Literature Review of Foreign Exchange Essay Example

style="text-align: justify">* The inception of three international authorities to guard over all foreign transactions. “According to Julian Walmsley, author of The Foreign Exchange and Money Markets Guide” although foreign exchange has existed since before biblical times, a formal global market for foreign exchange did not develop until the 1800s with cable transfers taking place between London and New York. 2.2 Foreign Exchange Trade in Bangladesh

Two issues are investigated that may justify intervention in the foreign exchange market. One is the exchange market pressure and the other is exchange rate pass-through. We find that the exchange rate pass-through effect is high and statistically significant for Bangladesh—87 percent for international price, 95 percent for Indian price. This indicates that a change in international or Indian prices will almost completely translate into a change in domestic prices. Therefore, any depreciation of the taka will lead to an increase in inflation in Bangladesh The results of an error correction model (ECM) suggest that there is a long-run unidirectional causality from exports to growth in Bangladesh.

“Murshed (2000) finds that an increase in remittance by Taka 1 would result in an increase in national income by Tk 3.33.” Remittance constitutes an important source of foreign exchange for the poor countries, which have substantial development impact as can be understood from micro and macro point of view. From macro frontier; remittances are used to make import payments and are used for productive investment by the government (Salim, 1992).

“World Bank (Ali, 1981) identified overseas achieving a favorable balance of payments and as well as creating a new resources base for the country.” In Bangladesh, a significant portion

of overseas earnings is spent for consumption purposes, acquisition of assets, investment in trade and business and to finance import of capital goods. It will positively affects the socio economic condition of migrant families. Some of the early studies (Salim, 1992 and Matin, 1994) focused on the macroeconomic impact of overseas remittances in Bangladesh. Giles and Williams (2000a,2000b) provide an excellent literature review of the ELG hypothesis until the late 1990s. We are investigating consequence of export (X), import (M) and remittances (R) on GDP growth in Bangladesh. No other previous studies looked at ELG with remittance as a variable.