The Role of Inflation Rate Effect as A Mediating Variable ‎between The Foreign Exchange Rate and Market Performance

  • Authors

    • Hasanudin Faculty of Economics and Business, Universitas Nasional, Jakarta, Indonesia
    https://doi.org/10.14419/sgq5rc89

    Received date: June 21, 2025

    Accepted date: July 24, 2025

    Published date: July 30, 2025

  • Foreign Exchange Volatility (FEV); Interest Rates (IR); Gross Domestic Product (GDP); Foreign Ownership (FO); Inflation Rate (IR); ‎Stock Performance

  • Abstract

    Market performance is inherently influenced by macroeconomic indicators, notably the foreign exchange rate and inflation rate. The ‎volatility of currency values often leads to price level fluctuations, which in turn may affect the overall behavior of financial markets. This ‎research aims to investigate the influence of foreign exchange volatility, interest rates, GDP, and foreign ownership on stock performance ‎and the inflation rate, by considering the mediating role of the inflation rate. The research method used is Structural Equation Modeling - ‎Partial Least Squares (SEM-PLS) analysis, using secondary data obtained from various trusted sources.  The research results show that the ‎variables FEV (X1), IR (X2), GDP (X3), and FO (X4) have a significant influence on the level of SP (Y). Research reveals that the higher ‎the FEV, IR, GDP, and FO values, the higher the SP level. Apart from that, the IR (M) variable was also found to have a positive and ‎significant influence on SP, indicating that an increase in the IR (M) value is associated with an increase in SP. Another interesting finding ‎is the full mediation effect of FEV, IR, GDP, and FO on SP through IR (M). The private and non-profit sectors generally do not have ‎specific policies in place, which makes them more vulnerable to the financial impact of disasters‎.

  • References

    1. D. Kumar, K. Sengupta, and M. Bhattacharya, “Macroeconomic influences on M&A deal ‎outcomes: an analysis of domestic and cross-border M&As in developed and emerging ‎economies,” J. Bus. Res., vol. 161, p. 113831, 2023.‎ https://doi.org/10.1016/j.jbusres.2023.113831.
    2. ‎J. Kim, “Stock market reaction to US interest rate hike: evidence from an emerging market,” ‎Heliyon, vol. 9, no. 5, 2023.‎ https://doi.org/10.1016/j.heliyon.2023.e15758.
    3. ‎J. Heavilin and H. Songur, “Institutional distance and Turkey’s outward foreign direct ‎investment,” Res. Int. Bus. Financ., vol. 54, p. 101299, 2020.‎ https://doi.org/10.1016/j.ribaf.2020.101299.
    4. S. Gopalan and R. S. Rajan, “Does foreign bank presence affect interest rate pass-through in ‎emerging and developing economies?,” J. Macroecon., vol. 54, pp. 373–392, 2017.‎ https://doi.org/10.1016/j.jmacro.2017.06.010.
    5. ‎M. Vassalou, “Exchange rate and foreign inflation risk premiums in global equity returns,” J. Int. ‎Money Financ., vol. 19, no. 3, pp. 433–470, 2000.‎ https://doi.org/10.1016/S0261-5606(00)00008-5.
    6. ‎S. Breslin, “Foreign Direct Investment in the PRC: Preferences, Policies and Performance,” ‎Policy Soc., vol. 25, no. 1, pp. 9–38, 2006.‎ https://doi.org/10.1016/S1449-4035(06)70125-4.
    7. Z. Korzeb, P. Niedziółka, and S. Nistor, “Sovereign creditworthiness and bank foreign ‎ownership. An empirical investigation of the European banking sector,” J. Int. Financ. Mark. ‎Institutions Money, vol. 89, p. 101857, 2023.‎ https://doi.org/10.1016/j.intfin.2023.101857.
    8. ‎C. B. Onuk and A. Fodor, “Turkish currency crunch: Examining behavior across investor types,” ‎J. Int. Financ. Mark. Institutions Money, vol. 85, p. 101760, 2023.‎ https://doi.org/10.1016/j.intfin.2023.101760.
    9. H. Hasanudin, “The Effect of Investment Knowledge, Motivation, Minimum Capital and Risk ‎Perception on Student Investment Interest in the Faculty of Economics and Business National ‎University,” Best J. Adm. Manag., vol. 1, no. 4, pp. 94–100, 2021.‎ https://doi.org/10.56403/bejam.v1i4.94.
    10. ‎S. S. H. Shah et al., “Dynamic association of stock market volatility, foreign portfolio investment ‎and macroeconomic indicators by taking the impact of structural breaks,” Heliyon, vol. 9, no. 8, ‎‎2023.‎ https://doi.org/10.1016/j.heliyon.2023.e19115.
    11. ‎Hasanudin, “The Effect of Inflation, Exchange Rate, BI Rate and Dow Jones Index to Indonesia ‎Composite Index in Indonesia Stock Exchange on the Year 2013-2018,” Int. J. Sci. Soc., vol. 3, ‎no. 3 SE-Articles, Jul. 2021, https://doi.org/10.54783/ijsoc.v3i3.353.
    12. ‎O. Çepni, Y. S. Hacıhasanoğlu, and M. H. Yılmaz, “Credit decomposition and economic activity ‎in Turkey: A wavelet-based approach,” Cent. Bank Rev., vol. 20, no. 3, pp. 109–131, 2020.‎ https://doi.org/10.1016/j.cbrev.2020.06.001.
    13. ‎H. Hasanudin, “THE INFLUENCE OF INFLATION AND EXCHANGE RATES ON ‎INDONESIA’S ECONOMIC GROWTH,” INFOKUM, vol. 10, no. 5, pp. 1270–1275, 2022.‎
    14. ‎N. Alouane, I. Kahloul, and J. Grira, “The trilogy of ownership, income diversification, and ‎performance nexus: empirical evidence from Tunisian banks,” Financ. Res. Lett., vol. 45, p. ‎‎102180, 2022.‎ https://doi.org/10.1016/j.frl.2021.102180.
    15. ‎W. Abdillah and J. Hartono, Partial least square (PLS) Alternatif structural equation modeling ‎‎(SEM) dalam penelitian bisnis, vol. 22. Yogyakarta: Penerbit Andi, 2015.‎
    16. ‎I. Ghozali, Aplikasi analisis multivariate dengan program IBM SPSS 25. Semarang: Universitas ‎Diponegoro, 2018.‎
    17. ‎S. R. Dewi, “Buku Ajar Analisis Informasi Keuangan dan Bisnis,” Umsida Press, pp. 1–332, ‎‎2021.‎
    18. ‎H. Hasanudin and A. Kumaruza, “Effect of Interest Rates, Rupiah Currency Exchange Rates, ‎World Gold Prices, and Dow Jones Index on Stock Prices of Property and Real Estate ‎Companies with Inflation as Moderating Variables,” 2020.‎ https://doi.org/10.37010/fcs.v1i1.276.
    19. ‎K. Koulikidou, A. Chantziaras, E. Dedoulis, and S. Leventis, “Regulatory enforcement, ‎foreignness, and language negativity: Evidence from SEC comment letters,” J. Int. Accounting, ‎Audit. Tax., vol. 51, p. 100547, 2023.‎ https://doi.org/10.1016/j.intaccaudtax.2023.100547.
    20. ‎S. Ongena, I. Schindele, and D. Vonnák, “In lands of foreign currency credit, bank lending ‎channels run through?,” J. Int. Econ., vol. 129, p. 103435, 2021.‎ https://doi.org/10.1016/j.jinteco.2021.103435.
    21. ‎M. Amstad, F. Packer, and J. Shek, “Does sovereign risk in local and foreign currency differ?,” J. ‎Int. Money Financ., vol. 101, p. 102099, 2020.‎ https://doi.org/10.1016/j.jimonfin.2019.102099.
    22. ‎A. A. Unite and M. J. Sullivan, “The effect of foreign entry and ownership structure on the ‎Philippine domestic banking market,” J. Bank. Financ., vol. 27, no. 12, pp. 2323–2345, 2003.‎ https://doi.org/10.1016/S0378-4266(02)00330-8.
    23. ‎E. Wamboye and E. A. Tiruneh, “Exploring the nature, motives, and implications of foreign ‎capital in Africa,” Foreign Cap. flows Econ. Dev. Africa impact BRICS versus OECD, pp. 3–26, ‎‎2017.‎ https://doi.org/10.1057/978-1-137-53496-5_1.
    24. A. K. Pradhan and G. S. Hiremath, “Nexus between external commercial borrowings and foreign ‎exchange reserves in India: mercantilism or moral hazard?,” Transnatl. Corp. Rev., vol. 15, no. 2, ‎pp. 21–34, 2023.‎ https://doi.org/10.1016/j.tncr.2023.09.002.
    25. S. Song, S.-H. Lee, and M. Makhija, “Operational hedging in foreign direct investments under ‎volatile and divergent exchange rates across countries,” J. World Bus., vol. 50, no. 3, pp. 548–‎‎557, 2015.‎ https://doi.org/10.1016/j.jwb.2014.08.012.
    26. ‎R. Kumar, “Stock markets, derivatives markets, and foreign exchange markets,” Strateg. banks ‎other Financ. institutions Theor. cases, pp. 125–164, 2014.‎ https://doi.org/10.1016/B978-0-12-416997-5.00005-1.
    27. N. Atawnah, R. Zaman, J. Liu, T. Atawna, and A. Maghyereh, “Does foreign competition affect ‎corporate debt maturity structure? Evidence from import penetration,” Int. Rev. Financ. Anal., ‎vol. 86, p. 102539, 2023.‎ https://doi.org/10.1016/j.irfa.2023.102539.
    28. M. Cavallo and F. Ghironi, “Net foreign assets and the exchange rate: Redux revived,” J. Monet. ‎Econ., vol. 49, no. 5, pp. 1057–1097, 2002.‎ https://doi.org/10.1016/S0304-3932(02)00122-8.
    29. ‎Ö. Süer, H. Levent, and S. Şen, “Foreign entry and the Turkish banking system in 2000s,” North ‎Am. J. Econ. Financ., vol. 37, pp. 420–435, 2016.‎ https://doi.org/10.1016/j.najef.2016.03.003.
    30. ‎B. F. Yavas and R. K. Malladi, “Foreign direct investment and financial markets influences: ‎Results from the United States,” North Am. J. Econ. Financ., vol. 53, p. 101182, 2020.‎ https://doi.org/10.1016/j.najef.2020.101182.
    31. B. Du, A. Serrano, and A. Vianna, “Institutional development and foreign banks in Chile,” Int. ‎Rev. Financ. Anal., vol. 58, pp. 166–178, 2018.‎ https://doi.org/10.1016/j.irfa.2017.10.001.
    32. ‎F. Demir, “Growth under exchange rate volatility: Does access to foreign or domestic equity ‎markets matter?,” J. Dev. Econ., vol. 100, no. 1, pp. 74–88, 2013.‎ https://doi.org/10.1016/j.jdeveco.2012.08.001.

  • Downloads

  • How to Cite

    Hasanudin. (2025). The Role of Inflation Rate Effect as A Mediating Variable ‎between The Foreign Exchange Rate and Market Performance. International Journal of Accounting and Economics Studies, 12(3), 336-346. https://doi.org/10.14419/sgq5rc89