This research is to research the effect of economic variables Interest Rate, Exchange Rate and crude oil prices towards the price tag on crude palm olive oil in Malaysia in short-term and long-term romance. It is can't be rejected that, the financial development in Malaysia is intensely dependent on the power consumption, it is therefore very very important to us to comprehend the result of economic parameters towards energy commodities. Based on the source from Malaysian Palm Oil Mother board (MPOB), Malaysia is the next world's largest hand olive oil exporter after Indonesia.
Crude Palm Oil
Palm oil can be an important source for global oils, and is becoming one of the world's most highly used edible oils. There is around 60% of crude palm oil produced in Malaysia are export to China, europe, Pakistan, United States and India. Those countries import crude palm essential oil are mostly made into cooking petrol, margarine, specialty fats and oleochemicals. Besides that, western countries are also looking for substitution of energy options. Thus, Malaysia government had been mainly concentrate on analysis of produce biodiesel by using crude hand oil and administration also declared that diesel must contain 5% of hand oil in season 2007. The reason why of Malaysia authorities to implement this plan is to boost the amount of hand essential oil produce and produce another sources of energy to replace the crude essential oil to be able to meet up with the demand of European countries, China and India. Because of that, the demand and price of crude hand oil are higher than previous yr. Therefore, the domestic market and export market in Malaysia can be broadened. Abdul et al. (2011) also disclose that the prices of crude palm petrol can be stabilized by increasing the demand of hand diesel.
Crude palm engine oil futures was firstly introduced in October, 1980 at the Kuala Lumpur Commodity Exchange (KLCE). Bursa Malaysia is the most significant palm olive oil futures trading in the world. You can find 2 economical reasons to launched FCPO in Malaysia. First of all, to provide an efficient price discovery mechanisms for the palm oil industry. Secondly, the reasons are to give a hedging device against the chance of price instability.
In the past decade, the volatility in the vitality item prices creates doubt which in turn forms an unpredictable economy while this has caused many troubles to many economies and developed economies (Abdul et al. , 2011). Based on the table 1, it indicates that the Crude palm olive oil prices have the best instability index which are 2. 24 is relatively volatile compare with other commodities product in Malaysia. The fluctuation prices of crude hand engine oil is a notable risk facing by the companies, dealers, consumers, and anyone who involved in the creation and marketing of palm oil.
The price forecasts for crude hand oil is necessary for decision making in such situation of doubt and high risk. Precise price predict are incredibly important to be able to stimulate a competent decision making as there may be time lag intervenes between making decisions and the genuine result of the item on the market (Mad Nasir and Fatimah, 1991).
Figure 1. 0: Palm Oil Annually Price - Malaysia Ringgit per Metric Ton
(Source: World Standard bank, http://www. indexmundi. com/commodities/?commodity=palm-oil&months=120¤cy=myr)
According to the above Amount 1. 0, it indicated that the Malaysia Crude Palm Olive oil price was fluctuated from year 2002 to calendar year 2012. There are many factors triggers the volatility of crude palm engine oil price such as weather condition, demand and supply as well as price of other substitute's product. Before decades, crude hand oil is mainly used in production cooking oil, margarine, and food products. However, in the recent year, demand of biodiesel had been steadily increase thus it triggers the demand of palm petrol to be increasing too, which biodiesel can be an option to petroleum (Abdul et al. , 2011)
From the Body 1. 0 implies that there surely is a sharply increase of crude palm petrol price from November 2006 to May 2008 as about RM3. 65k per metric ton. Furthermore, the Shape 1. 0 also implies that the highest price of crude palm oil from yr 2002 to yr 2012 is about RM3. 8k per metric lot in Feb 2011. Due to the crude hand oil can be employed to substitute the petroleum fuels and produced biodiesel, so triggers the demand of crude palm essential oil increasing. Therefore, there is a correlation between crude petrol and crude hand petrol prices (Basiron, 2008).
Interest rate can be defined as the speed surcharge on the money borrowed or loan. However, it can also be defined as the return derived from an investment. The interest in a country is setting up by the country's central loan provider. We also known as it as the loaning rate (BLR). For example, the U. S. Given funds rate is the total amount banks charge the other person for the overnight loans. Interest Rate is changed based on the fiscal coverage or monetary policy implement by federal government. Being a results, interest rate is necessary for determinant the item prices. Increasing on the interest rate will decrease the demand for storable commodities or improve the supply of the product through a number of programs: by increasing the motivation for removal today alternatively than tomorrow (think of the rates at which petrol is pumped, gold mined, forests logged, or livestock herds culled); by lessening organizations' desire to carry inventories due to cost of taking inventory increased (think of petrol inventories placed in tanks); by stimulating speculators to alter out of place commodity agreements, and into treasury expenses (Jeffrey Frankel, 2008). Furthermore, when the interest is higher, consumers have to pay more to fund their intake. The demand of commodity will decrease because of higher required payments, thus it influence the costs of commodity go down. However, if the interest rate is lower it has the inverse effect. Nowadays, goods are asset that's part of the stock portfolio for hedge funds. If interest is lower, entrepreneur will want to invest in stock, bonds and likewise incorporate taking open positions in financial market for goods. The interest using for this study is dependant on the lending rate (BLR) of Bank or investment company Negara Malaysia.
Exchange rate can be described as the rate of 1 currency can be exchange for another different money looked after can be defined as the price of one currency portrayed in terms of another different currency. Exchange rate for a currency is changing from time to time, it is because of the currencies are traded on an available market and demand for them can vary based on what is happening for the reason that country. The revenue of multinational organizations can be afflicted by the changes in the exchange rate from time to time. There are many factors can cause the exchange rate move up and down such as, interest rate, economic development, demand and offer, and political issues. The changes in the exchange rate will also have an effect on the worthiness of international investment kept by individual shareholders. There are lots of researches have been prove that there surely is a direct effect on the quantity of export and transfer on the fluctuation of the exchange rate. The levels of supply and demand for item products export and import can be influenced by the volatility on the exchange rate. On the idea view of your exporter, if the exchange rate is appreciate, it will cause reducing the competiveness of exporter in international market, the sales and income will reduce and the stock price will lower. However, in the idea view as an importer, importer will obtain advantage such as increasing their competiveness in the domestic market while the local money of the exporter is treasured. Thus, this will increase their earnings and sales. In in contrast, as the exchange rate is depreciated, it will cause the inverse impact to the importers and exporters. Therefore, the volatility of exchange rate can displace the global market equilibrium. Corresponding the above theory, it is very important and necessary to investigate the relationship between the exchange rate and price of crude palm petrol. The exchange rate of Malaysia Ringgit to USD will be using in this studies and the info is collected from Loan company Negara Malaysia.
Crude Engine oil Price
Crude oil can also call as petroleum, where it is effortlessly occurring chemicals found deep under the earth's surface. It can refined into gasoline, diesel, jet energy, kerosene, heating petrol, and literally thousands of other products called petrochemicals. Crude oil plays a important role to the world including in market, politics and technology. The volatility of the crude engine oil can cause the immediate and indirect impact to the planet economy. Thus, buyers are incredibly concern on activity of the crude petrol price in global. The highest of crude petrol price is harmful to global market. The increasing in the price of crude petrol will brings effect to the establishments and business over the board. There may be many researches had been done on the analysis of the result of changes in crude oil price on the economic growth and also investigates the partnership between commodity price and crude petrol price. Moreover, many reports had been done indicates that higher price of crude oil cause the high inflation and recession overall economy. Thus, the increasing on the crude olive oil price will improve the risk to the global economy growth. Based on the Amount 2. 0, there can be an upward trend on the price of crude essential oil throughout the 10 years. This results a heavy burden to the world's economic progress. During the financial crisis in calendar year 2008, the Shape 2. 0 implies that the price tag on crude oil is the most highest among the 10 years, where the price of crude oil is RM430. 78 per barrel. To be a results, the bigger price of crude olive oil will advances palm oil futures. The bigger price of crude olive oil activated the countries of export crude hand oil such as Malaysia and Indonesia take the features of purchase and selling big amount of fertilizer at discounted price to planters of crude hand oil and silicone to promote famers to grow more oil hand. Therefore, the volume of source crude palm oil will increase and this also will lead them to meet up with the growing demands for palm engine oil.
Figure 2. 0: Crude Oil(Petroleum) Yearly Price-Malaysia Ringgit per Barrel
1. 2: Problem Statement
Nowadays, because of the crude palm essential oil can using to create bio-fuel, the demand of the crude palm oil have been increasing over this few years. Crude palm essential oil is the main one of the major source in adding the economic expansion in Malaysia. It is because Malaysia is the second major exporter of crude hand oil in the world. Same to the other agriculture goods, crude palm olive oil price is posed to significant price volatility. Before decades, the price of crude palm engine oil is changed without the clear tendency. Because of the fluctuations in crude hand oil is the significant risk to economical expansion in Malaysia, manufacturers of palm engine oil, traders and consumers, therefore, it's important for us to determine the effect of financial changing and crude essential oil prices on the price tag on crude palm engine oil. There is many researches had been done on the analysis of the changes in crude palm oil price, nevertheless they do not much focus on review the short-term and permanent relationships of interest, exchange rate, and crude oil prices with the price tag on crude palm petrol. The dynamic relationships of economic factors and crude engine oil price on the price of crude palm olive oil must be first considered. Therefore, the problem statement of this research is to find out that "What are the relationship of interest rate, foreign exchange rate and crude oil price towards the price of crude palm engine oil?"
1. 3: Research Question
To determine whether there is certainly any effect of interest, exchange rate, and price of crude olive oil towards the crude palm oil prices?
Does the relationship of interest, foreign exchange rate and crude olive oil price towards the price tag on crude palm oil is in a nutshell run, or long haul, or both?
1. 4: Research Objective
The overall goal of this study is to observe and explore the way the interest, exchange rate and crude olive oil price are straight and indirectly impact the price tag on crude palm oil. Thus, this research aims at investigating the short-term and long-term relationship between the rate of interest, forex rate and crude petrol price towards the price of crude palm petrol.
1. 5: Range of the Study
The scopes of this research are employing the regular time series data from January 2001 through December 2011 in Malaysia which is from the World Loan provider. This secondary data would be used for investigating the effect of interest rate, exchange rate, and price of crude petrol towards the price of crude palm olive oil.
1. 6: Significance of the Study
The suggested research will determine the effect of interest rate, exchange rate, and crude petrol prices toward the price of crude palm engine oil. The results of this study will advantage the producers, traders and consumers in the creation of crude palm oil. They are able to forecast and forecast the crude hand essential oil price by studying the development and structure of interest, exchange rate and price of crude oil. Furthermore, in addition they can hedge their investment collection effectively from the information in this research.
2. 0: Introduction
This chapter will cover the literature overview of the partnership of interest, exchange rate, and price of crude oil towards the price tag on crude palm essential oil.
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