exchange rate & its impact on pakistan's exports
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EXCHANGE RATE & ITS IMPACT ON PAKISTAN'S EXPORTS
Submitted To:
Sir Manzoor Hussain Memon
Submitted By:
Imtiaz Ansari - BM-35107
Institute of Business & Technology (Biztek)Nazimabad Campus
TOPICS COVER
Exchange Rate Policies Types Of Exchange Rate Policies Theories On Exchange Rate & Trade Currency Devaluation & Depreciation Impact Of Currency Devaluation During 2008-2012 Pakistan's Exports During 2008-2012
EXCHANGE RATE
What is Exchange Rate
The rate at which one currency will be exchanged for another. The value of one country’s currency in terms of another currency.
EXCHANGE RATE POLICIES
1. Flexible / Floating 2. Managed Floating3. Fixed / Pegged / Bretton-Woods
FLEXIBLE EXCHANGE RATE SYSTEMS Determined by the concern market
Qd R Qs R
FLEXIBLE EXCHANGE RATE SYSTEMS
Qd R Qs R
FIXED (PEGGED) EXCHANGE RATE
Known as Bretton-Woods system
Fixed rate against $ Central bank announces Basic motivation
Facilitate trade Investment flows
MANAGED FLOATING RATE SYSTEMS
Hybrid of a Fixed & Flexible system
Central bank becomes a key player
Central bank holds stocks of foreign currency
Foreign exchange reserves
EXCHANGE RATE POLICY IN PAKISTAN
Fixed rate regime till 90s Moved to market-based exchange rate US dollar as the intervention currency
THEORIES OF EXCHANGE RATES
Purchasing Power Parity (PPP) The Balance of Payments (BOP) Approach The Monetary Approach
Purchasing Power Parity (PPP)
“law of one price”
Identical good in two different countries has the same price
The Balance of Payments (BOP) Approach
An indicator of economic and political stability Country has a consistently positive BOP Significant foreign investment within that country Country does not export much of its currency.
The Monetary Approach The stock of currencies in comparison to the
willingness of people to hold these stocks Exchange rates adjust to ensure that the quantity of
money in each currency supplied is equal to the quantity demanded
CURRENCY DEVALUATION & DEPRECIATION
An active economic strategy Use when badly in debt situation Lowers the official value against
foreign currencies Rise the price of imported goods Increase the value of the country's
exported goods Risky economic move Spark hyperinflation.
CURRENCY DEVALUATION & DEPRECIATION
Depreciation Fall in the value of a currency in a floating exchange
rate Not due to a government’s decision Due to supply and demand factors The government can help regulate depreciation.
IMPACT OF CURRENCY DEVALUATION
Positive Impacts May be good for the economy Economic growth Stimulation of merchandise exports Discouraging merchandise imports Improving trade Increase revenue collection and savings Stop illegal foreign exchange
Negative Impacts Increase liability and foreign loans repayment Increases the trade gap. Stop ongoing projects due to rising costs. Raise industrial costs Reduce the intensity of capacity utilization
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1999
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2001
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2003
2004
2005
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2007
2008
2009
2010
2011
2012
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10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
Avg Exchange Rate of Last 20 Years
Exchange Rate
Year
Rate
REVIEW ON PAKISTAN EXPORTS
20072008
20092010
20112012
(10,000)
(5,000)
-
5,000
10,000
15,000
20,000
25,000
Export
Growth
16,976 19,052
17,688 19,290
24,810
19,329
2,076
-1,364
1,602
5,520
-5,481
Export Durring 2007 - 2012
ExportGrowth
Year
USD
Am
ount
in M
illions
FACTS
Rupee depreciated more than 40% since 2007
Poverty in 2011 at almost 50% of the population (UN- Reports)
Inflation climbs from 7.7% in 2007 to more than 13% for 2011
Remittances averaging is $1 billion a month since March 2011
Stuck in a low-income, low-growth trap
Growth averaging 2.9% per year from 2008 to 2011.
DATA SOURCE
The news July 02, 2012 column former governor of the SBP dr. Muhammad Yaqub
Pakistan economic and social review volume 50, no. 1 (summer 2012) Monetary and exchange rate policies – SBP Wellesley.edu Economic Help MBA school in birmingham www.Fbt-global.Com/mba-school Pakonomy
