The factors that influence exchange rate in selected ASEAN countries / Norhidayah Ali

Exchange rate is a serious issue and could negatively impact a country economy. The purpose of this study is to determine the factors influence exchange rate in selected ASEAN countries by using data from 1990 to 2015 on a yearly basis consist of determinants such as oil prices, interest rate, inflation rate and openness. Pooled Ordinary Least Square (POLS), Random Effect and General Least Square regression model was employed to study the relationship of oil prices, interest rate, inflation rate and openness towards exchange rate. The results revealed that oil prices and interest rate has positive relationship with exchange rate. However, inflation rate and openness shows negative relationship with exchange rate. From the findings, it can be concluded that the most significant factor that influence exchange rate is interest rate with 0.000 of probability value which significantly influence the bankruptcy at the 1 per cent level of significance. The result shows that a 1% increase in interest rate leads to 590.8348% decrease in exchange rate. Exchange rate instability can have serious adverse consequences on prices, investments and international trade decisions. Therefore, studying the determinants of exchange rate is very crucial.