The Development and Determinants of Foreign Exchange Market in Ghana

Abstract

This study seeks to examine the determinants of real exchange rate and its overall performance on Ghanaians economy from 1998 to 2016. The study extracted secondary data from the World Development Indicators (WDI) of the World Bank and Bank of Ghana (BoG) websites respectively. The following variables, namely trade openness, public debt, inflation, terms of trade, political stability were used as an independent variable while real exchange rate was the dependent variable. Simple linear regression model with ordinary least method (OLS), was used to analyze the results. The study revealed that trade openness and GDP are the main factors affecting exchange rate in Ghana. Also, the study finds that public debt, terms of trade, political stability had impact but were not statistically significant on real exchange rate. This study recommends Bank of Ghana put efforts to harmonize monetary policies and then proceed to connect these policies with trade and economic growth policies.