Factors Influencing Exchange Rate Volatilities: Sri Lanka Compared with Ukraine

Abstract

The exchange rate is the price of one country’s currency in terms of another country. This study aims to identify the factors affecting the exchange rate volatilities in Sri Lanka compared with Ukraine. These two countries were selected as it is comparable to Sri Lanka based on the GDP Per Capita (PPP), population and Human Development Index (HDI), and colonization. The objectives of the study are to investigate whether the external value of the Sri Lankan Rupee is influenced by issues such as macroeconomic, sociocultural, and institutional factors and the factors behind them. A quantitative regression analysis technique was employed using data, collected from secondary sources such as the Central Bank of Sri Lanka, the National Bank of Ukraine, IMF databases, and World Bank databases for the period of 1992 to 2022. The discussion of the results was done from a critical perspective with the backing of the literature review. The findings of the study revealed that the major elements that have an impact on the exchange rate volatility of a country are GDP per capita, unemployment rate, social contributions, human capital index, foreign direct investments, and social contributions moderated it. The comparison analysis also showed that Sri Lanka has the highest level of exchange rate volatility when compared to Ukraine. The findings will be helpful for the researchers to advance their research studies in this field and for policymakers to develop sustainable frameworks for exchange rate stability which is identified as an essential ingredient of economic development.