Dynamic relation between exchange rate volatility, international trade and investment: A research analysis

The dynamic relation between exchange rate volatility, international trade, and investment is a substantial worldwide topic that is taken into consideration by all the economies around the world. The exchange rate is considered one of the most important factors in driving the economy of a country, its international trade relations, and its investment opportunities. Any variability of one of those factors can have either a positive or a negative impact on the whole economy of the country. This has made understanding this relation obligatory. In that way, we analyse the continuous fluctuations of the exchange rate of one country while demonstrating how its consequences will affect the global trade and investment of this country. For this research, we will be implementing exchange rates, International trade, and investment inflow data of many countries to be able to determine, explain, and understand this dynamic relation. We used Wavelet Coherence Analysis to detect causality between these variables. The results show that there exists a relation between exchange rate volatility, international trade and investment which is highly variable between countries and time periods. The relation was found to be a three-way interaction in which a change in one of the variables could impact the whole relation. Keywords : Relation, Exchange Rate Volatility, International Trade, Investment, Impact, Wavelet Coherence Analysis