IMPACT OF EXCHANGE RATE ON FOREIGN TRADE VOLUME

Аннотация

This study examines the impact of exchange rates on foreign trade volume for seven well-developed European countries during the period of 2009–2019. To investigate the relationships, regression analyses were conducted using Ordinary Least Squares (OLS) and Autoregressive Distributed Lag (ARDL) methods with STATA-14 software. Empirical evidence from trade between the USA and Germany during 1965–1975 indicates that exchange rate uncertainty significantly impacts prices but does not have a notable effect on trade volume. Usually, logarithmic transformations are utilized to simplify statistical analysis, enhance interpretability, and mitigate potential problems. As international trade continues to grow, regulatory practices that might restrict trade are also increasing. One such obstacle is exchange rate volatility, which directly and indirectly affects trade activities. Exchange rate fluctuations can impact trade relations and a country’s trade balance. One finding of this studyis that changes in monetary policy can significantly affect trade activities, particularly in the long-term perspective. Typically, the effect on exports appears promptly, while import levels respond over alongerduration. Theresearch also analyzes therelationship withinflation. Keywords: Exchange rate, trade, COVID-19 pandemic, OLS method, Ramsey Reset test, Breusch-Pagan test. 1. Introduction. Exchange rate fluctuations are directly influenced by monetary policy and governmental actions. The recent example is the COVID-19 pandemic, which significantly increased government intervention across economic and social sectors. The higher the number of confirmed cases, the more stringent governmental responses become, which significantly impacts exchange rate volatility. Conversely, economic policies undertaken during the pandemic, such as fiscal measures, income support, and aid packages, tend to mitigate exchange rate volatility (Feng, Yang, Gong, and Chang, 2021)[1]. Currently, many factors affect international trade, including tariffs, various trade policies, and government actions aimed at stimulating national investments and trade. Economic unions such as the European Union seek to enhance international trade by liberalizing capital flows and reducing restrictions and taxes among member states. However, capital exchange rates also considerably impact this issue. The exchange rate is strongly related to competitive financial markets and international trade. This can have both negative and positive effects, but creating conditionsthat support competitiveness isessential (Toderascu and Firtescu, 2018)[2]. The exchange rate is defined as the price of one country's currency expressed in another country's currency[3]. There are flexible (floating) and fixed types of exchange rates. In currency trading practices, currency is sold at a higher exchange rate (selling rate) and bought at a lower rate (buying rate). The difference between these two rates constitutes the revenue banks generate from currency trading. Officially increasing the exchange rate (revaluation) encourages capital outflows from the country and facilitates imports by making foreign currencies cheaper. Official depreciation (devaluation) typically arises when a country experiences significant deterioration https://ijmri.de/index.php/jmsi volume 4,issue5,2025 1292 in its trade and balance of payments and depletion of currency reserves. Uzbekistan's Central Bank regularly publishes foreign currency exchange rates against the Uzbek sum each week, considering money supply and inflation dynamics for accounting and customs duties[4]. As of April 21, 2024, the official exchange rate of 1 USD to Uzbek sum was 12,697 sums[5]. In Uzbekistan, foreign currencies, primarily USD, can currently be bought or sold in 31 banks, except TBC Bank and ApelsinBank[6]. General wisdom and uncertainty can hinder trade; however, we argue that uncertainty might enhance trade in a simple general equilibrium model with information frictions. Increased uncertainty in equilibrium boosts the average profit differential obtained from foreign trade. This suggests that trade can either increase or decrease due to uncertainty, depending on preferences. Under general conditions, we characterize the significance of these forces using statistical approaches. Trade, in part, generates value by offering mechanisms for risk distribution, with optimalrisk sharing achieved when neither party has completeinformation[7]. Theoretical impacts of exchange rate risk on equilibrium prices and quantities are analyzed using differential models representing risk on both the import demand and export supply sides[8]. Empirical evidence from the trade between the USA and Germany during 1965–1975 shows that exchange rate uncertainty significantly affects prices but not trade volume. This price effect supports previous survey results regarding currency denominations in export contracts, indicating that most trade occurs in the exporter’s