This chapter contains the sum-up for the research consequence, treatment of major determination and deduction of the survey. The first subdivision provides the sum-up for the research consequence which is generated in chapter 4 and account of the major determination in the survey. The 2nd subdivision will show deduction of the survey which utile for policy shapers and investors. The last subdivision discusses the restriction of the survey and recommendations for future research workers.
5.1 Summary of Statistical Analysis
The diagnostic trials show that the theoretical account in this survey is free from multicollinearlity and heteroscedasticity job. Furthermore, the arrested development theoretical account in the survey is right specified and the error term is usually distributed. However, autocorrelation job exists in the arrested development theoretical account. Gujarati ( 1995 ) province that, it is indispensable to prove the stationary of the variables if wish to analyze the relationship between the variables. The appraisal consequence will go meaningful and equal if all the variables are stationary since non-stationary series provide specious arrested development consequence. Hence, two types of unit root trial – Augmented Dicky Fuller ( ADF ) Phillip Perron ( PP ) will be employed in this survey in order to analyze the stationary of the variables. The ADF and PP trial consequence shows that all the series are integrated of order one [ I ( 1 ) ] except for foreign direct investing which remains as non-stationary in 1st difference tendency and intercept in ADF trial. After running unit root trial, Ordinary Least Squares ( OLS ) will be applied in the survey in order to analyze whether there is a important relationship between the dependant variable and independent variables. The OLS consequences based on the 10 % of important degree, indicate that foreign direct investing ( FDI ) , involvement rate and trade balance are important against the foreign exchange rate in Malaysia. However, the consequence shows that rising prices rate is undistinguished against the foreign exchange rate in Malaysia. Last, Johansen co-integration trial will be employed for happening long term relationship and Granger causality trial to analyze the short term dynamic linkage. The long tally relationship among five variables viz. Malaysia ‘s foreign exchange rate, foreign direct investing, rising prices rate, involvement rate and trade balance have been examined by Johansen co-integration trial which suggest that there is merely one co-integrating vector. The consequence of Granger causality shows that there is bidirectional Granger causality relationship between exchange rate and trade balance but the survey found no bidirectional Granger causality relationship between exchange rate and rising prices rate.
Discussion of Major Findingss
In Malaysia, FDI acts as important function in fabrication industry which produce exporting merchandises as the industry development growing chiefly derive from FDI. Besides that, the economic system besides leans on the foreign fund as a major beginning of proficient accomplishments, modern engineering and capital. ( Shahrudin, Yusof and Satar, 2010 ) .
OLS consequence in the survey show that chance of FDI is important at 10 % degree and there is a positive relationship between FDI and exchange rate. The OLS consequence is consistent with Shi and Takagi ( 2011 ) which states that FDI influxs will be increased as the comparative profusion of foreign investors would lift when there is a depreciation of host state currency and the costs of inputs will fall in footings of beginning state currency, leting them to finance more of the investing internally.
Besides that, the 2nd factor that increases the FDI influxs is the production costs. The depreciation of host state will cut down the production cost in host state comparative to foreign production costs. The devaluation will give comparative advantage for those labor-intensive industries as their labor cost is lower than foreign labour cost and beef up its fight in pulling FDI. In add-on, the devaluation reduced monetary values of capital such as land will promote foreign houses to get it. The wealth and production costs consequence derived from devaluation is merely excessively big to be ignored particularly for a transnational company which is engaged in planetary outsourcing.
The OLS consequence obtain from the EView found out that chance for rising prices rate is undistinguished at 10 % of important degree and it concludes that the rising prices rate is undistinguished to explicate the Malaysia ‘s foreign exchange rate. This consequence sustains with Anaya ‘s research ( 2000 ) which concludes that rising prices rate has no important relationship correlated with the exchange rate within and across states of Latin America.
Hossain ( 2002 ) argues that there is no relationship exists between rising prices rate and exchange rate based on the monetarist literature. The authoritative monetarist preparation province that “ rising prices is ever and everyplace a pecuniary phenomenon ” indicates that an extra money supply is the primary beginning of rising prices. Devaluation is non considered as an exogenic policy instrument but instead a inactive response of the pecuniary governments to rising prices.
The OLS consequence indicates that chance value for involvement rate is important at 10 % of important degree and has negative relationship with foreign exchange rate. The consequence was supported by Cho and West ( 2003 ) which found that exogenic addition in involvement rates will take the exchange rate grasp in Korea and Philippines.
The higher domestic involvement rate will pull a capital influx when the domestic involvement rate rises comparative to the foreign involvement rate and will do the domestic currency to appreciate instantly. In other word, the negative relationship indicates that high domestic involvement rate will do beads in foreign currency value.
Meanwhile, there is a positive relationship between trade balance and exchange rate based on the OLS consequence. The consequence lucifers with with Arize. A. C ( 1994 ) which conclude exchange rate in 9 states in Asia is important and positive to merchandise balance country.
A state may devalue its currency in order to derive international fight and better its trade balance. As the currency devaluate or depreciate, exports will increase as the merchandises become cheaper compared to foreign state. However, the imports will be affected due to its comparatively expensive monetary value. Thus, trade balance is enhanced.
It is hard to reason that there is a long term relationship exist between exchange rate and 4 macroeconomic variables as Johansen co-integration trial suggest that there is merely one co-integrating vector existed. In contrast, the consequence of Granger causality shows that there is bidirectional Granger causality relationship between exchange rate and trade balance. In this instance, the research survey can reason that exchange rate and trade balance will impact each other. The trade balance will impact the motion of exchange rate if we compare the spread between the volume of export and import. For illustration, when a state is holding trade excess which exports transcending import, the state ‘s currency value will increase as demand for the state ‘s currency is increased. Meanwhile, a state might besides devalue their currency in order to qualify the trade balance. On the other manus, Granger causality trial besides shows that there is independency between exchange rate and rising prices as there is no Granger causality in any way among these two variables. This consequence is consistent with OLS consequence which states that the rising prices rate is undistinguished to explicate the Malaysia ‘s foreign exchange rate.
Deductions of the Study
The consequence of this survey provides a better apprehension to investors and authorities policy shapers to cognize more about the fluctuation of exchange rate in Malaysia. Through this survey, investors and policy shapers will hold more information to understand the consequence of each independent variable in this research paper.
In this survey, each of the independent variable gives utile information to investors, authoritiess, Bankss, transnational company, particularly who participate in international minutess. Once the dealing involves any foreign exchange activities, it will assist the international investors, bankers and authoritiess to hold better penetration about the motion of involvement rate, trade balance and foreign direct investing. By mentioning to the independent variables fluctuation against foreign exchange rate, investors and policy shapers can hold an early bar on the fluctuation of exchange rate every bit good as maintain the foreign exchange rate against state ‘s exchange rate. For case, transnational company might utilize fiscal derived functions to fudge the foreign exchange rate hazard in order to cut down the hazard of a alteration in exchange rate which has a negative impact on the investors and transnational companies ‘ expected incomes. Financial derived function is one type of instrument to transform the hazard to 3rd parties. Investors might be able to garner those related information such as the motion of involvement rates, balance of payment and foreign direct investing with a careful planning to minimise their capital losingss ensuing from exchange rate fluctuations.
Furthermore, by holding this cognition in head, investors and policy shapers are able to cognize the three effects of independent variable and allow themselves to cut down the negative impact of fluctuation foreign exchange rate in Malaysia. Investors can mention to the information to make up one’s mind whether or non to come in into foreign exchange market.
Restriction of the Study
First of wholly, there are some restrictions in the research that affect the research consequence. One of the jobs encountered in this research survey is the information handiness. Most of the research worker who conducted the short and long term relationships between exchange rate and independent variables has employed quarterly informations as compared to one-year informations that this research survey have conducted. Therefore, the sensitiveness between the spreads might bring forth a specious consequence within the empirical consequences.
Second, the figure of independent variables which include in the research may non be tested comprehensively. There are four independent variables employed in this research survey, which are involvement rate, rising prices, FDI and trade balance. However, authorities ingestion or Gross Domestic Production ( GDP ) besides played an of import function in the finding of behavior of the exchange rate.
Third, the figure of period that included in the research survey is from 1971 boulder clay 2010, which was totalled as a 40 old ages period. However, the jobs is different period will bring forth different consequences for the research worker. For case, during the 1997 Asiatic Financial Crisis, the exchange rate in Malaysia plummeted. Hence, in order to prove the peculiar period, this research survey might propose the 3rd parties to carry on the research in different economic period to interrupt the structural interruption.
Last, the theoretical account used to prove the relationships might non be considered as the best theoretical account specification. Historically, OLS is holding as an easy theoretical account but have legion drawbacks. For cases, Hamrita and Trifi ( 2011 ) employed ripple analysis to prove arrested development. It tested the correlativity, cross-correlation and lead/lag relationships of the arrested development in different clip series.
Recommendations for Future Research
The nature of a research paper want to be precise and exact as it takes clip and legion trials to do betterment and get the better of the restraint. Hence, this research survey would wish to propose some solutions or thoughts for future research workers as a mention in order to avoid doing the same error and to make a better consequence. Merely one-year informations is being used in this survey due to data restraints and it might disregard the short tally consequence. In order to acquire a precise consequence, future research workers should use quarterly informations or monthly informations.
The research survey investigated merely four variables, which may be deficient to uncover the factors impacting exchange rate in Malaysia. The dependent variable will be better explained if more independent relevant variables are added in the theoretical account. Therefore, it is suggested to future research workers to include in extra macroeconomic variables to prove the relationship between independent and dependent variables. However, the research workers must avoid taking irrelevant independent variable as the econometric job will be and appraisal consequence will go colored. Future researches may add in the independent variable such as trade openness and authorities ingestion or intercession which usage by Kamar, Naceur & A ; Bakardzhieva ( 2010 ) in their research in order to prove the relationship against the exchange rate. Furthermore, Gross Domestic Product ( GDP ) has been used as independent variable to prove the function of existent exchange rate in Argentina. ( Saidon, 2009 )
Last, the empirical consequence will non be to the full explained if merely the Ordinary Least Square ( OLS ) is employed because OLS have legion drawbacks. Hence, future research workers should use Generalized Auto Regressive Conditional Heteroscedasticity ( GARCH ) theoretical account in their hereafter survey. GARCH theoretical account is better than Ordinary Least Square ( OLS ) because it advances in turn toing and work outing for econometric theoretical account issue. GARCH theoretical account could bespeak how the exchange rate motion and settle all non-linear informations so it creates a generalised consequence respects the relationship between independent variable and dependent variable. ( Johnston, Scott 2000 ) . In add-on, future research worker should seek to use another new econometric theoretical account called Wavelet Analysis. Most of the economic clip series contain different beds because different economic agents might do different determinations by utilizing different clip skylines. Hence, the dissection of clip series into different beds makes ripple analysis a really utile tool. ( Hacker, Kim and Mansson, 2009 )
As a decision, the chief intent of this survey is to increase understanding on the factor that affects Malaysia foreign exchange rate. In late 1990s, Malaysia was one of those Asiatic Countries that suffered from destabilization in capital market due to the undistinguished foreign exchange trading. Hence, the research was conducted by demoing how foreign direct investing, rising prices rate, involvement rate and trade balance influence Malaysia exchange rate.
The survey analysis refering the relationship between factors and exchange rate showed three different consequences. First, the relationship between trade balance and foreign direct investing are positive relationship. Second, there is no relationship between rising prices and exchange rate. Last for involvement rate, the consequence found out is negative relationship. The consequence of this research survey could be utile for future investor to look into foreign exchange rate in Malaysia by measuring all these factors.