Identifying and ranking factors affecting the determination of exchange rates in Iran

Dissertation for Master Degree (M.A)

Trend: "International Business"

Introduction

It can be said that exchange rate fluctuations create a kind of risk in the field of foreign interactions, which can disrupt exports, imports and capital flows. Therefore, if the exchange rate changes are adjusted in the right direction, it can provide a suitable and more favorable environment for production, trade and investment. Fluctuations in exchange rates cause changes in the prices of goods and services, production and production factors, and in this way affect the expected current and future cash flows and subsequently the stock returns of the economic enterprise. In this way, the devaluation of the currency causes an increase in the demand for domestically produced goods due to an increase in the relative price of foreign to domestic goods, which results in an increase in the general level of prices, on the other hand, it causes a decrease in the import of intermediary data and capital due to an increase in their prices, which causes an increase in the cost of production and a decrease in investment. to be First, the main problem of the research is stated, then the importance and necessity of the research is examined, then the basic objectives of the research, the questions and hypotheses of the research, the newness and innovation of the research and the definition of the words and specialized terms of the research are discussed and finally the structure of the research is given. The country pays for the purchase or exchange of a reference foreign currency such as the dollar (or other valid world currencies such as the euro, British pound, Swiss franc and special drawing rights). Therefore, the rate or value of Rial is the amount of Rial that Iran pays in exchange for buying one unit of the world currency. Overvaluation of Rial or, in other words, undervaluation of foreign currencies occurs when the amount of Rials paid to exchange a unit of international currency is less than the actual value of that currency (Nikofal, 2009). Regardless of the use of money as a tool in determining the price of goods and services in international trade, it has been many years that money (currency) transactions have developed an independent and exciting market for themselves. The confrontation of currencies in the world is the result of a set of factors that determine their capability and importance. Analyzing why one country's currency is more powerful than another country's currency reveals surprising surprises, each of which in turn originates from codified and legal structures in the field of monetary, financial and commercial policies in close interaction with the flexibility or stability of foreign, regional and international policies of each country. According to many economists, the exchange rate variable is the most important price variable in the economy due to the reactions it provokes inside and outside the economic borders of a country, and its correct adjustment in the form of a correct and logical currency system can be very helpful and effective (Frederick, 1378).

Since the exchange rate is of great importance as an anchor in the country's economy, changes in the exchange rate cause major effects in the short and long term on other economic indicators of the country and in general on the entire economy. country, therefore, it is important to examine the exchange rate and the factors affecting it in order to apply appropriate economic policies. The exchange rate has a high effect on the amount of export and import of goods and services, as well as a significant effect on relative prices, and affects the competitiveness of the country's economy with other countries. The more important issue is that the real exchange rate contains more economic realities than the nominal exchange rate and is a more reliable indicator for measuring the country's economic power in competition with other countries (Tahmasabi et al., 2013). In this regard, the main research question is what are the factors influencing the determination of the real exchange rate in Iran? It is one of the major challenges of the policy makers of the country's economy and in all periods in the academic and policy circles of Iran's economy, there have been challenging discussions about how to determine the exchange rate.In fact, the real exchange rate in each country is undoubtedly one of the basic and fundamental indicators in determining the degree of international competition and explaining the internal state of that country's economy. Confusion and fluctuation in the performance of this index on the one hand shows the lack of fairness in the economy and on the other hand is considered the cause of greater instability (Mehrara, 2014). The studies carried out in developing countries show that the unadjusted changes in structural variables along with inconsistent monetary and financial policies of the governments cause a gap between the realized exchange rate and its equilibrium values. Therefore, analyzing the behavior of the real exchange rate and identifying its determining factors in order to formulate policies to adjust this index has always attracted the attention of economic experts and policy makers.

The exchange rate is considered one of the most important indicators in the economy of the country and, along with other factors, it has a significant impact on the economic status of the country and actually regulates the commercial relations of the country with other countries of the world. Many variables, such as the budget deficit, affect the exchange rate, both nominal and real. Iran's economy is highly dependent on oil revenues, and in recent years, these revenues have had a lot of fluctuations, and on the other hand, the large difference in accumulated inflation inside and outside the country has reduced the competitiveness of Iran's economy compared to other countries. Considering that the real exchange rate is one of the important economic variables of any country and explains the domestic and international economic situation in terms of competitiveness, any instability and fluctuation in the performance of the real exchange rate causes negative effects on the economy. In order to choose the appropriate monetary and foreign exchange policies, the factors and variables affecting the behavior of the real exchange rate should be identified and taken into account (Tahmasabi et al., 2012). Considering the importance of the exchange rate debate in the economy of countries and also considering the rapid changes of exchange rate policies in the economic structure of Iran, it is necessary to identify the factors affecting the determination of the exchange rate in Iran. be:

Main objectives:

Identify and rank factors affecting the exchange rate.

Sub-objectives:

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2.

3.

4.

Practical objective:

Provide necessary solutions for price stability in the currency market and proper monitoring of factors affecting the exchange rate.

1-4-Research questions

The research questions are as follows:

1.

2.

3.

4.

1-5-Research model

Each conceptual model is a starting point and a basis for conducting studies and research, so that It specifies the research variables and the relationships between them. In other words, it can be said that, ideally, the conceptual model or the mental map and analytical tool is a strategy for starting and conducting research in such a way that it is expected that during the implementation of the research, the relationships and interactions between the variables will be examined and tested, and as necessary, adjustments will be made to them and factors will be added or subtracted from them (Irannejad Parisi, 2018).

Structural factors

Context factors E

Behavioral factors

Determining the exchange rate

Figure 1-1- Model source (Mirzaei Ahranjani, 1371)

1-6-Aspect of newness and innovation of research

One of the characteristics of a new research is its novelty (Bazargan et al., 2018). The current research is also from the aspect of the importance of exchange rate changes in recent years and its impact on all economic activities and the introduction of new factors affecting the price of the exchange rate in the country. This is a new issue, and on the other hand, the comprehensive examination of the macro and micro issues affecting the new and new aspects in the current research. The first two theories, which are more traditional theories, deal with the interpretation of exchange rate changes in the long term, and the second two theories, which are more recent theories, emphasize the fluctuations of exchange rates in the short term. But as Dominic Salvatore, one of the prominent professors of international economics, states: "Although the traditional or long-term theory and the modern or short-term theory are both of obvious importance, a comprehensive theory that integrates the two and presents a single theory for the exchange rate has not been fully presented." 1

1.