Economic Factors towards Exchange Rate in Malaysia

Hew, Li Ting (2022) Economic Factors towards Exchange Rate in Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University College.

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Abstract

Over the decades, policymakers and economists from Malaysia and other nations have examined the economic factors that influence exchange rates. One of the most talked-about research subjects is the relationship between currency rates and foreign direct investment. There are many outcomes, including both favourable and unfavourable effects as well as unknown effects. This essay aims to investigate the economic influences on Malaysia's quarterly exchange rate from 2010 to 2021. The currency rate is a dependent variable, whereas governmental debt, trade openness, foreign direct investment, and portfolio investment are independent variables. The Granger Causality test, the Johansen-Juselius co-integration test, and the Vector Error Correction Model (VECM) were used to identify the economic factors influencing the exchange rate in Malaysia. The empirical result shows that there is long run relationship among the variables. In this study, there are few unilateral and bilateral relationship among the variables. In this study, it is suggested that the government should enhance the managing of foreign direct investment, public debt and policies in stabilize the exchange rate in Malaysia