Determinants Of Exchange Rate And Its Relationship With Economic Growth In Bangladesh

International trade provides one of the most essential ingredients for Economic Growth (EG). Having a large volume of population, with insufficient amount of daily necessities, Bangladesh is bound to do foreign trade. For doing foreign trade Bangladesh faces a oscillation in Exchange Rate (ER) which affects the international trade. It is also recognized that when the ER is high then the condition of the importer country is bad and vice-versa. In this situation there is no doubt to say that ER has a direct impact on the EG of any country. This study adopts an econometric analysis of determinants of ER for US Dollar in terms of Bangladeshi currency within the framework of monetary approach.. The relationship between ER and EG is also examined. Monthly data from January1984to April2012for Bangladesh comparative to USA have been used to scrutinize the long run and short run comportment of Bangladeshi Taka and USA Dollar (BDT/USD) ER and the relationship between ER and EG. Stock of money, foreign exchange Reserves, whole liability and political unpredictability are used as potential determinants of ER in Bangladesh. Finding suggests that real ER and the macroeconomic variables affecting real ER forms a co-integrating vector. It is also observed from the finding that stock of money and increase in debt service burden results in a real devaluation of currency, while growing foreign exchange reserve results in a real increasing of currency. Furthermore, Instability of political situation has a momentous negative influence on the worth of home currency. The empirical results also show that there is a momentous positive association among (ER) and (EG). The study also promotes the existence of long-run equilibrium association concerning ER and EG. In point of fact, this is verified from Granger’s Causality Test that there is a bi-directional causality runs through ER to EG and EG to ER.