Impact of Exchange Rate Explosive Nature on Trade: Focusing Pakistan

Abstract

The purpose of this study is to measure the effect of exchange rate instability on the Pakistan Trading activities. This study measure the instability of exchange rate and its effects on trade with the help of regression model. The time series data from the year 1980-2013 has been analyzed. The results shows that exchange rate instability has positive direct relation with the trade. It also shows that rely only on one vehicle currency (USD) has adverse impact on trade as well as on investors decision making power. Traders can protect the economy from the adverse affects of exchange rate instability by trading with the developing countries with low income and by using the policy to not rely only on one currency but to use different currencies while trading with other countries. So for that Pakistan has to show more interest in trading with developing countries to protect country from future exchange rate effects.