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Maria Aslam

Effects of Currency Fluctuation on Economy, Maria Aslam,CIIT/FA13-MSMS-012

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Effects of Currency Fluctuationon Economy
Currency fluctuations are driven by changes in demand andsupply for a currency in the foreign exchange market. The terms currencyappreciation and currency depreciation describe the movements of the exchangerate induced by market fluctuations. The market where the commodity traded is Currencies. Price ofeach currency is determined in term of other currencies. The Pakistani currencyis more volatile currency that creates direct and indirect effects on theforeign exchange and at the same time on the economy as well. The currencyvolatility can be seen from these figures, Pakistani rupee averaged 62.08 from1988 until 2014, reaching an all times high of 108.50 in December of 2013 and arecord low of 18.60 in December of 1988. But now the Pakistani rupee isappreciated and it should be 99.65, it is positive change but its effects can’tbe seen in our economy. Whether rupee appreciates or depreciates it cannotchange the economic conditions and in each situation Pakistani economy suffersa lot for many decades. Theunanticipated appreciation and depreciation in the currency can benefits onlybig giants and policy makers. On the other hand a common man endures a lot ofwhen the Pakistani currency is depreciated and can’t get any benefit ofcurrency appreciation.Everybody is feeling good because now a day’s our currency goingto appreciate but it’s really a myth for me either it is beneficial or not. Afterobserving the entire situation, when a country’s currency appreciates than itsexports decrease because of exports prices are high and imports increase due tocheaper prices and pay fewer rupees for foreign goods and services. But its onlybenefits to big giant or governing bodies because when they want to import moreforeign goods than appreciates rupee against US dollar and vice versa. Finally,currency appreciation lowers down the inflation because the cost of importedgoods and raw materials fall after currency appreciation. But the reality isquite different because there is no sign in our economy that inflation isreduced 13% to single digit. Economic conditions get worst day by day,unemployment increased and prices are uncontrollable than how can currencyappreciation creates positive effects on economy. If currency appreciation reducedthe inflationary effects than why prices of consumer goods are increased day byday. Even though every budget shows that our currency is stable now andinflation is reduced 13% to single digit, improving energy crisis andprotecting poor’s, it is just documentary debate nothing else. All the issuesare increased with the passage of time without any solution because there isthe lack of policy implementation. The solution of these problems is, to control the currencyfluctuations and attract foreign investments. Foreign investors invest inPakistan to get competitive advantage and market considerations. As a result employment opportunities areincreased and an economy gets stronger and gives people more leverage andbetter living standard. The foreign investment will be increased by adoptingthe attributes of ideal currency these attributes are the “exchange ratestability” the currency value is fixed against major currencies so theinvestors are certain to invest in a particular currency.”Full financialintegration” investors can easily move funds from one currency to another dueto perceived economic opportunities and risks.”Monetary independence” involves domesticmonetary and interest rate policies would be set by each individual country tolimiting inflation, combating recessions and fostering prosperity and fullemployment.Many experts force that the increased capital mobility hasbeen pushing more and more countries towards full financial integration and investsin foreign countries. In this way currency appreciation can positively affectedon economy and at the same time increased employment opportunities, reducedcommodity prices and improves the living standard of common man. In this way economygets stronger and country gets prosperous ahead of successful destination. MARIA ASLAMMSMS (Finance) - 12Comsats University, Lahore

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