Factors Affecting Exchange Rate Fluctuation in Pakistan

Some past papers has investigated on exchange rate fluctuation. Aim for this study is to find out why Pakistani Rupee shows much fluctuation and more sensitive in exchange with US Dollar. Fifteen years data of economic variables has been investigated to find out the trends of exchange rate. One particular policy implication has been derived that authorities should maintain money supply to control prices and reduce current account deficits. This study shows the relationship of exchange rate fluctuation and other economic variables like inflation rate, GDP, current account and interest rate. Study shows that changes in inflation rate, interest rate, GDP and current account has effect on foreign exchange rate of Pakistan. Findings prove that GDP produces more fluctuation to exchange rate than other variables and current account produces least variation to exchange rate than other variables.