Impact of economic factors towards exchange rate in Malaysia / Nur Syahirah Jamaludin

This paper aims to study the relationship between exchange rate and Gross Domestic Product (GDP), inflation and interest rate in Malaysia. Time series data over the period of 1 991 to 2020. a total of 30 observations have been collected from World Bank Data. It also discusses the effect of economic factors towards the exchange rate using regression analysis to determine whether these factors will affect the exchange rate or not. The findings have concluded that all of the independent variables GDP, inflation and interest rate have a positive relationship with the exchange rate and are statistically significant, influencing the exchange rate during the study period. The model does not suffer from the multicollinearity, serial correlation and heteroskedasticity while being tested. Currency fluctuations are a natural result of most major countries' use of variable exchange rates. As a result, the value of a currency might change from one moment to the next. The Asian Financial Crisis, which began with the depreciation of the Thai baht in the summer of 1997, is a good illustration of the chaos created by unfavourable currency movements. This currency contagion expanded to neighbouring nations including Indonesia, Malaysia, and South Korea, causing severe economic contractions as bankruptcies and stock markets fell. So this study will concentrate on Malaysia as one of the countries that was affected by the Asian Financial crisis to help us be more prepared in the future.