The Influence of Currency Exchange Rates on Stock Market

The Influence of Currency Exchange Rates on Stock Market

Abstract

The two most important financial markets in the world are the exchange rate and the stock market. These two marketplaces play critical roles in international trade all around the globe. It is essential to understand the connection between the two markets so that investors may invest more effectively while incurring the least amount of risk. This study examines the connection between Pakistan's stock market and exchange market. 


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The KSE-100 index is used as a replacement for stock prices, while the currency rate of the Pakistani rupee versus the US dollar (Rs/US$) is utilized to hedge against exchange rate risk. The data is collected on a monthly basis and spans the years January 2004 to December 2009. According to the study's results, there is no connection between the exchange rate and the stock price, and both factors are independent of one another.


Introduction

Multiple variables, including exchange rate changes, may have a major impact on the market value of companies and stock prices. Despite much debate, there is still no agreement on the connection between the stock market and the exchange rate. According to financial theory, currency rates and interest rates should affect the value of a company. Exchange rate changes, both upward and negative, may influence company stock prices. Foreign direct investment (FDI) is a major component of stock prices in Pakistan, and the trajectory of FDI may be significantly influenced by changes in exchange rates, whether depreciating or appreciating. Similarly, changes in stock prices have an impact on currency rates.

When asset values rise, domestic investors invest more in the domestic market, increasing demand for local currency and increasing the behavior of selling foreign assets. The increase in demand for local currency will push interest rates to rise, attracting international investors to invest and get the most advantage. The exchange rate of the local currency will rise against the exchange rate of the foreign currency, indicating a negative connection, as indicated by the Portfolio Balance method.

For More Details About The Influence of Currency Exchange Rates on Stock Market Please Visit Our Website

https://mbareportsguru.com/influence-of-currency-exchange-rates-on-stock-market/

 Or call us +91 9481545735

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