Demystifying Exchange Rate

Abstract

Exchange rate refers to the value of one currency in terms of another and serves as an aggregate indicator of economic performance and international competitiveness (Bah & Amusa, 2003). The range of exchange rate effects extends to export growth, resource allocation, consumption patterns, private investments and employment (Aron et al., 1997; Edwards,1989: Edwards & Savastano 1999), inequality and poverty (Clements & Lan, 2007). Fluctuations in the exchange rate, therefore, have serious bearing upon all sectors of economy but, unfortunately, go almost unnoticed in Pakistan. There is very little public awareness about exchange rate, exchange rate fluctuations and implications thereof. The issue remains less debated and understood in masses, unstated in policy realms and relatively less contested amongst academia and research community of Pakistan. This may be partly because of the complex nature of the issue and partly for not comprehending associated implications fully.