I expect that an increase in the foreign interest rate relative to the home country will increase the demand for that currency. There will be higher demands if future interest rates are expected to rise. An increase in the demand for the currency will increase the value of that currency. When considering the exchange of Saudi Riyal to Philippine peso, it is worthwhile noting that the Philippines is a major oil importing nation and that a significant portion of the Overseas Filipino Worker’s remittances come from Saudi Arabia. The relative changes in economic indicators between the two countries will determine the exchange rate between their currencies. Steps will be made to ensure the best prediction of the future exchange rates.
Exchange rate is the price of one country’s currency expressed in another country’s currency. Exchange rate involves the trading of one currency for another and is affected by the relative inflation, where high inflation results in depreciation in the value of a currency. Interest rate, which is perhaps the most important factor, one possible investment is in securities in a foreign country’s currency. The return on such investment will depend on the interest rate that the securities pay.
The purpose of this research is to find out the exchange rate volatility of Saudi Riyal (SAR) to Philippine Peso (PHP) and whether it is better to use the spot market or the forward market when exchanging Peso’s. This includes a detailed outline of the existing market, including the free and regulated market. Emphasis will be made on how economic indicators affect exchange rate fluctuation, as well as providing the advantages and disadvantages of each market. The most recent data will be used.
Overview
Remittances from Saudi Arabia to the Philippines have been known to increase during times wherein the SAR is relatively strong, thereby increasing the purchasing power of Filipinos dependent on the exchange rate. This lack of stability is one reason why this particular exchange rate is much discussed.
A large percentage of activity in regards to SAR to PHP takes place within Saudi Arabia itself, where a large Filipino expatriate community resides. This is another notable feature of the exchange rate, whereby a considerable volume of remittances take place from Saudi Arabia to the Philippines. As such, there is evidence of a price elastic demand in both currencies, particularly the Saudi Riyal.
The Saudi Arabian economy and that of the Philippines bear no real effect on one another. Indeed, the latter is fairly insignificant on a global scale. Thus, it is a common mistake that a beginner might consider the two economies to be intertwined. In reflection of this, the inverse interest in trading both currencies is quite low, particularly trading the Saudi Riyal.
The Saudi Riyal, or SAR, to the Philippine Peso, known by its currency code PHP, has a significant relationship in regards to market volatility and relative importance within the global market. These two facets distinguish the exchange rate and make it particularly interesting to speculate on, if not trade.
Importance of SAR to PHP Peso Exchange Rate
The exchange rate is simply the price of one currency in terms of another. However, this apparently simple concept is very complex. It can be affected by a number of factors. Basically, it varies because both the supply and demand conditions of the relevant currencies are constantly changing. For example, perhaps a large number of residents in Saudi Arabia wish to purchase goods or property in the Philippines. This will create a demand for Filipino Pesos. At the same time, perhaps very few Philippine residents wish to purchase goods from Saudi Arabia. This will create a relatively low demand for Saudi Riyals. Other things held constant, these changing demand conditions will lead to an appreciation of the PHP peso relative to the Saudi Riyal. This is because increased demand for Filipino Pesos will lead to an increased price of Filipino Pesos in terms of Saudi Riyals (a stronger PHP peso) in order to reach an equilibrium in the foreign exchange market.
