Managing effects of Forex Rate’s fluctuation on Pakistan’s Trade Balance

Abstract

Pakistan is a most important country of South Asia with highly significant geo strategic location and aim behind conducting study pertains to explore effects of Forex rate, GDP & Discount rate on our country’s trade balance through analysis of its economy. Trade balance of a country reflects surplus in instance exports are more in value than purchase of goods and services from abroad & in instance imports exceeds the price of merchandise & services sold abroad by a state. Therefore, to explore whether fluctuations of exchange rates, GDP & discount rate bear any important effect on our country’s trade balance we have acquired yearly statistics of Forex rate, GDP & discount rate from the website of SBP and Bureau of Statistics. These statistics encompassed forty six year figures pertaining to period w.e.f 1977 to June, 2022. Hence to accomplish our aim several test like Unit root, Auto Regressed Distribution Lag , Bound test ,Autocorrelation, Ramsey Test, Correlation, Multicollinaerity and Heteroscedasticity test have been conducted which helped out to wind up that an important and + ve link exist among trade balance, foreign exchange rate GDP & discount rate , hence it is concluded that stability of foreign exchange rates, increase in GDP and rational discount rate may create a positive atmosphere as well as bring improvement in trade balance.