INTRODUCTION OF THE STUDY

RATIONALE
Economic activities is greatly involved with exchange rate appreciation or
depreciation. With this, money supply growth has been observed to rely on exchange
rate changes and vice versa (M. Asif & S. Shah, 2016).
Philippine peso nowadays has a steady purchasing power decline of exchange
rate compared to United States’ dollar.

Philippine peso’s value depreciated to P52.12 against the United States dollar on
Wednesday, February 14, 2018, its weakest performance in over 11 years, as a surge
in imports led to record trade deficit (Dela Paz, 2018).
 Addresses to bridge the gap on how devaluation affects the Philippine
international trading and its possible implications towards the economic growth of
the country in terms of foreign trade.
STATEMENT OF THE PROBLEM
STATEMENT OF THE PROBLEM
This study aimed to assess the effects of Philippine currency devaluation on the Philippine repute
with respect to cross-border trading.

1. WHAT ARE THE TREND OF THE PHILIPPINE PESO FOR THE YEARS 1997 TO 2017?
2. WHAT ARE THE FACTORS THAT CAUSE THE PHILIPPINE PESO TO DEVALUATE?
3. HOW THE FACTORS AS A WHOLE CO-RELATE WITH THE GROSS DOMESTIC
PRODUCT OF THE PHILIPPINES AND ITS IMPLICATION TO FOREIGN TRADE?
 OBJECTIVES OF THE STUDY
The primary purpose of the study is to enumerate the effects of the Philippine
currency devaluation on Philippines cross-border trading and to serve as a tool to
evaluate the country’s performance and standing as one of the countries involved in
foreign trade.

Furthermore, the study aims to show the relationship of Philipine currency

devaluation in relation to both the gross domestic product of the country and foreign
trade and what would be its possible implications.
REVIEW OF RELATED LITERATURE
According to a report of Department of Finance, “The peso depreciation followed
the rise in interest rates in the US, leading to outflows of foreign exchange from
emerging economies including the Philippines”

It is evident that the widespread replacement of the old coins to nickel-tinted coins
of the country is one of the possible evidences of currency devaluation in the
country. It means that the bank notes issued have less value compared before.
Hence, there are a few key reasons as to the depreciation of currency in the Philippines wherein five
factors are to be among the most important economic indicators anyone can follow by reading the news
which are inflation rates, interest rates, current account balance, trade deficits and government debt.

The contractionary effects of devaluation may occur from the demand side, supply side, and balance-sheet
side effects

First, if the price elasticities of demand for exports and imports are too low, or if the country faces an
initial large trade deficit, according to the monetary model, the domestic price level will increase due to
higher prices of imported goods and thereby the real money balance is lowered and aggregate demand is
reduced (Frenkel &Johnson, 1976).
Second, if there is redistribution of income from a low saving group (wage) to a high-saving group
(profit), aggregate demand will be reduced (Krugman & Taylor, 1978).

Third, devaluation raises the price of imported intermediate goods and results in an upward shift in the
aggregate supply (see the works of Findlay & Rodriguez, 1977; Sachs, 1980, and etc.), which may result
in decreased output.

Fourth, devaluation often triggers capital outflow and acts as a caveat on foreign borrowings, which will
induce a decline in consumer spending and investor confidence in the domestic economy.
According to P. Krugman and L. Taylor (1976), the immediate impact of devaluation is to create excess
demand for home goods. The possibility that the price movements caused by devaluation will create
enough losers in real income terms to reduce effective home goods demand is always left out.
Some quantitative factors that affect the devaluation of money in the exchange rate to
US Dollars are the change of lending rates of the country, once the lending rate of the
country increases, more investors are enticed to invest in the certain country.

An increase in the real exchange rate is an increase in the price of foreign goods, and this will reduce
imports and raise exports, and ultimately lead to an increase in the trade balance.
THEORETICAL BACKGROUND
Throughout the years, peso devaluation has been an alarming case in the Philippines.

Moreover, international trade is an essential factor for economic growth and development.
However, the devaluation of Philippine currency has a widespread effect on various operations of
every business firms.
 The primary effect of devaluation would raise the value thereby increasing the
prices of foreign goods relative to home goods, hence, creating excess demand for
domestic production. (Krugman & Taylor, 1976)

The movement of all the factors as a whole imposes an inverse effect on

the Gross Domestic Product of the Philippines.

In lieu with this, active investors also keep an eye on GDP in helping them to
determine how, when, and in which country, to best deploy their investment capital.
RESULTS AND DISCUSSIONS
 RESEARCH ENVIRONMENT
• THE RESEARCHERS DECIDED TO TAKE SECONDARY DATA FROM THE SUBJECT MATTER OF
THE RESEARCH ITSELF WHICH IS THE PHILIPPINE GROSS DOMESTIC PRODUCT,
INFLATION RATE, INTEREST RATE, AVERAGE FOREIGN EXCHANGE RATE, CURRENT
ACCOUNT BALANCE OR TRADE DEFICIT AND GOVERNMENT DEBTS.

DATA GATHERING AND PROCEDURE

• INMAKING THIS RESEARCH, THE RESEARCHERS FIRST IDENTIFIED THE NECESSARY
NATIONAL INCOME MEASUREMENT THAT IS CORRELATED WITH THE MOVEMENT OF
FOREIGN CURRENCY EXCHANGE OF THE COUNTRY TO US DOLLAR ($).
• THERESEARCHERS TOOK DATA FROM WORLD BANK, PHILIPPINE STATISTICS
AUTHORITY (PSA) AND BANGKO SENTRAL NG PILIPINAS (BSP).
• AFTER MATCHING THE DATA PRESENTED, THE RESEARCHERS USED MICROSOFT EXCEL
TO OBTAIN RESULTS FROM A REGRESSION ANALYSIS TO TEST IF THE DATA GATHERED IS
SUBSTANTIAL ENOUGH TO BE CORRELATED TO EACH OTHER.
GDP GROWTH RATE AND DEVALUATION(INFLATION) RATE
SHORT TERM ANALYSIS
LONG TERM ANALYSIS
CURRENCY DEVALUATION ANALYSIS
SHORT TERM ANALYSIS
LONG TERM ANALYSIS
CONCLUSION
 CONCLUSION
Based on the research
conducted, the researchers
concluded that the more
the currency depreciates
considering already the
various factors that leads to
it, the greater it affects the
GDP positively.
Hence, as the currency
devaluates and entailed a
With this at hand, active
strong economic GDP,
investors are known to pay
then it imposes a relative
keen attention on a
effect on the interest of
country’s GDP.
entrepreneurs to create a
Conversely, GDP may be a
new production capacity
lagging indicator but it is
which leads to more
the best going one for
investments and attract
investors to assess the best
potential investors
time to deploy capital
globally; thereby
investments.
encouraging cross-border
trading.