Information Communication Technology's Influence on Exchange Rate

Information Technology and Exchange Rate

Participation in the financial market necessitates efficient forecasting models, accurate information regarding exchange rate performances, and insight into the behavior of other market forces (Ayrton et al., 2019). ICT profoundly impacts access to this critical information, providing second-tier effects that complement its primary role in facilitating tradable ICT commodities (Okoro et al., 2020; Sharma et al., 2019).

In recent years, the depreciation of the Zambian kwacha has significantly impacted businesses, leading to an amplified cost of living (Mwiya, 2019; Pollen, 2020). The exchange rate affects transactions among Zambia and other countries, directly influencing intra-industry trade in sectors such as the steel industry. ICTs have revolutionized financial market transactions, influenced the exchange rate, and exacerbated volatility. Below are selected key concepts structured for this research.

Globalization and Markets Integration

Globalization has integrated financial markets worldwide, facilitating capital and investment flows. While market integration offers growth opportunities, it also poses risks and challenges, particularly understanding exchange rate volatilities, which significantly impact trade, investment, and economic growth (International Monetary Fund [IMF], 2000). We propose that exchange rate volatilities affect exports, imports, and investment value, and influence inflation, interest rates, and monetary policy decisions, as evident in the Bank of Zambia's interventions since 2022. Therefore, understanding the factors that influence exchange rate volatilities is vital for policymakers and market participants (Mishra & Daly, 2006).

Emerging markets' growing significance in global trade and investment makes exchange rate volatilities a critical issue. As these markets' importance increases, their exchange rates have a greater impact on global finance (World Bank, 2019). Therefore, understanding the factors that drive exchange rate volatilities in these markets is essential for promoting economic growth and development.

Exchange Rate Volatility (ERV)

Currency volatility simply means the fluctuations in the value of a currency relative to other convertible currencies. Causes emanate from many factors including economic indicators, political events, and market sentiment (Alper, 2017). There are myriad of observable effects in the Zambian economy. Notable influencers include the following:

• 1.

  Trade

  • •

    Competitiveness of exports and imports

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    Changes in trade balances and current accounts

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    Decisions to engage in international trade

• 2.

  Investment

  • •

    Value of investments

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    Changes in investment decisions and capital flows

  • •

    Cost of borrowing and the availability of credit

• 3.

  Economic growth

  • •

    Economic activity and GDP

  • •

    Inflation and interest rates

  • •

    Monetary and fiscal policy decisions

Activities in the aforementioned areas of volatility impact have been accentuated by the ICT revolution.