Currency fluctuation in the United States is a major issue characterised by many elements which if not properly addressed may cause serious harm to the weak economies. The focus of the current research is to give a critical approach to some of the factors that businesses and countries can consider to ensure steady currency rate even during volatility. The paper seeks to find out the causes of price fluctuation to agricultural products and the effects high and low prices have to farmers in the United States. Both qualitative and quantitative methods will be used for the study and the data collection tools will include questionnaires, interviews and in-depth analysis of research documents. The areas of focus consisted of five major agricultural industries in the United States. Findings are expected to show how countries and agricultural farmers can evade currency fluctuations to maintain their profits. Information on currency volatility shall be utilized as the quantitative research procedure for the purposes of bracing the exploration.
Keywords: currency volatility, money, exchange, finance, market.
Introduction
One of the things that people believe is that in the agricultural investment world especially in the U.S, there is the adoption of styles that are used in the business and the outcomes of those results are based on how the executions of the adopted methods of business execution take place. There is a belief that businesses and countries think that they know how currency fluctuations can affect the outcomes of businesses and ways in which they can adapt positively. According to Chambers (1982, pp. 235), it is important to note that the agricultural economy has suggested that market volatility is a fact in any business. Be that as it may, cushions and supporting against dangers, organizations can cope up with turbulent conditions, for example, currency volatility.
Studies by Chit and Willenbrocked (2010, p. 65) indicate that countries and businesses can use the negative volatility by taking advantage of them and using them to mitigate risk and prosper in the unsettled world of stock market uncertainty (Reinhart 2001, p. 68). Unpredictability is the fundamental variable utilized when evaluating agricultural contracts, deciding the edge sum, and overseeing hazard. Knowing the unpredictability course as development approaches guarantees rectify estimation of the settlement cost and, identified with the current study, the right holding position.
In 2002, the agricultural prices were characterized by steep shifts in agricultural commodity prices. These big fluctuations have been caused by bans in exports in the United States, low production of agricultural products which leads to low supply’s, increased prices of fuels used in agricultural production machines and some other importers who panic in buying products (Cushman 1998, p. 320). The price volatility that is spread in the United States affects the money market of low-income countries and low income consuming farmers.
The research paper objective is to examine whether nations and organizations can sidestep the impacts of the money that is always showing signs of change in the States and other local markets (De Grauwe 1988, p. 63). Other points of interest exhibits and examines the estimation results, and Faction. The discoveries reach a few inferences for future research.
Background of the Study
According to Donald (2008, p. 57), due to the geographical location of the United States and several different factors, it has been assumed to be the world superpower. Due to which the United States currency, which is the dollar, has always been a reserve currency since 1914. Being stable and constant therefore makes it the centre of attention thus being the central point. While going through previous researchers, it can be found out that several types of research have been conducted concerning the issue
Real life scenarios have been assessed on the effects of volatility on economies. Studies by Black (1989, p. 87) indicate that effects of currency volatility can be positive while others can be negative. To be specific, international trade emphasizes on several restrictions for example border restrictions which have had a high impact on volatility, especially in a negative way (Melino 1990, p. 239). The currency crisis experienced in the modern first world countries is further evidence of currency volatility. According to (Pong 2004), on stabilization or standardization of money markets in banks, financial institutions and protection of agricultural trade industries by respective countries in accordance with international law.
Many people interested in agriculture from farmers to businessmen have become interested in the influence of currency exchange rates on international trade. The exchange rates have a serious effect on how they determine their commodity prices (Reinhart 2001, p. 68). The part of trade rates as a fundamental piece of agricultural financial matters was disregarded (Heston 1993, p. 328). Financial specialists have analysed the impact of conversion standard development on agriculture exchange yet difference continues with regards to the extent of the impact. With those policy and economic effects, it is difficult to come up with clear-cut reasons why currency volatility occurs and what can be done to curb it without conducting the comprehensive research (Parsley 2001, p. 102).
In spite of the way that conversion scale development is exceptionally flighty, the swapping scale is itself influenced by a few different components. For instance, farming fare endowments, value adjustment strategies of banks, merchants’ openness to credit and supporting open doors imply conversion scale vulnerability can be relieved (Harvey 1991, p. 543). In addition, these elements are connected with the level of improvement as well as the how exchanging nations financial mass sizes changes. For instance, merchants in a created economy have more prominent access to supporting openings and credit; however, their administrations additionally give higher fare sponsorship on rural and different products (Lastrapes 1989, p. 68). Subsequently, the effect of trade rates on respective exchange streams is a muddled marvel. Such entanglement in evaluating the impact of trade rates on global exchange streams itself is an issue that is oftentimes experienced.
Rationale of the Research
According to Dunis (2002 p. 320), the consequence of currency volatility on international trade focuses on short-term effects. In the current research proposal, annual currency volatility is used to study the key ways to mitigate risk and adapt to the ever-unpredictable currency. There is no new information has been obtained to prove that farmers do not contribute to the ever-changing exchange rates. However, in context to the availability of the data, it can be argued that even if there is constant unpredictability, farmers and agricultural stakeholders continue to improve their performance for reasons of good exchange rates. Therefore, effects of the agricultural exchange rates need to examine separately but critically from currency volatility (Abugri 2008, p. 397).
A study by Angela (2000, p. 208), on the effects of the exchange rate, can be examined by combining imports and exports and then assessing from that point of view. However, it is important to note that agricultural imports should be examined separately from exports because each country has their own rules and regulations governing financial institutions and policymakers and regulations in regarding imports and exports (Bayoumi 1997, p. 185). The study carefully analyses the long and short-term effects of currency volatility in agricultural trade in the U.S and other international allies. Results are important so that planners can come up with projects and ways to mitigate the risk and boldly deal with currency volatility on the agricultural market (Bollerslev 1992, p. 35).
Objectives of the Study
The research study focuses on impact currency volatility and exchange rates in countries to the United States. A thorough insight is then given to the impact the currency volatility could have in the United States (Hodrick 2009, p. 20). The primary objective is to determine how countries can be able to deal positively with currency volatility in the modern world.
Specific Objectives
Specific objectives in addition to the one objective given above are addressed in the current study. A concrete review of literature is given regarding the previous studies and how agriculture and currency exchange rates are related. A theoretical framework is also determined in regards to that and quantitative research is done (Jorion 1995, p. 510). An establishment using statistical analysis is done to find out if the quantitative results can actually be of importance in finding ways to cope with currency volatility in agriculture. The specific objectives are broken down as follows.
I. An assessment of Literature review concerning currency volatility in trade.
II. A thorough Theoretical framework addressing the relevant issues.
III. Statistical analysis of the theoretical model.
IV. A comprehensive analysis of the Quantitative results to see if they answer the question in need.
The objectives mentioned above are expected to answer the following research questions:
How does the currency volatility affect agricultural industries in the U.S?
Can the U.S agricultural economy cope with the ever-changing market demand and supply of agricultural products?
Some economies have been able to cope with exchange rate volatility in their trade. What are some of the things they are doing to deal cope?
Literature Review
The current segment would take a critical look at the perspectives and compositions of different researchers in the zone of significant worth and development speculation styles (Jorion 1995, p. 510). Such prospect would likewise demonstrate the commitments that have been made in this particular branch of knowledge especially in the United States.
Exchange Rates Effects between the USA and its Allies
The impact of swapping scale instability on reciprocal exchange streams between and among different nations and broadly explored issue during the 1970s when the issue of conversion scales unpredictability initially developed (Bayoumi 1998, p. 195). The lion's share of observational investigations in the course of recent decades has focused on recording the impact of swapping scale unpredictability on reciprocal exchange streams over a specific timeframe. For instance, examinations which utilized exchange streams in their investigation (Arize 1998, p. 34). The principal contrast between those examinations and the present investigation is that they didn't evaluate the impact of genuine conversion scale on two-sided add up to exchange streams. Rather their variable of intrigue was swapping scale instability.
Agricultural Trade and Exchange Rates
A review of the literature on the impacts that swapping scale instability and the genuine conversion scale have on universal exchange streams is exhibited (Reinhart 2001, p. 68). The survey gives the subtle elements on kind of exchange streams, financial models, factors of intrigue, strategies for estimating swapping scale instability and bearing of effect on exchange streams as found by the individual creators. According to Bollen (2000, p. 240), research has utilized the gravity model to measure the impact of conversion scale unpredictability on accumulated exchange streams and the majority of them have discovered a negative effect of swapping scale instability. Thus, the moving standard deviation will be the most broadly utilized strategy for figuring swapping scale unpredictability (Koutmos 2003, p. 460).
Exchange Rate Volatility and Agricultural Trade
Several different agricultural markets are characterized and known to have an extremely high level of unpredictability. Noteworthy market basics that clarify why that is the situation are described below (McKenzie 1999, p. 72). Farming yield differs from period to period due to normal stuns, for example, climate and bugs. Demand versatilities are moderately little as for cost and supply flexibilities are additionally low, in any event in the short run. With a specific end goal to get free market activity once again into adjusting after a supply stun, costs subsequently need to change rather firmly, particularly if stocks are low (Reinhart 2001, p. 68). Third, since generation takes significant time in agribusiness, supply can't react much to value changes temporarily, however it can do as such substantially more once the creation cycle is finished (Chatrath 1996, p. 562). The subsequent slacked supply reaction to value changes can cause repetitive modifications, (for example, the regularly referenced “hog cycle”) that include an additional level of inconstancy to the business sectors concerned (Solnik 1996, p. 24). Business cycle changes sought after for agrarian non-sustenance items, (for example, wool from cotton) from quickly developing, industrializing economies may likewise be adding to expanded unpredictability (Viskanta 1995, p. 75).
Establishment of Currency Volatility
In the literature review below it can be derived that an assortment of measures for swapping scale vulnerability has been utilized since the initiation of concentrates on conversion scale vulnerability and exchange volumes (Courchene 1999, p. 98). A lion's share of the measures utilized showed certain variation in the standard deviation of swapping scale (Taylor 1995, p. 810). Despite the fact that analysts have a general accord on how monetary specialists frame swapping scale desires and conceptualize related hazard, there is no normal way to deal with measure the hazard into trade rates (Chatrath 1996, p. 562). In 1986, it was reported, out of the blue, a proposal utilizing a strategy as a technique for deciding unpredictability in conversion scale or expansion rate. From that point forward, the determination has been broadly utilized by a few examinations.
Among a few different strategies, the standard deviation of the primary distinction of logarithmic conversion scale has been utilized by a few analysts, for instance (Koutmos 1996, p. 56).Among alternate techniques are the whole of squares of the forward mistakes, and the rated contrast amongst least and most extreme of the ostensible spot rate (De Grauwe 1988, p. 64). The Peace and Steinherr technique is used to measure specialists' vulnerability depending on the past encounters where operators recall the lows and highs from the past period and use that data in leadership process utilized by a few scientists
Summary of the Literature Review
The current section demonstrates huge work that has been done in inspecting quality and development stocks utilizing distinctive valuation pointers and as yet giving predictable consequences of surpassing of significant worth agricultural stocks in the US (Kearney 2000, p. 30). Since there is still not an accord among analysts as respects the clarification of the outcomes that demonstrates that there is as yet continuous research into understanding a testable method of reasoning for picking esteem stocks over development stocks.
Research Methodology
A quantitative form of methodology research connects data acquired in the research to the research questions. The research will be done in the United States to assess the formulas and ways in which the agricultural market can deal with currency volatility in the United States. Data acquired will be evaluated using ratios evaluation (Cairns 2007, p. 76).The methodology that will be used will be careful, discussed in an orderly manner in the current section. The sources used, methods that will be used in result evaluation will be discussed in the current section. A breakdown of the timeframe that will be used in the research will also be looked at in the present part.
Previous literature review states that results obtained from previous studies have been used to assess how the United States agricultural market can cope with the ever-unpredictable currency exchange rate and volatility (Bodurtha 1987, p. 154). Although previous research has indicated that currency volatility can be mathematically evaluated using methods like standard deviation, it is very difficult to actually know what will happen tomorrow with the ever-changing currency (Courchene 1999, p. 45). There is no general formula to calculate the results. The measure that can be used here is, therefore, assessment of the results similarity to previous ones. Ones the similarity is matched, the responses that were undertaken are also indicated (De Vita 2004, p. 70). Decisions are therefore made based on past experiences of the previous works and the researchers use it in generating their outcome.
According to Courchene (1999, p. 98), on his interpretive study on the volatility of currency in U.S collected numeric data on how exchange rates could affect the volatility of currency which lasted for a whole year and his intention was to capture responses from twenty economists on the U.S currency volatility with other country fluctuation rates. He realized that stock market volatility is around 20% which translates to 5.8% monthly which was different results from subjective perceptions form economists (Konstantinidi 2008, p. 2410). Thus, through research, he noted that volatility keeps changing and depending on the market exchange rates to other countries.
The Gravity Model of Research
The main economic principle that the gravity research model is comprised of is the expenditure of the money market in relation to the exchange rate. The first thing that will be critically looked at in the current section is the current state of currency volatility in the United States (Frenkel 2005, p. 28). The agricultural market economy will then follow and an assessment of how it has been reacting to currency fluctuations will be done while keenly taking into consideration the United States and its allies (Engle 2004, p. 410). Finally a keen look at how the United States currency is operating in the countries that are involved in the agricultural trade. Several other factors that affect currency fluctuation will be evaluated. Other influences of the agricultural market economy either directly or indirectly will be discussed also using the gravity research mode (Cheung 2001, p. 440).
Data Sampling and Collection
Data collected will be analysed on one standardized formula named as the FTSE350 index. The method is comprised of ninety-four percent values of the market which will hold in in good stead of analysing agricultural and currency markets. The timeframe that will be used in the current research will be on a monthly quarter basis (Konstantinidi 2008, p. 2410). Data obtained will be sourced by DataStream. The resultant information obtained in ratios from DataStream will be used to find out if agricultural markets can be able to cope with currency uncertainty (Baillie 1991, p. 570). Data and information obtained from the above section will be primary data. Secondary data will also be obtained from sources like books, newspapers, magazines, and journals of past research made (Bollerslev 1990, p. 501).
Formation of a Portfolio
A portfolio will hereby be formed based on a quarter year basis. For example, if the research starts the year two thousand and none, a portfolio that will be formed will be based on the first three months of the year. Data will be collected and kept and then a new set starts for the next quarter (Konstantinidi 2008, p. 2402). Data obtained from DataStream in the ratio basis will be based on the direct effects of currency volatility and the indirect effects (Morales 2008, p. 185). The highs and the lows will also be collected and the reactions of the respective results also assessed (Baillie 1991, p. 570). The highs and lows of agricultural markets in relation to currency volatility will be used to make decisions by researchers.
Logical Methodology
Critical analysis of the information will be done by utilizing both financial and factual examination. Each explanatory technique expects to answer key inquiries with respect to the result of the outcomes.
Sampling
A sample of 200 respondents was selected for the study. The sampling was done by keeping in view the main aims of the research. Snowball sampling was done to get the most appropriate respondents for the study. Since, the currency volatility depicts profound instability in context to the financial market. The respondents elected were knowledgeable and some of them experts were expects. The main motive was to ensure diversity in the sample.
Agricultural Economic Analysis
An agricultural economic analysis will be the investigation of the performance of the agricultural profits of both the values of the results and development of its portfolios. The analysis focuses on how agriculture and the economy outflank others during the period researched (Kroner 1993, p. 298) and that also tries to give an answer which economic analysis can be used by valuation markers to give a superior sign of the execution of the existing portfolios i.e. which of them is for the most part helpful in esteeming stocks and coping with poor market conditions financially. In the monetary investigation, the money related measure of hazard and returns is the most usually utilized strategy (Aggarwal 1999, p. 34). The technique for hazard and profit appraisal depends additionally on the strategy for the danger that should be looked at keenly.
The hazard evaluation technique is embraced in surveying which portfolio will the exploration incorporate. The Sharpe proportion utilizes the method of standard deviation to measure danger, the proportion uses beta to measure hazard. These two proportions will utilize the two conventional measures of hazard i.e. standard deviation and the beta in assessing performance (Awokuse 2006, p. 234). Another strategy for assessment execution to be utilized as a part of the examination, however, not generally utilized as the previous two is the hazard balanced return. The point of the exploration is to inspect the execution of significant worth and development shares; the utilization of hazard balanced return is suitable as it’s important in looking at portfolios at changed levels of hazard (Siregar 2004, p. 220). The return and hazard will be assessed utilizing the FTSE 350 Index which is a benchmark and the profits of the offers in every portfolio are founded on esteem is based on market capitalization as the esteem.
Data Analysis
The Impact of Household Debt on Currency Volatility
Household debt has been ascending for quite a long time, and economies have been developing. Furthermore, with abnormal states of household debts, policymakers are relying on vigorous development to guarantee supportability (Mongelli 2002, p. 55). Without a rise in the Gross domestic product, there will be no real way to raise the incomes governments to need to lessen their detonating obligations.
Currently, all those people interested in agriculture from farmers to businessmen have become interested in exchange rates effects on international trade that is mainly because it has a serious effect on how they determine their commodity prices (Pesaran 2010, p. 93; Garman 1983, p. 232). Yet, now, an obligation is ascending to focuses that are above anything we have seen, aside from amid significant wars (Kroner 1993, p. 298). Have we got to the heart of the matter where obligation levels are high to the point that they are hurting medium-and long haul development? In the current study we will swing to an exact examination of the inquiry, beginning with some straightforward measurements concerning the macroeconomic connection amongst debts and development, and after that run, some more modern board relapses with an end goal to recognize the effect of obligation on currency volatility development. According to (Morales 2008, p. 185), the unpredictability of currency can be estimated and it can be done through stabilization or standardization of money markets in banks and financial institutions and protection of agricultural trade industries by respective countries in accordance with international law.
One of the fascinating aspects of the currency volatitlity is the paired (currency) fluctuations that directly affect the broader liquuidity market. The charts below represents one phase of currency pair fluctuations. Figure first represents the decrease in the price percentage while as the Figure 2 depicts the increase in the percentage.
Figure 1 Currency Volatility Chart (Apr 21, 08:50 - Apr 28, 08:50) [price movement down]
Figure 2 Currency Volatility Chart (Apr 21, 08:50 - Apr 28, 08:50) [price movement up]
The above charts (Figure 1 and 2) reveal the important statistical amendments that are formed in response to the money market of the different countries. These markets influence the USD price rate that, in turn, affects the financial strategies of other countries. The changing attitude of the currency rate is important to develop an in-depth understanding of the financial market and its impact on other markets in the local as well as the global context.
The Balance of Payments Data in the United States
The current section deals with the universal exchange with a keen focus on the United States. We will start looking at the area start the area by taking a gander at the present and capital records that make up a country's adjust of instalments and are the two essential measures of worldwide exchange. According to Globerman (2003, p. 20), the records of currency volatility are managed in context to the enterprises and merchandise that exist in the concerned nations. A fare is directed domestically and acquired in the subject country. Below, we will inspect how changes in a few factors will affect the present record for a nation.
Changes in financial development rates and national wage.
Changes in relative costs or expansion rates.
Changes in household inclinations.
It is essential to disengage each of these from every single other occasion. Make sure to hold everything else consistent when taking a gander at any of these three changes recorded here. For instance, on the off chance that we take into consideration an expansion in local development, we are holding financial development rates consistent wherever else - with our exchanging accomplices (Bonser-Neal 1996, p. 855). Every single other variable, for example, trade rates are held consistent enabling us to centre on the factor we are endeavouring to detach (Zvan 1998, p. 215).
Statistics and Sign Expectations
Definition
Expected signs
The frequency of exchange rate volatility between trade partners and the U.S
Negative
Geographical distance and location impact on agricultural sales and currency fluctuation
Positive
Government policies impact on currency volatility
Negative
Free trade agreements and policies impacts on international trade
Positive
Sample Descriptive Statistics
Decision making by parties asked
Possible Number
Expected Mean
Expected Standard deviation
Wise decisions made
50
3.16
1.32
Learning from mistakes
50
2.54
1.32
No idea
50
6.67
3.41
Trying to find out
50
5.77
3.22
Graph 1 Expected Standard deviation
The Table 2 represents the expected standard deviation of the study. The data revealed that the four categories assessed in the table depict different results depending on the role of currency volatility. It is interesting to see that ‘No Idea’ category indicates the understanding of intensity of the volatility that manipulates the financial markets. The data is rich to develop a broader understanding of the alterations in the currency rate that influences the financial as well as the agriculture markets.
Results and Conclusion
The principal point of the proposition to indicate how the examination of significant worth and development of currency volatility and agricultural markets can give a further knowledge on the consistency of the adaptation of significant methods that can be adapted from accessible information (Lobo 1998, p. 355). Such stratagem models agricultural price volatility transmission across the United States and other related countries. Agricultural price volatility seems to occur when the domestic production of agricultural products is less than the international market as indicated by earlier studies (Najand 1992, p. 610). Also, since the investigation of currency volatility and its effects in agricultural markets for characterizing venture style is still rare in researchers particularly in the United States. The research inquiry prescribes that future investigations consider month to month instability and two-way exchange streams between exchanging nations (see Appendix II). The utilization of amassed information and isolating the example into two distinct divisions does not really dodge total predisposition.
Consequently, it is recommended that research should utilize disaggregated information for non-rural items and gauge the impact on fares and exchange (trades + imports) streams independently. The outcomes request that the issue of the genuine swapping scale and worldwide exchange streams be thoroughly examined (Taylor 1994, p. 70). Inspecting the beneficial outcome of the Euro value on the United States– OECD exchange streams, it is suggested that future research explore the impact of money related associations on reciprocal exchange streams among all OECD nations, not simply between one nation and alternate nations. The strength or weakness of U.S dollar will always be affected by the demand and supply of money within the economy. The monetary policies in place will affect how the country growth in revenue is concerned and interest policies will always affect the volatility depending on variations. For instance, increase in oil prices causes commodity prices to increase in the market as result the imports to the country increase in value. Finally, it is evident that oil prices can also can the dollar to be volatile as the economy is dependent on oil as its variations in the market will result in currency volatility.
The study is crucial to understand the developing concepts in context to the change in currency rate that, in turn, affects the global market. Besides, the stock market of the United States is also affected by the change in the alteration in the currency rate. However, the data is intended to reveal more hidden facts that govern the volatility within a broader context of financial market of the US. Interestingly, the analysis of the financial and agriculture markets establishes a better opportunity to facilitate the understanding of the working of these markets effectively. For every variety, think about the suggestions on the present record. Higher residential development rates expand our livelihoods and utilization of merchandise and ventures, including imports. An ascent in the household expansion rate, holding outside swelling rates consistent, suggests there are generally higher costs for locally made merchandise and makes imports less expensive in correlation since their costs
