IMPACT OF EXPORTS AND FOREIGN EXCHANGE RESERVES OF THE RUPEE VALUATION (EXCHANGE RATE) OF PAKISTAN

ARM spring 2014

Master of Science in Management Science

Shaheed Zulfiqar Ali Bhutto Institute of Science and TechnologySZABIST, ISLAMABAD By MUHAMMAD FAYAZ SHAHResearch Supervisor: Sir Dr. Bakhtiar Ali

Table of ContentsAbstract41.Introduction51.1 Background51.2 Introduction61.3The case of Pakistan91.4Research gap111.5Significance of the study121.6Delimitation of the study132.Literature review152.1 Literature review152.2Research questions202.3Research objectives203.Theoretical framework213.1Theoretical framework213.2Research model223.3Hypotheses223.4Operational definition of foreign exchange reserves233.4.1Operational definitions of exports233.4.2Operational definition of currency valuation244.Research design254.1Research design254.2 Study type254.3Researcher interference264.4 Unit of analysis264.5Sampling design264.6Time horizon275.Data Analysis285.1 Testing hypothesis: regression analysis Model285.1.1 Descriptive statistics295.1.2 Correlation295.1.3Regression Analysis Summary306.Conclusion and Recommendation336.1Causes of rupee devaluation336.1.1Sharp rise in oil prices336.1.2Expansionary monetary policies346.1.3Fiscal deficit and government borrowings346.1.4Weak financial system of Pakistan356.1.5Capital flight356.1.5IMF demand of devaluating rupee366.2Policy suggestions and Recommendations376.3Conclusion416.4future research recommendations427.References43

Abstract

The present study is about the impact analysis of exports and foreign exchange reserves of Pakistan of its currency appreciation and depreciation. This implies that the exports and for-ex reserves have close relation and increase in one cause increase in other. Annual data about the variables from the year 1994 to2012 was taken from different reliable secondary sources. Through regression analysis, however, results showed contrary results. In case of Pakistan, rupee valuation does not depend on its exports and foreign exchange reserves. Rather other broad macro-economic variables are responsible for the currency ups and downs in Pakistan. Taking bold and in time economic measures can surely strengthen our currency.

1. Introduction

1.1 Background

Currency; the elementary unit of exchange and the most leading medium of purchasing goods and services, is the basis of economy and economic activities of any state. In Pakistan, the currency is something that functions as a medium of exchange, a mass of value, and a standard through which trade activities are carried out. Currency is used as a proxy for money and vice versa. The Pakistani currency is Rupee, and it literally means a stamped coin. The Pakistan, the rupee was introduced as a state currency and then immediately put into circulation after the inauguration of State Bank of Pakistan (SBP), to end up the dependence on Indian Federal Reserve bank, just after the separation of indo-Pak subcontinent in 1947. The new coins and notes were introduced in 1948. The Pakistan Rupee bears sign: ; ISO 4217 Alphabetic Code: PKR; ISO 4217 Numeric Code: 586. ISO stands for the international standardization organization, which is responsible for assigning special codes to the currencies of each country, to make their dealing easy for international trade, banking sectors and other related monetary organizations. 1.2 Introduction The world economic wheel is run by the exports and imports of goods and services among the comity of nations across the globe, who in pursuit of money sells their surplus goods to other countries and also buy those goods which are necessary and demanded by its people and the land. World trade is an ever existing process, through which exchange of goods and services in terms of other goods and something of value (commonly called money) takes place. The inter dependencies of the inhabitance of this world over its fellow being has gotten a systematic shape of world trade.

There are many components of an economy; exports, imports, currency, exchange rates, reserves, prices, investments and the like. Currency is a basic tool through which the whole trading system of the world is based. Apart from local currency, all nation states hold a considerable amount of foreign currency reserves, so to have nonstop trade with their trading partner countries around the globe. Foreign exchange reserves are like the economic back bone of a country. Every nation state holds foreign reserves at its disposal to feed its economy and to do trade and other financial businesses with the world. In simple terms, foreign reserves means foreign currency (currency of another country) held by the central banks or other dominant financial institutions of a country as a source to pay off international/foreign debt obligations and liabilities, or to influence directly and indirectly their domestic exchange rate of currencies. A large number of financial and non-financial commodities, such as gold, silver, crude oil etc. are commonly priced and kept as the foreign reserves, and also causing other nation states to hold this currency to pay for or to buy these goods. More interestingly, (O Meier, 2013) advanced countries, as those who are part of the nuclear supply group, like US, Japan, Australia, Germany, Canada, India and France, are also keeping enriched as well as non-enriched uranium as part of their reserves, so that; that could be readily sold out to other countries to meet the needs of dollar money for their economies. Apart from these, the foreign exchange reserves of a country also comprises ofspecial drawing rights(SDRs) andInternational Monetary Fund (IMF) reserve position, because this total figure, which is usually more precisely regarded asdocumented reservesorinternational reservesorofficial international reserves, are also share of the foreign reserves of a country. SDRs are not currency in actual terms, but a pool of funds kept with the IMF by the member countries, and in the time of acute use, the members go for that. They are like the most liquid assets, which can be converted into ready cash instantly. Keeping stores of foreign currency reserves, thus, decreases the exchange rate risk of currencies, as the purchasing nation does not need to exchange their local currency for the current reserve currency in order to make the purchase of goods and commodities.Foreign-exchange reservesare also known as for-ex reservesorF-X reserves. These are like assets which are held bycentral banksandmonetary authorities/institutions of a country, usually in differentreserve currencies, mostly theUS dollar and other currencies like inEuros, Pound sterling, and in the Yen (Japanese currency). A foreign reserve of a state is a barometer for its exports earning and economic growth. Increase in foreign reserves over a time readily shows the increase in exports and inflow of money in the state market, which is a positive indicator for better economic growth. For sound imports and exports, a nation should have ample amount of foreign exchange reserves at its disposal, as foreign reserves accelerate and retardates the balance of payments of a country during imports and exports. Stability of the local currency is also directly linked with the foreign exchange reserves, apart from the exports of a country. In economics terms, local currency increases in its value (appreciation of currency) due to increase in exports, because the demand for the local currency increases.

When the local currency of a country is devalued (depreciation of the currency) with respect to the currency of the exporting country, the importing country requires more money (due to the devaluation effect) than before to import the same quantity of commodities. When the local currency is strong, less money is required to import same quantity of commodities from the other countries. This is the reasons, as why some countries adopt the policy of intentional currency devaluation; they officially devalue their currencies in the hope of increasing their exports and stabilizing their economies with greater exports and cheap labour availability. China, Japan, and India are the typical examples where the governments have devalued their local currencies, and this has created a positive impact on the increase in total exports of the countries. Exports means when a country sells its products or services to a foreign country in terms of dollar money, and imports means when a country buy something from a foreign country for cash or exchange of something. Exports and imports are the essence of world trade and no nation can survive without these. 1.3The case of Pakistan

Pakistan like other countries of the world also holds foreign exchange reserves but has not a bright record of having rich foreign reserves and having increased exports than imports, which could appreciates its rupee and prevent it from successive devaluation. Over a period of time, rupee de-valued in relation to US dollar, which put increased burden on import bill and prices of commodities in local markets went up sharply. Pakistan started amassing the foreign exchange reserves unusually in 2001and continued this practice till the end of 2007. It was the period when Pakistan was the ally of the coalition in the ongoing war against terrorism, and received multi-billion dollar aid from US and other countries. This strategy proved very supportive for the overall economy and has shown a number of significant positive impacts on economic growth rate, increase in exports, foreign direct investments, fiscal and current account deficit, and has also contributed in stabilizing many macroeconomic indicators including currency exchange rate and its volatility.

But after that, the overall economy faced a sheer decline, as a result of which foreign exchange reserves declined sharply and rupee became devalued with every passing day as against US dollar. Recently, Pakistani rupee depreciated to an all-time low Rs 109 against per dollar due to high demand for import payments. Depreciation of the rupee further blowup import bill and it led to increases domestic market price levels, thus reducing the purchasing power of people and causing inflation in the country. As a matter of fact, the total exports of Pakistan should have to be increased, but that didnt occurred. Pakistan is an agriculture based economy, and its major exports are agriculture based. Moreover, her exports also comprised of selling manufacturing products, various raw materials, merchandises, and also sell its technologies to other countries. She exports textile products, sports goods, marine foods, fruits, surgical instruments, vegetables and the like. Talking about the services sector, (Hussain, 2013) (Iqbal and Sattar, 2005) she exports her technical services, man power, intellectual services and armed force services (UN missions in some African and Arab countries). But these all are fruitless if broad economic measures are lacking and problems are increasing each day with an accelerating pace.

Above all the power shortage wrecked the very nerves of the industrial owners and exporters, who were unable to export their products due to less production. Over the period, the exports became less and less, foreign exchange reserves lesser and lesser and rupee made its century ($1= PKR100+) against dollar in the interbank exchange market. Its overall impact was hard to consider. Due to decreased mount of foreign exchange reserves, there was a fear of country bankruptcy, and government was compelled by the acute economic circumstances to knock at the doors of IMF and World Bank once again; to acquire loan at stringent conditions and high interest rates.

It is a harsh reality that for whatever reason Pakistani currency is depreciated, its consequences are weakening in the economy as compared to that of other countries. Furthermore, the excessive depreciation in currency in the recent past has adversely affected our credit ranking in the international market, which is evident from the fact that from March 2008 to March 2013, 1 US dollar rose to almost Rs 100, as against Pakistani rupee, which shows clear signs of weak economy and poor financial health of our country. 1.4Research gap

Foreign exchange is an important topic for research from the last fifty years. Different scholars discuss and analyze the exchange rate from different angles; they tried to find out the variables which truly reflect the variation in exchange rate. But problem is, that different factors affect differently across different countries. It is interesting to note that, some major economies of the world are depreciating their currencies intentionally, so to have greater exports and huge fo-rex reserves (Zhang, 1999). Mostly they discussed factors like export, interest rate, inflation and foreign exchange reserves and tried to find out that how much is the effects of these variables. In case of Pakistan, the rupee exchange rate is not too much sensitive to interest rate and inflation (Rashid and Rehman, 2001). So in this study, we want to explore the effects of the most important two factors exports and foreign reserves on the currency exchange rate of Pakistan. We mostly hear and see in the front and electronic media that the main causes of Pakistani currency devaluation is the low level of exports and low level of foreign exchange reserves. This will enable us to quantify that how much the fluctuation in exchange rate in Pakistan is caused by foreign exchange reserves and exports.

1.5Significance of the study

The exchange rate is a very important factor for any economy and contributing towards a stable, and sustainable economic environment, where the investors and business peoples dont have concerns about loses due to volatility of the local currency. There has been an abrupt fluctuation in the foreign exchange reserves of Pakistan on one hand, and export-import imbalance on the other. It was only in early 2008 when country foreign exchange reserves reached a record level of 16.6 billion dollars (SBP annual report 2009) and after a couple of months this figure dropped down to round about 4 billion dollars. At that time, the rupee stood against US dollar at $1: Rs60, but this did not sustained on stable grounds for long.

This sharp decline was surely an alarming phenomena for many as due to continuous decline in foreign reserves badly affected the exports, and ultimately the rupee declined at an accelerated pace. Above all, the acute power shortage, poor law and order situation and bad governance added fuel to the fire of already deteriorated economic situation of the country, resulting in increased prices of basic necessities of life and poverty level in the country.

This study is an attempt to find the significance of having ample foreign reserves and large exports on the valuation of Pakistani rupee. It will definitely provide fruitful insights to those who are directly or indirectly linked with foreign exchange rates and exporters and importers. This paper will also suggest some possible policy measures to the monetary authorities of Pakistan, as how foreign exchange reserves can be maintained on sound footings that can appreciate the rupee. This paper will also discuss how rupee devaluation and appreciation affect the general prices of basic commodities of common people. Apart from analyzing the thesis question through past data and statistical tools, suggestions will also be given as how exports can be increased, so that there could be an inflow of foreign exchange reserves in the weak economy of Pakistan.

1.6Delimitation of the study

The currency valuation is a very complex phenomena, its value fluctuate with the change in macroeconomic fundamentals. A lot of factors have effects on the exchange rate of a country currency, even some time different factors affect quite differently the exchange rate in different countries. The delimitation of this study is that due to the lack of time we just target to check the effect of two factors, foreign exchange reserves and exports on the exchange rate of Pakistani currency. Although other factors like interest rate, internal stability and inflation also have effects on the exchange rate of Pakistan. This study has focused on two very important factors that affect the valuation of Pakistani rupee, i.e. foreign exchange reserves and exports. Of course there are multi factors for this phenomena including inflation rate, intentional currency devaluation by certain countries, foreign debts, less foreign investments, high prices of general commodities, foreign donations as well as financial aid and many others. The scope of this study is not so wide to include all the possible variables of the proposed topic. Moreover, broad economic perspectives like economic growth and fiscal as well as monetary policies of Pakistan which directly affect the Rupee valuation are also not included in the variables under study. This is because of the time constraints and lack of proper advanced level research skills, which comes into play at later stages of the study program. Furthermore, all the data has been accumulated from secondary sources for analyzing and passing through statistical tests.

2. Literature review

2.1 Literature review

There has been a good deal of research work about the macroeconomic and microeconomic factors relating to exports and imports of a country and its possible implications on the valuation of its currency. Evidences suggest that having ample amount of foreign reserves readily boost up the confidence of exporters, as they feel it as a backup to states economy. When exports increase, it results in increasing the demand for that country local currency, which means the value of that currency increases (appreciation). Theoretical connection between foreign exchange reserves, its volatility signs, macroeconomic variables and other financial determinants of any country are systematically discussed in many research studies, but first-hand investigation shows no such agreement about it because of mixed pattern of results found in those studies.

Take a simple example when there is one hundred paisas fall in the rupees value against the US dollar, which adds Rs one billion to the external debt of one billion dollars. This does not stop here as there is a multiplier effect of any decrease in the Pakistani rupee: it adds Rs 60 billion, to the countrys overall external debt and liabilities of around $60+ billion, as proposed in the accounting standards. If price of exports of Pakistan rises by a smaller proportion than that of its overall imports, the currencys value (rupee) will decrease in relation to its trading partners (the exporting countries)

Zhang, (2000) examined Chinas foreign exchange reforms introduces in mid-eighties and analyzed their overall impact on the balance of trade and inflation rate in China. He found that how Chinese massively increased their exports by devaluing the currency (Chinese yen) intentionally. He maintains that although the prices of commodities in China have increased for local people, but the massive exports has earned hundreds of billions of US dollars for china. Chaudhary and shabbier, (2004) also analyzed that excess demand for money of a country leads to inflow of reserves into that country and excess money supply leads the reserves outflow. On the other hand, the state governments yearly budget deficit leads to superfluous credit expansion. They also argue that the unevenness between money demand and money supply in a country had significantly affected foreign reserves.

In order to achieve internal and external balance, monetary policy could play important role. It means demand for a states currency is finest object for her valuation. However, there are contradictions among researchers about the de-valued currency and exports parameters. Rajan and Pontine, (2011) found that decrease in foreign exchange reserves may devalue the currency, but it also increases the country exports, as a devalued currency is considered a healthy sign for the exporters. Bukhari et al, (2006) also found in their study that currency devaluation prospects had statistically and economically noteworthy descriptive power in knowing the broad economic fundaments of our economy and understanding its trends and behaviors.But, it is a fact that exports of Pakistan didnt witness a sustainable boom in the past, in relation to its continuously devaluing rupee. In economics terms, there should be optimal increase in exports as the currency is falling again and again as against the US dollar, but this is not the case. Chaudhary and Saleem, (2001) found evidences that main reasons behind rupee devaluation are the exports instability (less exports and increase imports), insufficient foreign receipts and ever-increasing burden of external debt. The same phenomena is also observed by Chaudhary and Shabbir, (2002) that unwarranted credit enlargement creates excess of money supply (in other words, inflation) over money demand, which leads to reserve outflows and worsens the balance of payments of a state.

In the economic history of our country, there is only one occasion when the rupee appreciated against US dollar, for the remaining years it is devalued or depreciated against the US Dollar. This caused a temporary boost up of the exports because on the other hand, the price level in the country is increased which takes away the temporary benefits from the boost up of exports. Combes et al, (2011) analyzed the impact of exchange rate flexibility and capital inflows on the actual exchange rate of currencies in developing countries. They concluded that there is direct relationship between public and private inflows of foreign reserves and exchange rate appreciation of a country. Linda and Goldberg, (2013) stated that excess for-ex reserves have opportunity cost, and they become a liability if not properly invested further, for further investing these will boost up economic activities, which is a healthy sigh for exports and currency valuation (Eichengreen, 2012) expressed his fear that dollar and euro are no longer stable international currencies and the world leading economies should set another more reliable standard for exchange rate of their currencies. Domiguez et al, (2013) found evidence that selling of portions of foreign exchange reserves on daily basis can appreciate the local currencies. Ali et al, (2013) investigated the impact of exchange rate, inflation, foreign direct investment and capital stocks on the economic growth rate of Pakistan using ordinary least square method.

Kamal and Ali, (2012) analyzed the balance of trade and its fluctuation due to currency exchange rate volatility in Pakistan. Abbas and Zaidi, (2006) suggest that State Bank of Pakistan should take concrete steps to stabilize foreign exchange reserves in order to hold further devaluation of rupee and inflation rate in the country. It infers that state bank has the authority to determine an optimal level of reserves which could curb the devaluation of rupee. Bushra et al, (2011) found that in between 2002 and 2006, the foreign exchange reserves of Pakistan increased due to excessive aid from her allies in war against terrorism, which proved helpful for the overall economy. Coudert et al, (2012) analyzed a cyclic effect of the currency depreciation, exports, and currency appreciation as well as amassing for-ex reserves. They argue that devaluation of a currency can cause increase in exports, for which there can be an inflow of dollars money into the country, which can drop back the depreciated rupee.

Eatzaz and Ahmed, (1999) goes some steps further and found multifactor causal model for the decrease in the foreign exchange reserves and its ultimate effects on the valuation of rupee valuation. They found in their research work that if the interest/rental rates on debt and foreign capital, growth rates of real GDP, foreign capital, foreign exchange reserves, money supply, price levels and exchange rate, and the parameters characterizing national saving rate and productivity remain unchanged, then the debt crisis in Pakistan will worsen. One of the main motives why countries go to have enough foreign exchange reserves is that the future and economic situation of the world is uncertain. It is a fact that even if the monetary or financial experts could forecast with utter faith, as when foreign receipts and payments would be made due, still they will keep some reserves of foreign currencies.

The financial and monetary authorities knows that the patterns and the amounts of future foreign exchange transactions are in large extent unknown and unpredictable, therefore, this situation compels them to hold and maintain a sizeable amount of balances at all times at their disposal. On the other hand, Javed, Z and Farooq, M (2009) holds the argument that idle reserve money in access has negative impact on economic growth: Storing heaps of dollars without investing it further will not appreciate the local currency, unless it accelerates the exports and cope inflationary tendencies. It seems currency valuation is linked not only with just accumulating foreign reserves but also on further using that money to boom the economy and curb inflation as well as devaluation of the currency.

2.2Research questions

Does foreign exchange reserve have a significant and positive relation with Pakistani rupee valuation (exchange rate)?

Are there any positive and significant effects on Pakistani rupee valuation by exports?

2.3Research objectives

To find out the relationship between Pakistani rupee valuation (exchange rate) and foreign exchange reserves of Pakistan.

To find out the relationship between Pakistani rupee valuation (exchange rate) and exports.3. Theoretical framework

3.1Theoretical frameworkIt is the process of identifying a core set of connectors within a topic and showing how they fit together. It is a collection of interrelated concepts which shows and guides you that what thing is measuring and what statistical relation you will look for. In this study, we use three variables, exchange rate, foreign exchange reserves and exports of Pakistan. Among them exchange rate is our dependent variable while foreign exchange reserves and exports are our independent variables.

After going through a comprehensive literature review these independent variables were selected for our study, because these were also used by other researchers, individually and collectively, in some study separately or combine with other variables in some studies. Here we will try to explore the effects of two important variables foreign reserves and exports on the exchange rate of Pakistani Rupee. The regression analysis was used as an analytical tool.3.2Research model

Independent variable (IVs): Foreign Exchange reserves and ExportsDependent variable (DV): Currency valuation

Foreign exchange reserves

Currency valuation(Exchange rate)

Exports

3.3Hypotheses

H1: Foreign exchange reserve having a significant and positive relation with Pakistani rupee valuation.H2: Exports having a significant and positive relation with Pakistani rupee valuation.3.4Operational definition of foreign exchange reserves

Foreign exchange reserves are currency and non-currency assets of a country, used for payments and as medium of exchange in international trade: International monetary fund (IMF) has recognized four currencies that can be used with liberty, (US dollar, Euro, Pound sterling and Japanese Yen). Non currency reserves are those other than paper currency like gold, crude oil, special drawing rights (SDR), and reserve tranche position (RTP), and euro bonds (Nunn, & Finnerty, 1985; Connel, 2011).3.4.1Operational definitions of exports

The selling of goods and services by one country to another country in exchange of dollar money; goods may be agricultural products, manufacturing goods, merchandise goods, raw materials, or transfer of technology, while services may be technical services, intellectual services and man power (Hussain, 2013; Chaudhry and kiyoshu, 1995; Dorosh et al, 2006; Yousaf et al, 2008; Iqbal and sattar, 2005 ;Khurshaid, 2013)3.4.2Operational definition of currency valuation

The increase in the value (appreciation) or decrease in the value (depreciation) of a currency over a period of time is called valuation of a currency. Appreciation may be due to increase in value of local currency against foreign, when there is capital inflows into the country, when domestic goods are cheaper for foreign exporters, and when employment and per capita income in a country increases. Depreciation of currency is because of increase in the value of local currency, inflation, and decrease in demand for currency, lower interest rate, foreign debts and government borrowings Zhang (2000; Chaudhry & Shabbir, 2002).4. Research design

4.1Research design

Research design shows the overall frame work and road map of a research. It reflects the structure followed during a research study. For this study, the Macroeconomics fundamentals of Pakistan were the population of our study. Among these variables we picked up a sample of three variables, currency exchange rate of Pakistan, foreign exchange reserves of Pakistan, and exports of Pakistan for the last 10 years, and try to explore the effects of two variables, foreign exchange reserves and exports on the exchange rate of Pakistani rupee. The data use in this study is secondary in nature, through this secondary data will try to explore the past embedded pattern and prevailing trend in data. The data will be collected from State Bank of Pakistan, World Bank and IFS (International financial statistics). These two are the most authentic and reliable official sources of data. They have the huge data bases of secondary data which is easily accessible. 4.2 Study type

This study examines a causal relationship between foreign exchange reserves, exports and rupee valuation of Pakistan. The purpose of the study is to analyze the impacts of the exports on the currency valuation, as how increase or decrease in exports causes valuation or de-valuation in the currency of Pakistan. Furthermore, purpose of the study also contends ultimate impact of the increase and decrease in for-ex reserves on the currency valuation. This is a regression analysis of the variables and data has been collected for the variables for the last 10 years.4.3Researcher interference

Researcher interference is minimal. The basic objective of our study is to examine the causal relationship of currency valuation and the impact of two important macroeconomic variables foreign exchange reserves and imports on it. For this purpose we rely on secondary data, thats why we dont have any interference and biasness in the data collection and research process.4.4 Unit of analysis

Our study population consists of overall macroeconomic fundamentals that affect the rupee exchange rate (currency valuation). From that two variables are selected that has deep impact on the currency valuation of Pakistan, i.e. exports of Pakistan and foreign exchange reserves of Pakistan.4.5Sampling design

Sampling is the process of selection of representative data from the population when the entire population is too large and it is difficult for the researcher to select data from the overall population. In our this study we adopt convenience sampling techniques, the main reason for using this method was the easy availability of data and the limited time of research. So the convenience sampling technique was the best option to use. 4.6Time horizonTime horizon is a very important element of research studies, it show the particular characteristics and attributes of the variables in a give specific period of time. In this research we selected the period of 19 year from 1994 to 2012 and get data about our relevant variables on 6 months basis, so we record 20 observations about every variable.

5. Data Analysis

5.1 Testing hypothesis: regression analysis ModelIn statistics, the regression equation is a very important tool for data analysis. Regression is an effective tool when we try to investigate the cause and effects and impact of different variables on each other. General equation for regression analysis isWhere Y represents dependent variable, X represents independent variable(s), is the intercept and is the slope of regression line. Based on the above general equation, our specified equation will berupee valuation = t + f-x reserves 1 + exports 2+ t The basic objective of this study is to investigate the causal relationship between dependent variable that is currency valuation on independent variables which are exports and foreign exchange reserves. Regression analysis will check the validity of hypotheses. Following are the numerical results of our regression analysis which lead us to conclusion.

5.1.1 Descriptive statistics

Table 5.1 Descriptive Statistics

MeanStd. DeviationN

currency valuation.0181.0056319

Forex-reserves8514785998.68425833191659.5987519

Exports15804278807.68426650383307.6223619

First of all, we will discuss about descriptive statistics table in which the values of mean and standard deviation are given. The descriptive statistics table shows that there is very high standard deviation and volatility in each variable, this volatility is a sign of macroeconomic instability in the country which directly or indirectly affect the currency valuation in Pakistan 5.1.2 Correlation

Table 5.2CorrelationRupee valueF-x ReservesExport

Rupee Value1

F-X Reserves-0.7291

Export-0.7620.8811

The correlation table illustrates that there is a very high and strong correlation between the two independent variables, the correlation between dependent and both independent variable is negative which show that there they are moving in opposite direction; as when one get increases, the other tend to decrease. The correlation of Foreign exchange reserves with currency valuation is -.729, while correlation of exports with currency valuation is -.762. On the other hand the correlation of foreign exchange reserves with export is .881 which shows a very strong relationship between these variables.

5.1.3Regression Analysis Summary

Table 5.3Multiple Regression Analysis SummaryVariablesBTP

constant.02710.5441.30855E-08

F-x reserves-2.510E-013-.7730.450882004

Export-4.512E-013-1.5840.132751952

Notes: R2=0.548 , adj R2= 0.542, F(2, 157)=95.175, p