Impact of Currency Exchange Rate on the Stock Markets

Introduction

In this chapter a brief overview of the background of the study is given. The readers will also find the research aim, objectives and the research question with which the present research is carried out. Limitations of the study were also given before ending up this chapter with the structure of the dissertation.

Research Background

The relationship between exchange rates and stock markets has received considerable attention by economists. Both exchanges rates and stock prices play an important and influencing role in the development of a country’s economy (Nieh & Lee, 2011).

 

The relationship between exchange rates and stock markets is an important issue to analyze. Foreign investors and domestic companies may suffer a loss or a profit from changes in exchange rates that may affect stock returns or the other way around.

The dynamic relationship between exchange rates and stock markets may be different in the short-run and long-run and it may not be in line with the theory. The purpose of this research is to critically assess the relationship between the exchange rate and the stock market across the world.

Thus for this purpose, interviews and questionnaire surveys will be conducted. Stock market brokers and investors will be consulted for collecting primary data on how the fluctuations in currency exchange rates have impacted on their stock.

Research Aim :

The aim of this research is to critically assess the impact of fluctuations in currency exchange rate on the stock market.

Objectives :

1. To identify the factors those are responsible for changes in currency exchange.
2. To examine the positive and negative impact due to changes in currency exchange on stock prices, investors and stock markets.
3. To assess the possible tools and solutions for managing such impact
4. To assess the overall impact of fluctuations in currency exchange rates on stock markets.
5. To recommend investors and stock brokers for better risk management from impact of currency exchange rates.

Rationale of the Study

Stock markets and the currency exchange share an interesting relationship. Both of these can impact on the world economy. This research has been carried out to know the impact of currency on the stock market.

It will also uncover the impact of ups and downs of stock market on the currency value. This research is carried to know the underlying factors that can significantly impact on the currency and stock market individually.

This research is carried out to know the role played by prominent currencies on the world economy and also on the exports and imports. The relationship between the stock market and the currency varies based on the economics status of the country.

This research reveals the varying effect of currencies and stock markets in developed and developing countries. The impact of G3 (US dollar, Euro and Yen) currencies on the world economy is also studied in this research.

Limitations of the Study

This study is simply focused on the relationship between the changes in currency fluctuations and its impact on stock markets. This study only explains the reasons for changes in the currency and stock markets theoretically. Statistical or any related models are not used to prove the varying effect of currency on the stock markets. The primary research is limited to the survey results with investors and stock brokers.

Structure of the Dissertation

The first chapter gives a brief detail about the overview of the research background and research purpose. Research aim, objectives and limitations are also presented here.

The next chapter is the literature review. In this chapter, a review of literature and past studies findings related to the changes in currency rates and its impact on stock markets will be done.

The chapter three is research methodology. All the research methods used and their importance will be mentioned in the Methodology chapter. The research onion given by Saunders et al, will be used in this chapter to present this section.

Chapter four involves presentation of data collected through primary data sources and analyzing its using qualitative and quantitative research methodologies.

In the fifth chapter the findings of the chapter four will be further discussed and are linked and compared with the earlier research findings and literature.

The final chapter of this study is conclusion and recommendations in which based on findings, concluding points will be given. Furthermore, some suggestions would be given to the investors and stock brokers based on findings of this research.

Conclusion

This chapter has given only a brief overview of the research background and its purpose. Only brief introduction is given on the currency rate fluctuations and its impact on stocks. A detail review of literature and past findings will be done in the next chapter.