Assessing the Impact of Interest Rate on Foreign Exchange Rate in Ghana

Dickson Akoto

doi:doi:10.11648/j.ijafrm.20200504.12

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Assessing the Impact of Interest Rate on Foreign Exchange Rate in Ghana

Dickson Akoto

Published in International Journal of Accounting, Finance and Risk Management (Volume 5, Issue 4)

Received: 7 September 2020 Accepted: 23 October 2020 Published: 19 November 2020

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Abstract

Foreign exchange rates determine the strength of a nation’s currency against other nation’s currency. Determination of foreign exchange rates in Ghana is therefore, of immense importance since the livelihood of many people in the country is tied to the performance of the local currency against the foreign currencies. Data from books and journals were used as the basis for the research; the research result was then compared to the work of earlier writers to ascertain the conformity or otherwise of the Ghanaian situation. The research involved comparing the percentage changes in interest rates of commercial banks in Ghana to the percentage changes in exchange rates for the period 2008 to 2018 to ascertain the relationship between the two variables. Quantitative research design was used for the work. The researcher determined the mean and standard deviation of the distribution and computed the coefficient of correlation for the variables and in addition the regression analysis. The coefficient of correlation was -0.5 and the gradient of the regression line was also -.05. The research showed that interest rates were strongly negatively related to the exchange rates in Ghana for the period 2008 to 2018. This explained why exchange rates in Ghana kept falling while interest rates rose continuously which is contrary to postulates that indicate, a rise in interest rates results in rise in exchange rates. The researcher noted that the great disparity between the lending rate and deposit rate in Ghana is a contributing factor to this anomaly.

Published in	International Journal of Accounting, Finance and Risk Management (Volume 5, Issue 4)
DOI	10.11648/j.ijafrm.20200504.12
Page(s)	184-190
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2020. Published by Science Publishing Group

Keywords

Foreign Exchange Rate, Interest Rate, Purchasing Power Parity, Cost of Capital

References

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[2]	Gordon, R. J (2006) Macroeconomics. Tenth edition, Pearson Addison Wesley.
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[4]	Abel, A. B and Bernanke, B. S (1995). Macroeconomics. Second edition, Addison-Wesley Publishing Company.
[5]	Taylor, Alan, M., and Mark P. Taylor (2004). "The Purchasing Power Parity Debate." Journal of Economic Perspectives, vol. 18 (4): 135-158.
[6]	Kargbo, J. M (2006). Purchasing Power Parity and exchange rate behaviour in Africa. Applied Financial Economics vol. 16 issue 1-2 pp 169-183.
[7]	Suluk S and Tannseven K (2018). International Journal of Economics and Financial Issues \| Vol 8 Issue 2 pg 372.
[8]	Stafford, A. D (1995). Introduction to economics. Glencoe McGraw-Hill.
[9]	Hubbard R. G and O’brien A. P (2009) Macroeconomics. Second edition, Pearson Prentice Hall.
[10]	Khan R. S. A (2014) IOSR Journal of Business and Management (IOSR-JBM) e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 16, Issue 6. Ver. II (Jun. 2014), p 116.
[11]	Tumwine S, Sejjaaka S, Bbaale E, Kamukama N (2018) Determinants of interest rate in emerging markets A study of banking financial institutions in Uganda,. World Journal of Entrepreneurship, management and Sustainable Development, vol 2, p 1.
[12]	Kartal M. T (2020) Determining Affecting Macroeconomic Indicators on Interest Rates in Emerging Countries: A Comparative Examination upon China, Brazil, and Turkey with Multivariate Adaptive Regression Splines (MARS), Journal of Empirical Economics and Social Sciences, vol 2, issue 1, p36.
[13]	Economic Affairs Series (1999). ECON 116 EN, (PE 168.283).
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[15]	Association of Chartered Certified Accountants. (2000) Financial Strategy, BPP Publishers.
[16]	Almani, A (2016), Accounting and Business magazine of ACCA. October 2016 edition, pg. 21.
[17]	Ghana Statistical Service publications, 2019.
[18]	Bank of Ghana publication, 2020.

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APA Style

Dickson Akoto. (2020). Assessing the Impact of Interest Rate on Foreign Exchange Rate in Ghana. International Journal of Accounting, Finance and Risk Management, 5(4), 184-190. https://doi.org/10.11648/j.ijafrm.20200504.12

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ACS Style

Dickson Akoto. Assessing the Impact of Interest Rate on Foreign Exchange Rate in Ghana. Int. J. Account. Finance Risk Manag. 2020, 5(4), 184-190. doi: 10.11648/j.ijafrm.20200504.12

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AMA Style

Dickson Akoto. Assessing the Impact of Interest Rate on Foreign Exchange Rate in Ghana. Int J Account Finance Risk Manag. 2020;5(4):184-190. doi: 10.11648/j.ijafrm.20200504.12

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@article{10.11648/j.ijafrm.20200504.12,
  author = {Dickson Akoto},
  title = {Assessing the Impact of Interest Rate on Foreign Exchange Rate in Ghana},
  journal = {International Journal of Accounting, Finance and Risk Management},
  volume = {5},
  number = {4},
  pages = {184-190},
  doi = {10.11648/j.ijafrm.20200504.12},
  url = {https://doi.org/10.11648/j.ijafrm.20200504.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijafrm.20200504.12},
  abstract = {Foreign exchange rates determine the strength of a nation’s currency against other nation’s currency. Determination of foreign exchange rates in Ghana is therefore, of immense importance since the livelihood of many people in the country is tied to the performance of the local currency against the foreign currencies. Data from books and journals were used as the basis for the research; the research result was then compared to the work of earlier writers to ascertain the conformity or otherwise of the Ghanaian situation. The research involved comparing the percentage changes in interest rates of commercial banks in Ghana to the percentage changes in exchange rates for the period 2008 to 2018 to ascertain the relationship between the two variables. Quantitative research design was used for the work. The researcher determined the mean and standard deviation of the distribution and computed the coefficient of correlation for the variables and in addition the regression analysis. The coefficient of correlation was -0.5 and the gradient of the regression line was also -.05. The research showed that interest rates were strongly negatively related to the exchange rates in Ghana for the period 2008 to 2018. This explained why exchange rates in Ghana kept falling while interest rates rose continuously which is contrary to postulates that indicate, a rise in interest rates results in rise in exchange rates. The researcher noted that the great disparity between the lending rate and deposit rate in Ghana is a contributing factor to this anomaly.},
 year = {2020}
}

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TY  - JOUR
T1  - Assessing the Impact of Interest Rate on Foreign Exchange Rate in Ghana
AU  - Dickson Akoto
Y1  - 2020/11/19
PY  - 2020
N1  - https://doi.org/10.11648/j.ijafrm.20200504.12
DO  - 10.11648/j.ijafrm.20200504.12
T2  - International Journal of Accounting, Finance and Risk Management
JF  - International Journal of Accounting, Finance and Risk Management
JO  - International Journal of Accounting, Finance and Risk Management
SP  - 184
EP  - 190
PB  - Science Publishing Group
SN  - 2578-9376
UR  - https://doi.org/10.11648/j.ijafrm.20200504.12
AB  - Foreign exchange rates determine the strength of a nation’s currency against other nation’s currency. Determination of foreign exchange rates in Ghana is therefore, of immense importance since the livelihood of many people in the country is tied to the performance of the local currency against the foreign currencies. Data from books and journals were used as the basis for the research; the research result was then compared to the work of earlier writers to ascertain the conformity or otherwise of the Ghanaian situation. The research involved comparing the percentage changes in interest rates of commercial banks in Ghana to the percentage changes in exchange rates for the period 2008 to 2018 to ascertain the relationship between the two variables. Quantitative research design was used for the work. The researcher determined the mean and standard deviation of the distribution and computed the coefficient of correlation for the variables and in addition the regression analysis. The coefficient of correlation was -0.5 and the gradient of the regression line was also -.05. The research showed that interest rates were strongly negatively related to the exchange rates in Ghana for the period 2008 to 2018. This explained why exchange rates in Ghana kept falling while interest rates rose continuously which is contrary to postulates that indicate, a rise in interest rates results in rise in exchange rates. The researcher noted that the great disparity between the lending rate and deposit rate in Ghana is a contributing factor to this anomaly.
VL  - 5
IS  - 4
ER  -

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Author Information

Dickson Akoto

Radford Business School, Radford University College, Accra, Ghana

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APA Style

Dickson Akoto. (2020). Assessing the Impact of Interest Rate on Foreign Exchange Rate in Ghana. International Journal of Accounting, Finance and Risk Management, 5(4), 184-190. https://doi.org/10.11648/j.ijafrm.20200504.12

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ACS Style

Dickson Akoto. Assessing the Impact of Interest Rate on Foreign Exchange Rate in Ghana. Int. J. Account. Finance Risk Manag. 2020, 5(4), 184-190. doi: 10.11648/j.ijafrm.20200504.12

Copy | Download

AMA Style

Dickson Akoto. Assessing the Impact of Interest Rate on Foreign Exchange Rate in Ghana. Int J Account Finance Risk Manag. 2020;5(4):184-190. doi: 10.11648/j.ijafrm.20200504.12

Copy | Download

@article{10.11648/j.ijafrm.20200504.12,
  author = {Dickson Akoto},
  title = {Assessing the Impact of Interest Rate on Foreign Exchange Rate in Ghana},
  journal = {International Journal of Accounting, Finance and Risk Management},
  volume = {5},
  number = {4},
  pages = {184-190},
  doi = {10.11648/j.ijafrm.20200504.12},
  url = {https://doi.org/10.11648/j.ijafrm.20200504.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijafrm.20200504.12},
  abstract = {Foreign exchange rates determine the strength of a nation’s currency against other nation’s currency. Determination of foreign exchange rates in Ghana is therefore, of immense importance since the livelihood of many people in the country is tied to the performance of the local currency against the foreign currencies. Data from books and journals were used as the basis for the research; the research result was then compared to the work of earlier writers to ascertain the conformity or otherwise of the Ghanaian situation. The research involved comparing the percentage changes in interest rates of commercial banks in Ghana to the percentage changes in exchange rates for the period 2008 to 2018 to ascertain the relationship between the two variables. Quantitative research design was used for the work. The researcher determined the mean and standard deviation of the distribution and computed the coefficient of correlation for the variables and in addition the regression analysis. The coefficient of correlation was -0.5 and the gradient of the regression line was also -.05. The research showed that interest rates were strongly negatively related to the exchange rates in Ghana for the period 2008 to 2018. This explained why exchange rates in Ghana kept falling while interest rates rose continuously which is contrary to postulates that indicate, a rise in interest rates results in rise in exchange rates. The researcher noted that the great disparity between the lending rate and deposit rate in Ghana is a contributing factor to this anomaly.},
 year = {2020}
}

Copy | Download

TY  - JOUR
T1  - Assessing the Impact of Interest Rate on Foreign Exchange Rate in Ghana
AU  - Dickson Akoto
Y1  - 2020/11/19
PY  - 2020
N1  - https://doi.org/10.11648/j.ijafrm.20200504.12
DO  - 10.11648/j.ijafrm.20200504.12
T2  - International Journal of Accounting, Finance and Risk Management
JF  - International Journal of Accounting, Finance and Risk Management
JO  - International Journal of Accounting, Finance and Risk Management
SP  - 184
EP  - 190
PB  - Science Publishing Group
SN  - 2578-9376
UR  - https://doi.org/10.11648/j.ijafrm.20200504.12
AB  - Foreign exchange rates determine the strength of a nation’s currency against other nation’s currency. Determination of foreign exchange rates in Ghana is therefore, of immense importance since the livelihood of many people in the country is tied to the performance of the local currency against the foreign currencies. Data from books and journals were used as the basis for the research; the research result was then compared to the work of earlier writers to ascertain the conformity or otherwise of the Ghanaian situation. The research involved comparing the percentage changes in interest rates of commercial banks in Ghana to the percentage changes in exchange rates for the period 2008 to 2018 to ascertain the relationship between the two variables. Quantitative research design was used for the work. The researcher determined the mean and standard deviation of the distribution and computed the coefficient of correlation for the variables and in addition the regression analysis. The coefficient of correlation was -0.5 and the gradient of the regression line was also -.05. The research showed that interest rates were strongly negatively related to the exchange rates in Ghana for the period 2008 to 2018. This explained why exchange rates in Ghana kept falling while interest rates rose continuously which is contrary to postulates that indicate, a rise in interest rates results in rise in exchange rates. The researcher noted that the great disparity between the lending rate and deposit rate in Ghana is a contributing factor to this anomaly.
VL  - 5
IS  - 4
ER  -

Copy | Download