Globalization has brought immense benefit for the welfare of the human race. For a globalized world, the economic integration of nations around the world is a prerequisite. This integration of economies has brought in the concept of international trade wherein the countries trade with each other. For a trade to be carried out the buyer has to pay the seller in currency that is accepted by the seller. As of now one of the widely accepted currencies is USD and the exchange rates of most of the currencies are determined in terms of USD. The exchange rate of a country is affected by many macroeconomic variables and one among them is the FDI. This paper has tried to analyse whether FDI as a macroeconomic variable affects the exchange rate of selected Asian countries' currencies. With the integration of economies around the world, it is important to know the factor responsible for the variation in the exchange rates. With this knowledge, the Governments and the Central Banks can plan their policies accordingly that are attractive to the investors. The study has considered countries such as China, India, Phillipines, Qatar and Singapore. The study has used regression to find out the influence of FDI inflows on the exchange rates of respective currencies and correlation has been used to find the extent of relationship between the variables considered. The results show that the FDI inflows affect the exchange rates of all the countries considered except Phillipines. Also correlation shows that FDI inflows and Exchange rates of Qatar are not related since Qatar follow fixed exchange rate regime.
Are exchange rates less important for trade in a more globalized world? Evidence for the new EU members
