Impact of exchange rate on inflation in pakistan

Changes in the exchange rate and the prices of goods and services By Parveen Zaiby Inflation is the rise in the prices of goods and services in an economy over a period of time. When the general price level rises, each unit of the functional currency buys fewer goods and services; consequently, inflation is a decline in the real value of money — a loss of purchasing power in the internal medium of exchange, which is also the monetary unit of account in an economy. Inflation is a key indicator of a country and provides important insight on the state of the economy and the sound macroeconomic policies that govern it. A stable inflation not only gives a nurturing environment for economic growth, but also uplifts the poor and fixed income citizens who are the most vulnerable in society.

Impact of exchange rate on inflation in pakistan

Conclusions and Recommendations 1. Introduction History has shown that the price of stocks and other assets are essential part of the dynamics of economic activities and can influence or be an indicator of social mood.

Also an economy in which the stock market is on the rise is considered to be an up-and-coming economy. Moreover stock market has a marked impact on the economy of every nation.

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And also stock market is one of the most important way for companies to raise money, along with debt markets which are generally more imposing but do not trade publicly Zheng et al, This allows businesses to be publicly traded, and raise additional financial capital for expansion by selling shares of ownership of the company in a public market.

Likewise, liquidity that an exchange affords the investors enables their holders to quickly and easily sell securities this is an attractive feature of investing in stocks, compared to other less liquid investments such as property and other immoveableassets.

Further, performance of the stock markets is measured in indexes, index is a method to calculate the performance of the whole stock market. Consequently, in Pakistan there are different indices on which the performance of the stock market is measured.

Moreover there are two types of forces which influence the stock prices, micro forces and macro forces. Micro force which influence price of equity share is demand and supply force i. Similarly in a bearish trend when stock holders start selling shares than prices fall down due to excess in supply.

Additionally, macroeconomic forces include politics, general economic conditions like performance of an economy, government regulations, etc. Chong et al, ; Ibrahim, Subsequently, there are some other microeconomic factors like demand and supply circumstances the performance of the various companies and contrast of industries with one and other.

Furthermore, relationship between stock market prices and inflation is of great relevance from the policy point of view.

As inflation is an integral macroeconomic factor which influence the economy of a country domestically and international level. Previous studies proposing a negative relationship between stock costs and expansion.

Chakravarty et al, visualize that high inflation predicts a financial downturn and keeping in view this the organizations begin auctioning off their stock. An increment in the supply of stock then diminishes the stock costs.

Erikiet al also cited that there is negative relationship between stock prices and inflation. However, Bhattacharya and Mukherjee demonstrated a two-path causation between stock cost and the rate of expansion, while file of mechanical creation lead the stock cost.

While considering the Greek economy Ioannidis et al. The outcomes give proof for a negative long-run causal relationship between the arrangements after As the inflation rate has diverse pattern in past as a result of change in global oil costs, political components and financial emergencies and terrorism, that hit the share trading system in Pakistan moreover.

So this study exceptionally outline to inspect the changing effect of this macroeconomic component on stock costs. Consequently, macroeconomic measures are not quite the same as economy to economy. The degree of study is just for Pakistan with Karachi stock trade, measuring its execution with expansion rate of Pakistan.

Indeed, even geologically neighbor nations are keeping up their own approaches for interest rate and inflation and stock records may have diverse file measures.

Inflation and its impact on the Pakistan economy – Overseas Pakistani Friends

This study directed just considering circumstances of Pakistan. Moreover, there are different components, for example, Interest rate that influences the Stock costs however this study has investigated just effect of expansion on stock costs on the grounds that it has more prominent effect.

Furthermore, in Pakistani connection a more prominent inflation is practically speaking, and so ebb and flow examination will help in comprehension this Pakistani setting. Literature Review Securities exchanges are the foundation of economy and economy capacities as a result of its macroeconomic components Yahyazadehfar et al, Moreover, market analyst setting up that cost of merchandise in an economy set up through strengths of interest and supply powers of that specific economy in light of the fact that the idea of free economy.

In the security markets whichever one either essential or optional the costs of offer value restoring through various small scale and full scale powers.Impact of Interest Rate, Inflation and Money Supply on Exchange Rate Volatility in Pakistan 1,2Tariq Mahmood Ali, Muhammad Tariq Mahmood and Tariq Bashir1 2 began about the impact of exchange rate volatility on to its historic lowest level of against the US dollar.

Consequently, in answer to shift in inflation rate in the past period of Pakistan there is additionally change in KSE list costs which contrast due to fluctuation in expansion rate in light of interest, financial arrangements or other administrative strategies.

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Afghanistan became a member of the World Bank in Shortly after the Soviet invasion in , World Bank operations were suspended, although the Bank continued to provide assistance to Afghans through its office in Pakistan. macroeconomic factors like inflation, national income, interest rate, exchange rate etc.

Following chart shows many ups and downs in the GDP rate of Pakistan during the ten year period ( to ).

Impact of exchange rate on inflation in pakistan

Get the latest news and analysis in the stock market today, including national and world stock market news, business news, financial news and more. Consequently, in answer to shift in inflation rate in the past period of Pakistan there is additionally change in KSE list costs which contrast due to fluctuation in expansion rate in light of interest, financial arrangements or other administrative strategies.

How Does Inflation Affect Exchange Rate | Investopedia