scholarly journals Investigating adaptive behavior in the foreign exchange market: ZAR versus USD and CNY

2021 ◽  
Vol 18 (2) ◽  
pp. 391-401
Author(s):  
Adefemi A. Obalade
Keyword(s):  
South African ◽  
Foreign Exchange ◽  
Adaptive Behavior ◽  
Foreign Exchange Market ◽  
Exchange Market ◽  
The South ◽  
Market Conditions ◽  
The Us ◽  
Trading Partners ◽  
Bds Test

This study examines the adaptive behavior of South Africa’s rand (ZAR) exchange rate against its major trading partners, the US Dollar (USD) and the Chinese Yuan (CNY) over the period 1999-2020. The study uses a rolling parametric linear variance ratio (VR) test, nonparametric linear runs test, and non-linear Brock, Dechert and Scheinkman (BDS) test to determine time-varying predictability and regression analyses to assess the effect of market conditions. The results show that the foreign exchange market was found to be inefficient based on the VR tests, but efficient with very few windows of inefficiency based on the runs test and BDS test. In addition, apart from the GDP, none of the market conditions studied is associated with non-parametric linear and nonlinear predictabilities. The study draws two main conclusions. Firstly, the South African foreign exchange market is adaptively efficient. Secondly, foreign exchange market efficiency is primarily driven by the level of economic growth. Practically, it will be difficult for investors to exploit the few windows of predictability in the South African foreign exchange market by focusing mainly on the market conditions studied.

scholarly journals Covered interest arbitrage opportunities in the South African foreign exchange market

1987 ◽  
Vol 18 (4) ◽  
pp. 209-214
Author(s):  
C. De J. Correia ◽  
R. F. Knight
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
South African ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Exchange Market ◽  
The South ◽  
Dollar Exchange Rate ◽  
Interest Parity ◽  
Interest Differential

The Interest Parity Theory states that in an efficient market, any interest differential between local and foreign sources of finance will be offset by the forward premium/discount. Therefore, opportunities to engage in profitable Covered Interest Arbitrage transactions will be eliminated quickly. The fall in the Rand/Dollar exchange rate resulted in many South African companies reporting substantial foreign exchange losses on offshore loans. Companies were attracted to foreign sources of finance because of lower foreign interest rates. The authors conclude, on the basis of empirical tests, that the forward Rand/Dollar exchange rate followed its interest parity value very closely over the period August 1983 - August 1985. Opportunities to engage in risk-free arbitrage activities were offset by related transaction costs. The South African foreign exchange market is efficient to the extent that risk-free profit opportunities did not exist for the period under review and therefore there was no benefit, after adjusting for risk, for South African management to borrow from offshore sources of finance.

scholarly journals The recommendations of the De Kock Commission of Inquiry and its implications for foreign security investments by South African residents

1985 ◽  
Vol 16 (4) ◽  
pp. 204-208 ◽  
Author(s):  
N. Bhana
Keyword(s):  
South Africa ◽  
Interest Rates ◽  
South African ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Exchange Market ◽  
Rates Of Return ◽  
Local Exchange ◽  
International Portfolio Diversification ◽  
Exchange Control

South African investors have been precluded from investing in foreign securities by the Exchange Control Regulations of 1961. Furthermore, the monetary policy pursued by the authorities has resulted in an inefficient financial market. Investments on the capital market have not earned satisfactory real rates of return, and prices on the JSE appear to have been driven to artificial heights. The De Kock Commission of Inquiry has proposed several recommendations which will have far-reaching consequences for investors in South Africa. The proposal of market-related interest rates and the abolition of prescribed investments by institutional investors is likely to result in long-term securities earning substantially higher real rates of return. The relaxation of exchange control for both direct and portfolio investment is likely to stem the flow of funds into the JSE. Investment funds can be expected to flow between the JSE and the various foreign equity markets depending on the economic prospects in the different countries. The high foreign exchange cost and poor liquidity of the local exchange market has been an obstacle to investors in foreign securities. The creation of a larger and more efficient foreign exchange market is likely to facilitate international portfolio diversification in South Africa.

scholarly journals Transmission Of Volatility Shocks Between The Equity And Foreign Exchange Markets In South Africa

2013 ◽  
Vol 29 (5) ◽  
pp. 1529 ◽  
Author(s):  
Lumengo Bonga-Bonga
Keyword(s):  
South Africa ◽  
South African ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Impulse Response Function ◽  
Equity Market ◽  
Stock Market Volatility ◽  
Exchange Market ◽  
Conditional Volatility ◽  
Exchange Markets

<p>The paper assesses the dynamic interaction between exchange rates and stock market volatility in South Africa by making use of the generalised impulse response function obtained from a bivariate VAR model. Volatility variables in the VAR system are obtained from a family of GARCH models based on criteria such as covariance stationarity and leverage effects. The findings of the paper show that foreign exchange conditional volatility responds positively to volatility shocks to the equity market. Nonetheless, the response of the equity market conditional volatility to volatility shocks to the foreign exchange market is short-lived and neutral for most of the time horizon periods. The paper attributes this finding mainly to the extent of foreign participation in emerging equity market in general and the South African equity market in particular.</p>

Optimistic and pessimistic economic sentiments and US Dollar exchange rate

2021 ◽  
Author(s):  
Sonia Kumari ◽  
Suresh Kumar Oad Rajput ◽  
Rana Yassir Hussain ◽  
Jahanzeb Marwat ◽  
Haroon Hussain
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Ordinary Least Squares ◽  
Exchange Market ◽  
Dollar Exchange Rate ◽  
The Us ◽  
Short Run ◽  
Us Dollar ◽  
The Exchange Rate

This study investigates the affiliation of various proxies of economic sentiments and the US Dollar exchange rate, mainly focusing on the real effective exchange rate of USD pairing with three other major currencies (USDEUR, USDGBP, and USDCAD). The study has employed Google Trends data of economy optimistic and pessimistic sentiments index and survey-based economy sentiments data on monthly basis from January 2004 to December 2018. The study engaged Ordinary Least Squares (OLS) and Auto-Regressive Distributed Lag (ARDL) estimation techniques to evaluate the short-run and long-run effects of economy-related sentiments and macroeconomic variables on the exchange rate. The results from the study found that Economy Optimistic Sentiments Index (EOSI) and Economy Pessimistic Sentiments Index (EPSI) appreciate and depreciate the US Dollar exchange rate in the short-run, respectively. Our sentiment measures are robust to survey-based Michigan Consumer Sentiment Index (MSCI), Consumer Confidence Index (CCI), and various macroeconomic factors. The MSCI and CCI sentiments show a long-term impact on the foreign exchange market. This study implies that economic sentiments play a vital role in the foreign exchange market and it is essential to consider behavioral aspects when modeling the exchange rate movements.

scholarly journals THE RISK PREMIUM IN THE FOREIGN EXCHANGE MARKET. THE APPLICATION OF ARCH-IN-MEAN MODEL

2020 ◽  
Vol 21 (2) ◽  
pp. 71-79
Author(s):  
Katarzyna Czech
Keyword(s):  
Foreign Exchange ◽  
Risk Premium ◽  
Foreign Exchange Market ◽  
Conditional Variance ◽  
Exchange Market ◽  
Market Uncertainty ◽  
Forward Premium Anomaly ◽  
The Us ◽  
High Volatility ◽  
Japanese Yen

Forward premium anomaly is one of the most popular puzzles in the theory of international finance. The phenomenon is explained by, among others, the existence of non-zero risk premium in the foreign exchange market. The paper applies ARCH-in-mean models to assess whether there exists a time-varying risk premium in the USD/PLN and AUD/JPY foreign exchange markets. The results indicate the existence of a non-zero risk premium in the analyzed markets. As far as the USD/PLN is concerned, the risk premium takes negative values when the risk measured by conditional variance rises. The results suggest that when there is a surge in risk, the US dollar’s appreciation and Polish zloty depreciation increases. The results confirm the US dollar as a safe-haven currency that tends to appreciate during high-volatility and crisis periods. Moreover, the study shows that the risk premium in the AUD/JPY market takes positive values when the risk measured by conditional variance rises. It implies that when there is a mount in risk, the appreciation of Japanese yen increases. Furthermore, research results reveal the positive and significant relationship between stock market uncertainty and exchange rates conditional volatility.

An Estimation of Target Effective Exchange Rates: The Case of the U.S.

1992 ◽  
Vol 36 (1) ◽  
pp. 22-28 ◽  
Author(s):  
Nicholas Apergis
Keyword(s):  
Exchange Rates ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Exchange Market ◽  
Central Bank Intervention ◽  
Policy Makers ◽  
Us Economy ◽  
Considerable Research ◽  
The Us ◽  
Effective Exchange

This paper derives optimal effective exchange rates, via loss-function minimization, for the US economy. The results attract considerable research interest; although it is generally believed that policy makers intervene only in infrequent emergency occasions in the foreign exchange market, this paper shows that the contrary is true; the US foreign exchange market is characterized by frequent central bank intervention.

scholarly journals Analysis of the development of the foreign exchange market in the Russian Federation

2021 ◽  
pp. 149-161
Author(s):  
Alexander S. Kokin Kokin ◽  
Vladimir A. Odinokov Odinokov ◽  
Valentina N. Shchepetova Shchepetova
Keyword(s):  
Foreign Exchange ◽  
Russian Federation ◽  
Foreign Exchange Market ◽  
Well Being ◽  
Market Development ◽  
Exchange Market ◽  
The Us ◽  
The Russian Federation ◽  
Us Dollar ◽  
Main Factors

The article focuses on the financial foreign exchange market, the development and condition of which determines the financial well-being of most commercial enterprises of the Russian Federation.  The purpose of the research is to give review of the Russian foreign exchange market’ development and situation. The main factors influencing the level of the exchange rate of foreign currencies expressed in national currency are considered. The domestic and international foreign exchange market of Russia for the period 2016-2020 is analyzed. The dynamics of conversion operations, the structure of participants in the domestic foreign exchange market by type of currency. The results of trading on the foreign exchange market, futures and options as a currency instrument, the share of options and futures on the futures market of the Russian Federation, as well as the dynamics of the US dollar against the ruble and exchange trading indicators for the period from 2016 to 2020. The conditions, results and prospects of the development of the financial foreign exchange market of the Russian Federation are discussed in this  article

scholarly journals A Comparative Analysis of Weak and Semi-Strong Form Efficiency of Nigerian and South African Foreign Exchange Market

2021 ◽  
Vol 04 (07) ◽  
Author(s):  
Adetan, Taiwo Temitayo ◽  
Keyword(s):  
Exchange Rates ◽  
South African ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Weak Form ◽  
Strong Form ◽  
Exchange Market ◽  
Market Participants ◽  
Available Information ◽  
Weak Form Efficiency

Foreign exchange market is said to be efficient if all available information are reflected in its exchange rates. An efficient foreign exchange translates to absence of profitable and exploitable trends which means that it is impossible for market participants or private agents to outperform the market. This study investigated the weak and semi-strong form efficiency of Nigerian and South African foreign exchange market to determine the significance of past exchange rates in predicting the present rate which is the test of weak form efficiency and it examined the co-integration relationships between selected pairs of exchange rate to determine the semi-strong efficiency. The secondary data used in this study were sourced mainly from the Central Bank of Nigeria Statistical Bulletin, the South African Reserve Bank Bulletin and the oanda exchange rate websites. The data used were the inter-bank spot exchange rates of Naira and Rand to Swiss Franc, Euro, Pounds, Dollar and Yen for the period of January 2010 to December 2017. The Augmented Dickey Fuller (ADF) test and the Phillip Peron (PP) test were employed to determine the weak form efficiency while the Variance Decomposition, Granger Causality and Co-integration tests were used to determine the semi-strong form efficiency of both countries. The results of the study revealed that the Nigerian foreign exchange market is efficient in the weak and semi-strong form at 5% level of significance while the weak form efficiency of South African foreign exchange market revealed mixed results. The market is efficient in the weak form except for the case of Rand to Dollar and Rand to Yen which showed inefficiency. The market is equally efficient in semi-strong form. The study concluded that market participants cannot make exploitable profits by trading in both markets because all past and publicly available information are already incorporated in the prices of exchange rates. It was therefore recommended that the inter-bank market in both countries should be well monitored and managed by the regulatory authorities so as to promote the effective and efficient smooth functioning of the foreign exchange market as well as achieving a stable and realistic exchange rates.

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