The relationship between microeconomic variables and exchange rate in Malaysia / Nur Elis Shezlin Mohammad

The exchange rate is the value where the two currencies are traded for one another. It can be either a fixed or floating system. Moreover, the exchange rate has a crucial role in trade in the country, critical in a free market economy. Most of the Asian economies have managed floats exchange rate policy after the Asian Financial Crisis in 1997. Exchange rate stability is important for achieving macroeconomic policy objectives in both developed and emerging economies. Malaysia lacked studies in exchange rate volatility research as a developing country compared with other developing and developed countries, such as the United Kingdom, Brazil, or Indonesia. Only a few studies have been carried out to investigate the relationship for developing countries, mainly due to insufficient time series data. This research used 30 observations based on the annual data from 1990 until 2019 with time-series data. The data has been collected from World Bank Open Data. The foreign direct investment, government spending, the gross domestic product (GDP), lending interest rate are independent variables. The exchange rate volatility acts as the dependent variable. The methodology used in this study is by using Eviews. The t-test, f-test, coefficient of determination, and other tests to carry out the hypothesis statement. It was found that all independent variables have a significant relationship with the exchange rate volatility in this study.