Exchange Rate And Inflation In Pakistan Economy - Free Essay Example

Sample details Pages: 18 Words: 5427 Downloads: 9 Date added: 2017/06/26 Category Statistics Essay Did you like this example? Inflation exchange rate are two main factors of macro-economics. Inflation is an increase in the level of prices of goods services in an economy by the passage of time. Exchange rate is very important factor in economic which impact imports exports of country. Don’t waste time! Our writers will create an original "Exchange Rate And Inflation In Pakistan Economy" essay for you Create order A country does not always want the exchange rate to fluctuate because an exchange rate influences the levels of its imports exports, which are the component of fiscal policy. Policy makers want to hold rate at a particular level or within a certain range in order to achieve given domestic policy goals related to the level of growth of GDP. In the perfect mobility the exchange rate movements and an adjustment of goods market is relative to asset market and consistent expectations. The extends that output responds to a monetary expansion in the short run, this acts as an effect on exchange depreciation which lead to an increase in interest rates (Dornbusch, 1976). There are three types of ways which gives stickiness in prices, the prices set by the firms in that currencies, the firms set the prices for currencies of consumers, or firms set the prices in the currencies of producers (Engel, 2001). When the exchange rates changes, the changes appear in the relative prices and make to generate additional uncertainty for equilibrium in markets. However, there is also defining that the changes in terms of trade play the larger role of changes in the exchange rates which affect the variability of exchange rates (Stockman, 1980). Inflation is one of the key indicators of the country and provides important information on the state of the economy and sound macroeconomic policies that govern it. Inflation is the production of the expenses of manner of things arise which leads to the advancement of the last in the price of meals. For example, if the matter is hardy and this leads to the increment of the price of the production of the costs of increasing, and in turn this leads to increasing prices to keep the crowd his profits. The discretionary nature of the existing monetary policy in Pakistan is inflation, and it is targeting to hit on the Pakistani economy by focusing attention on the monetary policy. So the government of Pakistan is to make monetary policy more transparent for achieving the explicit goal, and decreasing the inflation. Therefore, it is increasing the public understanding of the strategy of central bank to deliver the target, so the State Bank of Pakistan helps to provide an anchor for inflati on expectations in the economy. The State Bank of Pakistan (SBP) has achieving a low rate of inflation in a high priority, and also aims to support the national country objectives of Pakistan to meet the economic diversification and competitiveness in the form of export from the world. 1.2 Problem statement This study is to examine the impact of exchange rate on inflation in Pakistan economy. 1.3 Hypothesis H1: The Exchange rate explains the inflation. 1.4 Outline of the Study The variability of industrial production output higher in the regime of fixed exchange rates instead of regime of flexible exchange rates (Flood Hodrick, 1986). The effect of consumption goods purchases by the government is not the private utility, but per capita real government expenditure are the composite of individual consumption of goods. So notice that the demand of money depends on consumption of goods rather than income and that is the important distinction of closed economies (Obstfeld Rogoff, 1995). Pakistan major import is crude oil which is purchased in dollars. If foreign exchange rate increases, it has increased the cost of oil that has adverse impact on the economy of Pakistan. Inflation is also caused by international loans and the national debt. As nations borrow money, have to deal with the interest that the final prices increase as a way to keep up with debts. The main problem of Pakistan is external debt, which has altered the economic balance. The most immediate effect of inflation is the declining purchasing power of the rupee and its depreciation. This study has been helpful for economic policy makers, foreign investors, economic analysts, business students who are interested in macro-economics studies. This study identifies how two macro-economic factors are related with each other. 1.5 Definitions Variables: For this study the following variables have utilized:- Exchange Rates à ¢Ã¢â€š ¬Ã¢â‚¬Å" Independent Variable: The exchange rates are foreign exchange rate between two currencies. Every country has a foreign exchange market and is one of the largest markets in all countries of the world. It converts 3.2 trillion USD currency conversion. It has two types i.e. fixed and floating exchange rates. Meese and Rogoff (1988), it depends on fundamentals such as money supplies, real incomes, interest rates and inflation. Listen Read phonetically Dictionary View detailed dictionary Inflation à ¢Ã¢â€š ¬Ã¢â‚¬Å" Dependent Variable: Inflation has increased the level of prices of commodity, goods and services in an economy by the passage of time. Price inflation measure is the rate of inflation, the annual percentage change in general price index (usually the Consumer Price Index) over time. Effects of inflation on the economy have manifold and simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and other monetary items over time, uncertainty over future inflation which discourages investment and savings, and high inflation leads to shortages of goods if consumers begin hoarding out of concern that prices increase in the future. Positive effects include a development of economic recessions, and debt assistance by reducing the real level of debt. CHAPTER 2: LITERATURE REVIEW The analysis of the monetary determinants of inflation is of obvious interest for the nations that pursue a policy of inflation targeting. This study focuses on Pakistani economy that is currently following an Inflation targeting approach or did so in the recent past. Currency stability plays an important role for the monetary authorities in this economy. Exception of real money growth rule is included in the estimation of Phillips curves for the four economies Bayesian model averaging (McCallum, 1999). Entrepreneurs seek stability in the course says that keeps the price of imported items from growth due to rupee depreciation, which is not only support the economy in general, but also producers who use huge amounts of imported cases in the production of exportable surplus. Since the start of this fiscal year, while the rupee has lost about 2.5 percent of its value beside the dollar and its depreciation rate is unlikely to accelerate in the coming months due to continued inflow of foreign capital and funds. Also include the support of IMF, partial release of the fund, a coalition of U.S., which is part of its payment obligations by the Friends of Democratic Pakistan, extremely strong inflow of return of foreign workers of portfolio investments and possible raise up in exports and foreign direct investment in the third quarter of fiscal year. The current stability of the rupee has helped to contain imported inflation and the weakening of inflationary expectations. Bankers expect that trend continues throughout this financial year, a national unit is depreciated more than 7.0-7.5 percent during the entire fiscal year, against 19.5 percent last year. Businesses verify that the bankers are the forward currency cover in accordance with this expectation. What Pakistan needs today is not a platform to launch an à ¢Ã¢â€š ¬Ã…“economic revival programà ¢Ã¢â€š ¬? but what people need is an actual à ¢Ã¢â€š ¬Ã‹Å"economic revival.à ¢Ã¢â€š ¬Ã¢â€ž ¢ The main problem of Pakistan is the foreign debt which has risen to unmanageable proportions in the last decade and the repayment of which has created turbulence in external balance of Pakistan to such an extent that it does not meet its minimum necessary development requirements. At present Pakistan cannot survive without fresh borrowings from foreign donor agencies. As emphasized by Choudhri and Hakura (2006), an important policy debate for the contemporaneous monetary and exchange rate policy implementations is to reveal the degree to which changes in exchange rates or import prices impact or pass-through into domestic consumer prices. Presently there are three rates of exchange i.e. the bank rate, the inter bank rate and the open market rate. The overall effect on the foreign exchange rates should not be more than 5 to 6 per cent as the increased inflow of foreign exchange have neutralize the effect of the increased demand of private imports. If the foreign exchange earners and remitters keep on getting a fair exchange rate for earnings, it is visualized that in the next few years exports can touch the $15 billion mark and overseas Pakistani remittances can fetch $5 billion. It was concluded that the exchange rate feed shock on domestic inflation, first at the level of prices of the manufacturer and then the level of consumer prices and the im pact of shocks on the variables of price the various stages of the supply is different. The purchasing power parity theory doctrine means different things to different people. There are two versions of this theory that is called the à ¢Ã¢â€š ¬Ã‹Å"absoluteà ¢Ã¢â€š ¬Ã¢â€ž ¢ and the à ¢Ã¢â€š ¬Ã‹Å"relativeà ¢Ã¢â€š ¬Ã¢â€ž ¢ interpretation. The first version of purchasing power theory calculated as a ratio of consumer goods prices for any country that has tended to the equilibrium rates of exchange. In the second version of relative interpretation the rate of exchange rate have been determined between the two countries and quoted with general levels of prices of two countries. This version amend the international trade theory which have been the part of PPP, in which the non-traded goods (services) has been introduced, but the advantage is greater in regards of traded goods than non-traded goods, because of the assumptions of marginal rates of transformation. The correlation among purchasing power parity and exchange rates provides the international comparison of national incomes and living standards (Balassa, 1964). Lawrence (1976) gave another review of this purchasing power parity theory. It has define two applications in economics, the first application use of the conversion factor to transfer the data in one national way to another. The use of PPP is mainly the body of (index number theory) and applications of GDP that have improved over the years and path breaking studies in the area continue to appear. The second application of PPP did not have the widespread acceptance, which has remained the unsophisticated applications. Stockman (1980) develops the model of determination of prices of goods and exchange rates. The changes in commodity prices due to supply and demand affect the change in exchange rates by purchasing power parity deviations.The changes in exchange rates have failed to resemble the changes in prices of goods, because exchange rates more volatile than prices levels and inflation rates. The study proposes the equilibrium of exchange rates behavior and different international goods that have been traded. This relationship cannot exploited by the government, because greater the changes in terms of trade the larger the changes in exchange rates variability. The deviations from PPP persists that variation of exchange rates more than ratios of price indexes. The results found the two interpretation of the relationship between exchange rates and terms of trade. In the first, the causes that affect the changes in exchange rates also affect the change in terms of trade because prices of goods do not adjust to clear the markets. This interpretation also found in the research of Dornbusch (1976), and Isard (1977), the analysis formally differentiates the system with respect to exchange rates and allow prices to change but not the changing in asset stocks. The interpretation presented the elasticity approach of the foreign exchange market and the relation between the trade and exchange rates. Real supply and demand shocks affect prices and the derived demand of exchange rates. These changes in demand for foreign exchange result the supply and demand shocks and that should affect the equilibrium of exchange rates. In second interpretation the expected rate of change of exchange rates revealed on the forward foreign exchange market. This should be related the anticipated change in the terms of trade and the inflation differentials. A persuasive argument about the level of exchange rates is only associated with not causes of the relative prices changes. Bilson (1985) gives the empirical findings about macroeconomic and flexible exchange rate of the U.S dollar related to PPP theory. From the perspective of this research, the sluggish price adjustment in the commodity markets resulted in increased variability in exchange rates. For the demonstration of result it is important because the instability of floating exchange rate is due to the inherent differences between commodity and foreign exchange markets. The determination of the expected future rate is impossible, because it is more difficult to reject the forward parity condition. The major part of the forward parity is the variation in the premium is due to the forecast. The object of this study is to determine that if the forward parity failed is the cause of instability in the same way that the failure of purchasing power parity. The findings develop that currency risk premium is the important factor relative to floating rate system, and movement in the exchange rate are dominate d by the non speculative activity and it has the adverse effect on world economy. Meese and Rogoff (1983) analyzed the outcome of sample forecasting accuracy on various models. The study estimated the horizons of the dollar with different country currencies, like Dutch mark, Japanese yen, and Britain pound that traded to weight the dollar exchange rates. It has also studied the flexible exchange rates with the monetary models of sticky price, so the model of sticky price, which incorporates the current account. The first model is structural models in which it requires to generate the forecasts of exchange rates and explanatory variables. It contains the explanatory power, but it is predicted badly because the explanatory variables are difficult to predict. The second is the univariate time series model in which it identifies a variety of prefiltering techniques involves differencing, de-seasonalizing and removing time trends. The relative performance of these techniques is of interest in itself. The third model use is the random walk model. It is also linked with this univariate time series model. It is used as the predictor of the current spot rate with the entire future spot rate, and it requires no estimation. In this study the performance of estimated univariate time series models or candidate structural model is no good instead it is worst. From a methodological stand point the view that the outcome of sample model fit is an important criterion when evaluating exchange rate, but the estimation of out of sample is failure with time series models that are well approximated the major country exchange rates. Feinberg and Kaplan (1992) evaluated and interact the real exchange rates index expectations is developed and used to explore the role of determination on domestic producer prices. The fact that time path of the exchange rate has directly affected the input costs, and the price of substitutes strongly. To examine the links between both actual and anticipated movements in the dollar and relative domestic producer prices, it chooses to analyze price responses to real exchange rate changes. The effect is dependent on the nature of substitutability between imports and domestic goods. The major finding is that the period of appreciation and depreciation over the past 10 years to inhibit the pass through in to domestic prices. In depreciation the market share to enjoy the continued good times kept prices other than expected. The theory of optimum currency areas, which is usually presented by the other name called flexible exchange rate system, but it is proponent as a device of depreciation that takes place of unemployment when the balance of payment is deficit and appreciation when it replaces inflation when it is surplus. The problem can be exposed and more revealed by defining a currency area within when exchange rates are fixed. Three answers can be given, first certain parts of the world are going through the process of economic integration, so new experience can be made and what constitutes the optimum currency area can be given the meaning of these experiments. Second those countries that have flexible exchange rates are likely to face problems with the theory of optimum currency areas, so these do not coincide the optimum currency areas with the national currency. Third the idea that illustrates the functions of currencies which have been treated in economic literature, and sometimes neglected in the problems of economic policy. In the currency area, countries with different currencies including national country currencies interact pace of employment in deficit, because there is the haveingness to inflation by the surplus countries. The argument for flexible exchange rate system is based on national currencies, and is valid about mobility of factor, so if it is high in the country and low in the foreign countries, the flexible exchange rates system on home country currencies has to work effectively. The concept of optimum currency area has practically applicable only in those areas, where the state has the political organization in the country. The factor mobility is most considered and is more relative rather than absolute concept, with both industrial and geographical factors. It is likely to change the alterations with time over time in conditions, with the conditions of political and economic stability. Money is the convenience that restricts the optimum number of curre ncies, so in terms of this argument the optimum currency area which is composed in number of countries (Mundell, 1961). In another review, the author defines the stabilization of capital mobility policy under the exchange rates which is fixed and flexible in the currencies markets. It concerns the theoretical and practical approach of the increased mobility of capital. Obstfeld and Rogoff (1995) analyses the global macroeconomic dynamics to supply framework based on competition and nominal prices. The effects of macroeconomic policies on output and exchange rates have not been yet persuaded to abandon. The framework which integrated exchange rates dynamics and current account yields is a new perspective, it realize that when prices are sticky the government should spend on shock raises short run output and long run output. The assumption is that home and foreign government purchases the consumption goods that do not directly affect the private utility, but the per capita real government consumption expenditure is a composite consumption of individual goods. It explains that the composite consumption for the services is to balance the opportunity cost and notice that the money depends on consumption rather than income, that distinction is more important in closed economies. The results of this study develop framework that give new foundations about some of the fundamentals problems in international finance. It realizes that the existing Keynesian model is incomplete to offer a satisfactory treatment of exchange rates, output and the current account, but the model which is used in this study is more complex, because it yields simple and intuitive insights of monetary and fiscal policies. It can be extended in a number of dimensions, including non traded goods, market behavior, government spending, and labor market distortions and so on. It goes beyond the essentially statistical approach that handles the current account and exchange rates issues, most importantly this approach allows to analyze the welfare implications of policies. Melvin (1985) has regarded and focused that how the choice of an exchange rate system can affect the stability of the economy. The appropriate nature of the exchange rate system has differed of the disturbance to the economy. It presented the evidence that indicate that the approach is more consistent according to practice by actual country. The other approach is to reach the desirable price stability, in which some mechanism tells the floating rates superiority has become less in the face of monetary shocks. It finds that the flexibility in exchange rates depends not on openness and less important in the mobility of capital, but its positive effects were found for the economic development. The purpose of this study is to consider the determinants of exchange rates system choice, which indicates the theoretical approach with the country choices. The result found that the choice of an exchange rate system has the role of the disturbance to the economy. It suggests that the money shock s are the key of exchange rate system choice in an economy, in which it seeks to minimize the fluctuations in the country price levels. It also suggests that the greater the price shocks the more is a float, so it affects greatly domestic money shocks. Lothian and Taylor (1996) examine the real exchange rate behavior, and explain the variations in sample of stationary univariate equations in real exchange rates. The study investigates the additional insight in the exchange rates behavior that can be gained by considering the floating rate from the perspective of the data. These issues can be best understood on the subject of real exchange rates stability among the currencies of the major developed countries. Some of the pre-float studies support the fairly stable exchange rates in the long run. Subsequently, Dornbusch (1976), and Frenkel (1981), gave largely as the result of studies published, and reject the hypothesis of random walk performance of real exchange rates. The PPP shows the empirical movements in real exchange rates were highly persistent and effective. Although the PPP is reject the hypothesis of non-stationary behavior of exchange rates in long run. The result of this study shows that the longest span of two countrie s exchange rates are significantly mean reverting. The first model result indicates the 80 percent of the variation in the exchange rates of the history data of two countries. By using of another model, the results explaining the performance of remarkably well in the floating, so that this model produce better forecasts of the actual exchange rates. In line with recent studies, it fined that this process of mean reverting is quit slow, with estimated adjustment of data. In the long run the PPP equilibrium is remaining a useful empirical approximation. Gerlach (1988) examine the dynamic interrelationship between innovations in monthly industrial production in a set of economies, specifically this study attempt the output fluctuations that have been correlated during the periods of fixed and flexible exchange rates. The current has to manage exchange rates flexibility that has reduces the interdependence across countries. It should follow the recent article of Flood and Hodrick (1986) in which it is argued that the variability have been higher during a regime of fixed exchange rates instead of flexible exchange rates, but the conclusion of author is striking so sharply. The results of this study of multiple country output movements under fixed and flexible exchange rates are clear. The variances of growth rates should be higher in the flexible exchange rates and in the fixed exchange rates periods. These variances are statistically significant related to the degree of openness and national income. Thirdly the output movements are co rrelated across countries under exchange rate regime, particularly the co movements in output are more important in the business cycle frequently during the recent years of managed exchange rates flexibility. CHAPTER 3: RESEARCH METHODS 3.1 Method of Data Collection The Data of Consumer price index (Inflation) has been collected from federal bureau of statistics while the data of exchange rate has been collected from Pacific Exchange Rate Service, both are the secondary, published source of data. 3.2 Sampling Technique The sampling technique that has been applicable is à ¢Ã¢â€š ¬Ã…“convenience samplingà ¢Ã¢â€š ¬? as it is easily accessible to collect the relevant information from the source and it is inexpensive and hence, gets a gross estimate of the results. (What is The Advantage of Convenience Sampling, 2007-2010). 3.3 Sample size The sample size is selected on the basis of limitations and scope of the research therefore, Last 54 years i.e., 1947 à ¢Ã¢â€š ¬Ã¢â‚¬Å" 2010, data of inflation and exchange rate is decided to be examined. 3.4 Research Model developed From the above defined and explanations of both the dependent i.e. inflation and independent i.e. exchange rates variables and also discussing the effects of exchange rate on inflation and how it have affects on economic of a country. In this study first analysis is the correlation between these two variables, and identifies the significant relationship. Then it analyzes and evaluates the empirical investigation in regression model as a statistical tool. The simple regression model which can be defined in the equation that represented below: Inflation = ÃŽÂ ²Ãƒ Ã‚ ¾ + ÃŽÂ ²(exchange rate) + ÃŽÂ µ Whereas, ÃŽÂ ²Ãƒ Ã‚ ¾ = the intercept of the equation. ÃŽÂ ² (exchange rate) = the changing coefficient of exchange rate. ÃŽÂ µ = the error term of the equation. From the above explained model, the study develop the following estimation and used for the establishment of the model. Therefore, all the compatible data has entered in to SPSS for statistical analysis. 3.5 Statistical Technique The statistical test that has been applied is single linear regression. This is because only one independent variable and one dependent variable to be used in this research. Frankel (1979) defined that most of the recent work on floating exchange rate goes under the name of the monetary or asset view. The exchange rate is moving to equilibrate the international demand for assets, rather than the international demand for the flow of goods. But with the asset view there is à ¢Ã¢â€š ¬Ã‹Å"Chicago Theoryà ¢Ã¢â€š ¬Ã¢â€ž ¢ in which assumes that prices are perfectly flexible. As the consequences when nominal interest rate changes, it has also reflect the changes in expected inflation rate, so as the domestic currency expected to lose value through inflation and depreciation. This is the rise in the exchange rates and gets the positive relationship between positive exchange rate and inflation. CHAPTER 4: RESULTS 4.1 Findings and Interpretation of the result The simple linear regression technique is used to determine the explanation of dependent variable i.e. inflation due to independent variable i.e. exchange rate. The analysis of the result is defined below: Table à ¢Ã¢â€š ¬Ã¢â‚¬Å" 4.1 Model Summary Model R Square Adj. R Square F Sig. 1 .226 .211 15.207 .000 The table à ¢Ã¢â€š ¬Ã¢â‚¬Å" 4.1 shows that the regression model is best fit to predict as F test value is significant. The variation of regression model is explained by 22.6% i.e. the change in inflation is 22.6% by the exchange rate. Table à ¢Ã¢â€š ¬Ã¢â‚¬Å"4.2 Coefficients Model Un-standardized Coefficients Standardized Coefficients T Sig. B Std. Error Beta 1(Constant) Exchange Rate 121.725 .794 6.887 .204 .476 17.673 3.900 .000 .000 Table à ¢Ã¢â€š ¬Ã¢â‚¬Å" 4.2 the coefficients results show that there is the positive affiliation between exchange rates with related to inflation in Pakistan. The results reflect that the exchange rates beta has the positive value and the T-value of both the variables is significant statistically at 0.05. From the above applied regression model, the result concludes in the way that it explains the relationship of both the dependent and independent variables significantly. The Inflation and exchange rates result shows that the beta value of the variable and T-value is significant at the 0.000 level. So the results conclude that the exchange rates value should significantly play its role in the relationship with related to inflation, but the exchange rates should not individually play a significant role in the relationship with inflation. The hypothesis is not rejected and that the exchange rate explains the inflation by 22.6%. The equation of regression model is written below: Inflation = 121.725 + 0.794 (exchange rate) + ÃŽÂ µ 4.3 Hypothesis Assessment Summary Hypothesis R Square F Sig. Regression Coefficient ÃŽÂ ² T Empirical Conclusion Exchange rate explains inflation. .226 15.207 P 0.05 .794 3.900 Accepted The hypothesis of this study is that exchange rate explains the inflation, which is being accepted and exchange rate is explaining inflation by 22.6%. These findings support to recent theories that suggested the foreign exchange market efficiency with the existence of risk at equilibrium. Wihlborg (1982) examined the relation of interest rates, exchange rate and currency risks in this study. It identifies the test which empirically shows the impact of currency on interest rates and exchange rates. In this study there are three different ways in which the importance of currency risks for interest rate and exchange rate determination. The results presented here that substantiate the changes in the level of currency risk have a non-negligible impact on the changes of exchange rates and on rates of interest of relative between currencies. CHAPTER 5: CONCLUSION, DISCUSSIONS, IMPLICATIONS AND FUTURE RESEARCH 5.1 Conclusion This study is concluded to examine the dependency of exchange rate on inflation by using the data of consumer price index (CPI) as inflation and the data of exchange rate on yearly basis. The result of this study is highly significant so that the hypothesis of this study is not rejected. The result shows that 22.6% variation in inflation is due to the exchange rate in Pakistan. The analysis of this study also shows that if exchange rate becomes zero, the inflation exist to some extent. For example, if one unit of exchange rate increases, the inflation increases only by 0.794 times. 5.2 Discussions This study has applied exchange rate as independent variable and consumer price index (CPI) as dependent variable. For the availability of data, all the data should be available on daily monthly and yearly basis, but the data is used in order to consistent as yearly basis. The regression model has been formulated for these variable relationship investigations. The study developed the hypothesis that the exchange rate explains the inflation in Pakistan, and the findings are supported by the analysis done by Balassa (1964), Meese Rogoff (1983), Frankel (1979), and Mc Callum (1999) etc. 5.3 Implications and The result also accompanies that the exchange rates are the strength of character of foreign exchange market in Pakistan, and it should effect on each of the related variables as an inflationary basis. Therefore the State Bank of Pakistan and Government officials should realize the role of exchange rates in the economy and try to maintain exchange rates to stop or decrease the consumer price index in Pakistan, so that the price range of every thing should be in range of common men. Also Government should address the issues that why exchange rates increasing, and why the consumer price increases due to foreign exchange volatility. If the Government takes effective actions against these issues so it can also facilitate the investors to gain confidence in the foreign exchange market and local currency value is strong from other foreign currencies. This has turned Pakistani currency to be stronger, and which has boost the economic growth. 5.4 Future Research In this study, only exchange rate is taken to predict inflation in Pakistan. But in the country like Pakistan inflation is predict by the various variables like interest rate, money supply, foreign trade and so on. So in the future research other variables should be included. Chapter 6: REFERENCES Balassa, B. (1964). The Purchasing Power Parity Doctrine: A Reappraisal. The Journal of Political Economy, 72, 584-596. Choudhri, E. U., Hakura. D. S. (2006), Exchange Rate Pass-Through to Domestic Prices: Does the Inflationary Environment Matter? Journal of International Money and Finance, 25, 614-639. Dornbusch, R. (1976). Expectations and Exchange Rates Dynamics. The Journal of Political Economy, 84, 1161-1176. Engel, C. (2001). Optimal Exchange Rate Policy: The Influence of Price Setting and Asset Markets. The Journal of Money, Credit and Banking, 33, 518-541. Feinberg, M. R., Seth, K. (1992). The Response of Domestic Prices to Expected Exchange Rates. The Journal of Business, 65, 267-280. Flood, P. R., Hodrick, J. R. (1986).Real Aspects of Exchange Rates Regime Choice with Collapsing Fixed Rates. The Journal of International Economics, 21, 215-232. Forex Rates, Charts and Currency Converter from September 2001 to May 2008. Retrieve from, https:// www.Forex.pk. Frankel, A. J. (1979). On the Mark: A Theory of Floating Exchange Rates Based on Real Interest Differentials. The American Economic Review, 69, 610-622. Gerlach, S. (1988). World Business Cycles under Fixed and Flexible Exchange Rates. The Journal of Money, Credit and Banking, 20, 621-632. Frenkel, A. J. (1973). Elasticities and the Interest Parity Theory. The Journal of Political Economy, 81, 741-747. Khan, Ashfaque H., Qasim, M. A. (1996). à ¢Ã¢â€š ¬Ã‹Å"Inflation in Pakistan Revisited,à ¢Ã¢â€š ¬Ã¢â€ž ¢ The Pakistan Development Review 35:4 Part II (Winter 1996), 747 à ¢Ã¢â€š ¬Ã¢â‚¬Å" 759. Lothian, R. J., Taylor, P. M. (1996). Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries. The Journal of Political Economy, 104, 488-509. Meese, A. R., Rogoff, K. (1983). Empirical Exchange Rates Models of the Seventies: Do they fit out of Sample? The Journal of International Economics, 14, 3-24. Melvin, M. (1985). The Choice of an Exchange Rate System and Macroeconomic Stability. The Journal of money, Credit and Banking, 17, 467-478. Mundell, A. R. (1961). A Theory of Optimum Currency Areas. The American Economic Review, 51, 657-665. Obstfeld, M., Rogoff, K. (1995). Exchange Rates Dynamics Redux. The Journal of Political Economy, 103, 624-660. PACIFIC Exchange Rate Service https://fx.sauder.ubc.ca. Report Document available on the web in publication by State Bank of Pakistan Library, identified in State Bank Research Bulletin, federal bureau of statistics, and State Bank Annual Reports. Retrieve from https:// www.SBP.org.com. Stockman, C. A. (1980). A Theory of Exchange Rate Determination. The Journal of Political Economy, 88, 673-698. Whilborg, C. (1982). Interest Rates, Exchange Rates Adjustments and Currency Risks: An Empirical Study, 1967-75. The Journal of Money, Credit and Banking, 14, 58-75.

Walmart vs Target Financial Analysis - 5129 Words

FINANCIAL ACCOUNTING REPORT – TEAM 8 CASE ANALYSIS OF WAL-MART INC AND TARGET CORPORATION SUBMITTED BY: Amaresh Chandra Panda K H Gupta Mehul Shah SNDS Ramanish Sadhu Upasana Patra Table of Contents EXECUTIVE SUMMARY ....................................................................................................................... 2 RATIO ANALYSIS ................................................................................................................................ 2 PROFITABILITY RATIOS....................................................................................................................... 2 NET MARGIN†¦show more content†¦RATIO ANALYSIS PROFITABILITY RATIOS NET MARGIN Net Margin is the ratio of net profits to revenues of a company. It is used as an indicator of a company’s ability to control its costs and how much profit it makes for every dollar of revenue it generates. 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Self-Audit on Leadership Theories-Free-Samples-Myassignmenthelp

Question: Discuss about the Self audit on Leadership theories. Answer: Introduction: Leaders can be defined as the individuals who develop the capability to guide a team of subordinates in way that motivate them to work beyond their capabilities and hence meet the organizational goals successfully (Zhu et al., 2016). They have the capability to engage with the employees in a way by which they can effectively participate in feedback sessions with the employees sharing their concerns and helping them to overcome barriers. Researchers are of the opinion that effective leadership has many positive impacts on the employees in the workplace. They help in development of the employee morale and influences employee dedication to the organization. Employees feel satisfied with their job and do not burn out easily under the guidance of the employees (Banks et al., 2016). Moreover, it also helps in employee retention as employees feel that the organization care for them. They also get the scope to learn important things that helps them to enhance their career and develop their k nowledge in their fields making them expect in their working domains. Therefore, expert leaders can help in preparing the employees for overcoming the barriers both mentally and emotionally which prevents them from feeling burned out or stressed (McCleskey, 2014). Leaders help the organization to reach its objectives by providing focus and thereby driving the team forward, empowering the team members for working their full potential, taking responsibility for decision-making and others (Rouche, Baker Rose, 2014). Therefore, this assignment will show how the theory of transformation leadership helps in developing the organization towards betterment and will depict two of my experiences that had helped to develop my leadership traits effectively. Expert named James McCregor Burns in the year 1978 first developed transformational leadership. Researchers have since then supported the application of this leadership in every organization as it had brought out the best outcomes both in terms of organizational productivity and in terms of development of workplace climate. The expert Bernard M Bass further developed the concept of this leadership style where he based the style of leadership on the model of integrity as well as fairness (Dong et al., 2017). It helps the leaders to set clear goals for the employees and has high expectations or the employees to meet the goals. The leaders mainly help the employees to meet the organizational goals by encouraging others, providing support and recognition by stirring the emotions of people. Such leader inspires the employees to look beyond their self-interest and motivates them to reach for the improbable. Researchers are of the opinion that four important aspects remain associated with t his form of leadership (Breevaart et al., 2014). Individualized consideration is one of the aspects. This aspect mainly describes the ability of the leaders to meet the needs of each individual follower and thereby act as a mentor or a coach to the subordinate. They listen to the needs, require of the followers, and provide them with empathy and support (Gorman Messal, 2017). They respect the subordinates and always keep communication open with the employees by effective feedback sharing. They also celebrate the contribution of each of the followers in the teamwork and encourage them in ways by which employees develop will and aspirations for self-development. Thereby, subordinates develop intrinsic motivation for the tasks. The second aspect of the transformational leadership is the intellectual stimulation. This is the way by which transformation leaders develop the capability to challenge the assumptions and even take risks and solicits the ideas of the followers (Schimmt et al. , 2016). A leader of this style is seen to stimulate as well as encourage the creativity of the followers, thereby nurturing and developing people who think independently. Such leaders put huge significance on learning and consider taking unexpected situations as the opportunities for the subordinates to learn. The subordinates are influenced to think deeply, ask questions and develop better ways for executing their tasks (Frieder, Wang Oh, 2018). The third important aspect is inspirational motivation. Researchers are of the opinion that transformational leaders have the capability to articulate a vision effectively that appeals and inspire the followers largely. Such leaders are seen to engage in inspirational motivation that challenge the followers to meet high standards along with communicating with the followers about the future goals and ensure that they provide meaning for the task. Such leaders put importance to development of strong sense of purpose for the employees to meet their goals and this gives them the energy to drive the group forward (Qu, Janssen Shi, 2015). Such leaders have high skills of communication that makes the vision understandable, powerful yet precise and engaging. The main benefit of this aspect is that the followers become more willing to invest more efforts in their tasks. They remain highly encouraged as well as optimistic about the future and thereby believe in their abilities. The fourth aspect of this leadership style is called the idealized infl uence. The leaders themselves try to act as the best example about what they deserve from the employees (Van et al., 2014). This makes the subordinates develop an understanding about the skills and knowledge necessary for them to comply with the organizational culture and the patterns of working that help to gain high productivity and ensure job satisfaction. The role model ensures high ethical behavior, instilling pride, gaining respect as well as pride. Recent day leaders are facing severe, challenge where they cannot develop managerial effectiveness by absence of certain skills of the employees like proper time management, strategic thinking, decision-making, prioritization, getting up to speed with job so that they can be more effective at work (Mittal Dhar, 2015). Many of the employees possess negative behaviors and thereby been extrinsic motivators as salary, incentives as well as work flexibilities cannot ensure them to be motivated. Leading huge team and guiding change are also some challenges faced by leaders. Lack of honest feedback and lack of emotional intelligence among the employees are also barriers to high productivity in workplace. Therefore, in order to overcome the challenges, the four aspects of transformational leadership is highly successful by effective mentoring, communication skills, leading by example, engaging in corporate learning, guiding them in their difficulties and attaching them on an emotional levels (Boehm et al., 2015). The leaders should put focus to certain important strategies that will ensure development of high productivity work output in every organizations. Therefore, leaders who would be adopting the transformational leadership style should make sure that they develop a challenging as well as an attractive vision along with the team of employees and thereby tie the vision with the strategy for its achievement. Moreover, they should develop the vision and thereby specify and translate it to other actions. They should express confidence, optimism as well as decisiveness about the vision and its implementations. They should also take the initiatives to develop small planned steps for the employees and thereby develop success in the path for its implementation. There are a number of benefits for this type of leadership style on the working climate. This form of leadership helps in developing exceptional people skills through effective motivation that helps to complete assignments successfully. I t increases employee morale and job satisfaction that thereby makes the employees feel that organizations are indeed thoughtful about their career advancements and thereby reduces turnover and increases retention. One of the most important advantages of this form of leadership is that this becomes highly suitable for the times of organizational changes (Muenjohn Armstrong, 2015). Such leaders are able to respond to ever-changing needs of the organization as well as the team. They can empower the employees to participate and adapt themselves to the new changes in the organization by realizing their full potential. Researchers have stated that transformational leadership is excessively helpful for organizations where changes are required like those organizations that are outdated and requires severe retooling. Corporate learning is one of the domains where transformational leadership is highly advantageous. Moreover, it was also seen that such leadership brings effectiveness to staff when he engages in corporate learning improving the skills and knowledge of the existing employees and thereby equipping new employees for productive work (Mittal Dhar, 2015). Experiences: One of a negative experience that I had during my placement years had helped me develop an insight about the importance of leadership traits in leading a team. During the placement, I was given the opportunity to lead a team of fresher who had been appointed as interns in the organization. I had to complete an assignment with the help of teamwork. This was my first leadership opportunity but I was quite confident about my knowledge and skills. After assigning the tasks to each of the team members, two of the members came towards me and tried to suggest that they would like to swap their work, as that would help the team to meet the deadlines. Moreover, another of the member suggested me to conduct the team meeting as that would help in meeting the goals effectively without resulting in overlapping of the work. Another individual came to me for feedback on a presentation that she had prepared for the final day. However, as the time was quite short and the deadline was near, I cut them short and asked them not to waste any time on suggesting me and rather concentrate on the jobs assigned to them. I thought these would help them to learn to face challenges of working in short deadline. However, although the project did not fail entirely but the quality of work was very poor and the work of each of the members did not align with that if the other members which reflected improper teamwork. Moreover, many of the employees were suffering from poor morale, were emotionally down, and stressed on the work floor. One of them was even thinking of leaving the organization. My mentor called me and advised me to find out the cause of failure and such low morale of employees. To these I came to realize one of the most important aspects that was completely missing from my leadership. This aspect is effective feedback giving and receiving. I did not entertain the suggestions that were made to me by the employees. If I had put significance to the suggestions, the quality of the w ork might have been better by several folds. Moreover, as I was cutting down the feedbacks of the employees midway, they felt disrespected and their ego was hurt. They felt that they are junior to me in position; they had no right to suggest and provide feedbacks in the team. This made them feel that they had not been accepted in the organization and therefore these affected their employee morale. Moreover, they also felt that i was unsupportive to them in their decisions that made them feel that they would never get any help from me in the future. Hence, I should have followed the traits of proper transformational leadership and should have conducted frequent meetings of feedback exchanging sessions that could have developed the quality of the project by the amalgamation of the ideas of my subordinates. This teaching helped me to develop my communication skills and incorporate this aspect as one of the most unimportant criteria in my leadership abilities. Once in my university years, I was placed in an organization for my internship where I had to lead a team of five members and groom them for making them perform better quality work. My mentor said that they are quite negative in their behavior as they are low on morale and think that they can never develop the skill properly. When I heard, that they are negative in their attitude, I developed a feeling that I need to be strict by them if I want them to develop their capabilities. Therefore, from the very beginning I incorporated autocratic leadership style. I took the authority to make decisions and did not consult them while taking the decisions. I took all the decision and dictated them of all the work methods as well as the processes. Although, they tried to interact with me and provide suggestion, I did not listen to them. I could not trust them at all and thereby instructed them their job roles and did not allow any feedback. I provided them a highly structured work method that was rigid. I told them clearly that rules would be very important for working in my team. I clearly outlined the rules and instructed them to abide by them. I made decisions on my own behalf and only allowed my choices to be put to implementation. Therefore, the entire result of my leadership style was very negative as not only the negative attitudes of the employees became more negative but the project also failed. I realized that such autocratic traits had made more destruction to the morale of the employees. They were not satisfied with their jobs and they became confirmed that the organization do not care for them in anyway. Had I allowed them to exhibit their skills and thereby helped them to identify the loopholes and transform them in better professionals, the entire project would have not felt. They lost their self-esteem and confidence on their own abilities and could not share their concerns and issues that they were facing while conducting the tasks. They burned out easil y and could not maintain proper emotional stability required to work properly fir meeting the goals. The rationale of my choosing autocratic leadership style proved me wrong and my mentor stated that I should have been more empathetic towards them and tried to transform them with proper corporate learning an developing their skills and knowledge by effective corporate learning. Hence, from this experience, I learnt that autocratic leadership traits can never be applied in such situations where change is required. It is only required in times of crisis and hence I made a mistake by applying this style. Conclusion: From the entire discussion, it becomes quite clear that transformational leadership is one of the most important leadership that needs to be taken up by every leader in the 21st century. Four important traits are important for this form of leadership like the intellectual stimulation, individualized consideration, idealized influence as well as inspirational motivation. Such aspects ensure employees to be high on morale. It also increases job satisfaction as employees feel that they are understood and their leaders share their emotions. This leadership style also helps in development of the career of the employees by engaging them in corporate learning as well as development of skills and knowledge. Such style influences effective feedback sharing sessions that make employees feel that they are cared and wanted by the organization that increases their dedication towards the organization. Employees are highly motivated, which make them work beyond their potential and thereby help them to achieve organizational goals with much ease. Autocratic leadership style is now highly criticized as it does not influence employee engagement. Transformational leadership is therefore advised for all leaders to take up for effective leading and management. References: Banks, G. C., McCauley, K. D., Gardner, W. L., Guler, C. E. (2016). A meta-analytic review of authentic and transformational leadership: A test for redundancy.The Leadership Quarterly,27(4), 634-652. Boehm, S. A., Dwertmann, D. J., Bruch, H., Shamir, B. (2015). The missing link? Investigating organizational identity strength and transformational leadership climate as mechanisms that connect CEO charisma with firm performance.The Leadership Quarterly,26(2), 156-171. Breevaart, K., Bakker, A., Hetland, J., Demerouti, E., Olsen, O. K., Espevik, R. (2014). Daily transactional and transformational leadership and daily employee engagement.Journal of occupational and organizational psychology,87(1), 138-157. Dong, Y., Bartol, K. M., Zhang, Z. X., Li, C. (2017). Enhancing employee creativity via individual skill development and team knowledge sharing: Influences of dual?focused transformational leadership.Journal of Organizational Behavior,38(3), 439-458. Frieder, R. E., Wang, G., Oh, I. S. (2018). Linking job-relevant personality traits, transformational leadership, and job performance via perceived meaningfulness at work: A moderated mediation model.Journal of Applied Psychology,103(3), 324. Gorman, C. A., Messal, C. A. (2017). Inspiring the Helpful Self: How Transformational Leadership Motivates Organizational Citizenship Behavior. McCleskey, J. A. (2014). Situational, transformational, and transactional leadership and leadership development.Journal of Business Studies Quarterly,5(4), 117. Mittal, S., Dhar, R. L. (2015). Transformational leadership and employee creativity: mediating role of creative self-efficacy and moderating role of knowledge sharing.Management Decision,53(5), 894-910. Mittal, S., Dhar, R. L. (2015). Transformational leadership and employee creativity: mediating role of creative self-efficacy and moderating role of knowledge sharing.Management Decision,53(5), 894-910. Muenjohn, N., Armstrong, A. (2015). Transformational leadership: The influence of culture on the leadership behaviours of expatriate managers.international Journal of Business and information,2(2). Qu, R., Janssen, O., Shi, K. (2015). Transformational leadership and follower creativity: The mediating role of follower relational identification and the moderating role of leader creativity expectations.The Leadership Quarterly,26(2), 286-299. Roueche, P. E., Baker III, G. A., Rose, R. R. (2014).Shared vision: Transformational leadership in American community colleges. Rowman Littlefield. Schmitt, A., Den Hartog, D. N., Belschak, F. D. (2016). Transformational leadership and proactive work behaviour: A moderated mediation model including work engagement and job strain.Journal of occupational and organizational psychology,89(3), 588-610. Van Dierendonck, D., Stam, D., Boersma, P., De Windt, N., Alkema, J. (2014). Same difference? Exploring the differential mechanisms linking servant leadership and transformational leadership to follower outcomes.The Leadership Quarterly,25(3), 544-562. Zhu, W., Avolio, B. J., Walumbwa, F. O. (2016). " Moderating role of follower characteristics with transformational leadership and follower work engagement": Corrigendum