The purpose of this assignment is to analyze the exchange rate trend of Pakistan Rupee against the

Canadian Dollar. In the analysis we would like to look for potential reasons behind the fluctuations in the
exchange rate.

The floating exchange rate is determined by exports and imports of a country. If a country imports more
than it exports, then its own currency depreciates and if it exports more than it imports the currency
appreciates. There are various factors behind what changed the exports and imports of a country.

Canadian Dollar vs Pakistani Rupee

140.0000

120.0000

100.0000
Exchange Rate

80.0000

60.0000

40.0000

20.0000

0.0000
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Year

For the case of the exchange rate of Pakistan and Canada for the last 25 years overall there has been an
increasing trend. There are only two dips from 1994 to 2019. Other than that, the Canadian dollar has
continued to rise against the Pakistani Rupee.

The overall depreciation of PKR can be attributed to rising inflation in Pakistan. A higher relative inflation
rate depreciates the currency of a country relative to another country. Low interest rates in Pakistan can
be another cause of depreciating Rupee. Due to lower interest rates there will be no incentive for
foreign investors to invest in Pakistan and existing investor would want to take out their money as a
result of which PKR will depreciate. If Pakistan was importing more from Canada than it was exporting to
Canada, then PKR would have declined against the Canadian Dollar.

Acquiring Government debt has a depreciating impact on a country’s currency. Foreign investors
normally sell their investments when they anticipate that the government is going to procure debt. The
selling of investments result in decline of the currency. Pakistan has suffered from political instability for
the last 25 years. As a result of this instability the confidence of investors is very low which results in
lower investment coming in to the country. This ultimately boils down to a depreciation in the Rupee. As
compared to Canada, Pakistan has been impacted much worse due to the recession. In times of
recession falling interest rates tend to divert investments away from the country and as result
depreciating the currency.
The first dip in the Canadian dollar against the Pakistan Rupee between 2002 and 2007 can be attributed
to the fact that Pakistan’s economy was growing at an unprecedent average rate of 6.3%. This growth
made Pakistan an attractive investment option as a result of which the Rupee appreciated against the
Canadian Dollar.

GDP Pakistan

The second time PKR appreciates against the Canadian Dollar can also be attributed to rising GDP of
Pakistan between 2012 and 2016. Again, this was appositive sign for investor to invest in Pakistan as
result of which the Rupee appreciated.

Another major reason for the appreciation of PKR against Canadian dollar can be attributed to or
reducing inflation rates between 2001-2007 and between 2012 and 2016. Refer to the inflation graph
below.

Pakistan Inflation Rate.

In conclusion the above mentioned factors are some of the major reasons that can potentially explain
the trend that we have observed between the exchange rate of Canadian Dollar and Pakistani Rupee.