This study seeks to examine the exchange rate behavior between the United Arab Emirates Dirham (AED) and the Philippine Peso (PHP) using daily data covering the period 15th August 2008 to 15th of March 2009. The choice of this exchange rate is that there is a large and increasing number of Filipino workers in the UAE and the strong and stable growth of the UAE as an important trading partner with the Philippines. As such, this issue is of strong interest for policymakers, especially from the Philippines, as an over or undervalued PHP has implications for inflation and balance of payments problems. For Filipino workers and their families, their remittances are heavily tied to the economic conditions in the UAE given they are paid in AED and forms the main source of income for some families. Knowledge of an expected rise or fall in the PHP against the AED is important for all workers in helping to decide how much to remit and how much to retain in the UAE in holdings of AED. Exchange rate movement can also have strong implications for the relative competitiveness of UAE and Philippine goods and services in domestic and international markets. Gainers exist when an appreciating AED makes it cheaper for the Philippines to import UAE goods and services and cheaper for the Filipino workers to retain in the UAE. However, a stronger PHP makes it easier for the Philippines to compete with exports in international markets and for Filipino workers to consider opportunities at home.
Overview
The recent surge in oil prices has given the United Arab Emirates (UAE) substantial foreign exchange reserves. This has led the UAE central bank to establish a link between the dirham and the dollar and later on adopted a managed-float regime where the official rate of 1 USD = 3.6725 AED. In a managed float, the central bank occasionally intervenes in the foreign exchange market. The Philippine Peso, on the other hand, is the currency used in the Philippines that has tended to float freely against other currencies. Over the past decade, the PHP has been one of the best-performing currencies in the East Asia and Pacific region. Foreign exchange for the PHP is mostly done with the USD, but recently the PHP has gained some support from oil-exporting countries. With the recent surge in oil prices and the PHP gaining some support from oil-exporting countries, there is reason to believe that AED to PHP exchange rate will greatly affect the trade between the two countries. This makes monitoring the AED to PHP exchange rate important for the United Arab Emirates (UAE) and the Philippines. For the purpose of this paper, the rate will be expressed in terms of AED needed to purchase 1 PHP.
Importance of Monitoring Exchange Rates
The exchange rate is defined as the rate at which one country’s currency may be converted into another. This is a critical concept for any of the country’s businesses entering into the global market, although it is also pertinent for the non-business traveler. It is important to note that the exchange rate has a directly significant impact on an economy’s position in the global market. Fluctuations in the exchange rate have the effect of changing the comparative costs of AED to PHP peso goods and services as well as financial assets in relation to other countries. When a currency depreciates, or loses value relative to another currency, this is known as a decrease in the exchange rate. It must be assumed that a depreciation in the dirham relative to peso will have the effect that UAE businesses exporting to the Philippines will benefit as their products will be cheaper to the Philippine consumers. On the other hand, this is not positive for the Philippine consumers as it is an additional incentive for them to buy international products instead. There are various methods that a change in the exchange rate, for example, depreciating the UAE currency, may reduce the price of a holiday for UAE tourists traveling to the Philippines. On the other hand, UAE consumers will have to pay more for imported goods and services. It must be noted that while some people and businesses will benefit from exchange rate fluctuations, others will be disadvantaged.
Factors Affecting AED to PHP Peso Exchange Rate
There are several factors that can affect the exchange rate between AED and PHP. The first factor is the interest rate. Changes in relative interest rates can affect currency value and the exchange rate. This can be a very important factor for the exchange rate between AED and PHP when the majority of the people depend on the interest rate. When interest rates rise, higher returns will attract foreign capital and this causes the exchange rate to rise. If a country’s relative interest rates are declining, its foreign and domestic investments decrease, reducing exchange demand and causing the currency’s value to fall. And the exchange rate will be lower.
The exchange rate between two currencies is very important since it affects more than just the economy of the country. So, knowing clearly about the exchange rate between AED and PHP is very important. The exchange rate is the price of one country’s currency expressed in terms of another country’s currency. In other words, it is the rate at which one currency can be exchanged for another. The exchange rate between AED and PHP is provided by the Bank Negara Malaysia. The currency is exchanged through Ringgit Malaysia. It is the rate of exchange of the currency between the two countries through the ringgit. The exchange rate is determined by the supply and demand for the currency. This rate can be floating or fixed by the government. A floating exchange rate is determined by supply and demand, while a fixed rate is determined by the government and the central bank.
