THE CORRELATION BETWEEN THE EXCHANGE RATE AND THE DIRECT FOREIGN INVESTMENTS

Halmi Mirela ()
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Halmi Mirela: Carpatica Bank Satu Mare Branch, Romania, Carpatica Bank Satu Mare Branch, Romania

Annals of Faculty of Economics, 2012, vol. 1, issue 1, 809-815

Abstract: Since the fall of the monetary system from Bretton Woods, based on a system of fixed rates, numerous theoretical and empirical articles have emerged through which the volatility of the exchange rate and the commercial influxes was analyzed and the identification of specific connections regarding the transmission of the effects of the modification of the exchange rapport of a currency in economy was tried. The general idea from these works start from the uncertainties regarding the evolution of a currency in comparison to another and their effects on the goods and services balance of a state. Important works from the domain are evaluated. The authors are renowned researchers in the area of international finances and some of them are part of the personnel of the most important international finance-banking institutions such as the International Monetary Fund and the Bank of International Settlements. The studies regarding the relation between the exchange rates and the direct foreign investments are contradictory: some do not find a significant influence of the exchange rate and other demonstrate that there is a strong connection between the two variables. If a connection between the two variables is established, it remains to be settled if the connection is direct or reversed. The Granger causality test identified the characteristics of the relation between the direct foreign investments and the exchange rate. The conclusions of the research mark out the complex nature of the relation between the two variables, the results being extremely heterogeneous from one country to another.

Keywords: direct foreign investments; exchange rate; volatility; correlation; impact (search for similar items in EconPapers)
JEL-codes: E20 E22 E30 E43 G10 (search for similar items in EconPapers)
Date: 2012
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