Abstract

We discuss currency volatility as a measure of currency instability using 15 currencies from developed and emerging economies. The IMF and others have recorded how countries manage their exchange rates to promote sustainable economic growth by designing exchange rate regimes as a pillar within economic policy. The findings herein show how to track currency instability using a given currency's volatility against the volatility of a benchmark currency of importance to the given currency. This is termed relative volatility. The study proceeds to test whether the parity factors and country risk factor are significantly correlated with exchange rate relative volatility.

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