Crude oil prices and Pakistani Rupee-US dollar Exchange Rate: An analysis of Preliminary Evidence

Abstract

The objective of this paper is to analyze the effects of crude oil price on exchange rate of Pakistani rupee against US dollar, employing  time series data from 1986-2010. The method of simple linear regression models are used for the analysis of the data. The model result indicates that as the price of crude oil increases its imports also increases. In Pakistani foreign exchange market there is increase demand for dollar to import crude oil, which leads to depreciation of Pakistani rupee against US dollar. Some recommendations like increase in domestic production of crude oil, political stability, import of advance technology, and looking for alternative sources of energy have been suggested to avoid depreciation of Pakistani rupee against US dollar.

Key word: Crude oil price, Exchange rate, Crude oil Import