the research mark out the complex nature of the relation between the two variables, the results being extremely heterogeneous from one country to another.

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    Bibliographic Info

    Article provided by University of Oradea, Faculty of Economics in its journal The Journal of the Faculty of Economics - Economic.

    Volume (Year): 1 (2012)
    Issue (Month): 1 (July)
    Pages: 809-815

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    Handle: RePEc:ora:journl:v:1:y:2012:i:1:p:809-815

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    Keywords: direct foreign investments; exchange rate; volatility; correlation; impact;

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    1. Christopher F. Baum & Mustafa Caglayan, 2006. "On the Sensitivity of the Volume and Volatility of Bilateral Trade Flows to Exchange Rate Uncertainty," Boston College Working Papers in Economics 641, Boston College Department of Economics, revised 06 Feb 2008.
    2. Joseph P. Byrne & Julia Darby & Ronald MacDonald, 2006. "US Trade and Exchange Rate Volatility: A Real Sectoral Bilateral Analysis," Working Papers 2006_9, Business School - Economics, University of Glasgow.
    3. Schnabl, Gunther, 2008. "Exchange rate volatility and growth in small open economies at the EMU periphery," Economic Systems, Elsevier, vol. 32(1), pages 70-91, March.
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    5. Hall, Stephen & Hondroyiannis, George & Swamy, P.A.V.B. & Tavlas, George & Ulan, Michael, 2010. "Exchange-rate volatility and export performance: Do emerging market economies resemble industrial countries or other developing countries?," Economic Modelling, Elsevier, vol. 27(6), pages 1514-1521, November.
    6. Naknoi, Kanda, 2008. "Real exchange rate fluctuations, endogenous tradability and exchange rate regimes," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 645-663, April.
    7. Fratzscher, Marcel & Juvenal, Luciana & Sarno, Lucio, 2010. "Asset prices, exchange rates and the current account," European Economic Review, Elsevier, vol. 54(5), pages 643-658, July.
    8. Rahman, Sajjadur & Serletis, Apostolos, 2009. "The effects of exchange rate uncertainty on exports," Journal of Macroeconomics, Elsevier, vol. 31(3), pages 500-507, September.
    9. Serge Rey, 2006. "Effective Exchange Rate Volatility And Mena Countries Exports To The Eu," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 31(2), pages 23-54, December.
    10. Bruno Coric & Geoff Pugh, 2010. "The effects of exchange rate variability on international trade: a meta-regression analysis," Applied Economics, Taylor & Francis Journals, vol. 42(20), pages 2631-2644.
    11. Kazunobu HAYAKAWA & Fukunari KIMURA, 2008. "The Effect of Exchange Rate Volatility on International Trade in East Asia," Working Papers d003, Economic Research Institute for ASEAN and East Asia (ERIA).
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