This research is to look into the consequence of economic variables Interest Rate, Exchange Rate and rough oil monetary values towards the monetary value of rough palm oil in Malaysia in short-run and long-run relationship. It is ca n’t be denied that, the economic growing in Malaysia is to a great extent dependent on the energy ingestion, therefore it is really of import for us to understand the consequence of economic variables towards energy trade goods. Harmonizing to the beginning from Malayan Palm Oil Board ( MPOB ) , Malaysia is the 2nd universe ‘s largest thenar oil exporter after Indonesia.
Crude Palm Oil
Palm oil is an of import beginning for planetary oils, and has become one of the universe ‘s most extremely consumed comestible oils. There is about 60 % of rough palm oil produced in Malaysia are export to China, the European Union, Pakistan, United States and India. Those states import rough palm oil are largely made into cooking oil, oleo, forte fats and oleochemicals. Besides that, western states are besides looking for permutation of energy beginnings. Therefore, Malaysia authorities had been chiefly concentrate on survey of green goodss biodiesel by utilizing rough palm oil and authorities besides declared that all Diesel must incorporate 5 % of palm oil in twelvemonth 2007. The ground of Malaysia authorities to implement this scheme is to increase the sum of palm oil green goods and bring forth another beginnings of energy to replace the petroleum oil in order to run into the demand of European states, China and India. Due to that, the demand and monetary value of rough palm oil are higher than old twelvemonth. Therefore, the domestic market and export market in Malaysia can be expanded. Abdul et Al. ( 2011 ) besides unwrap that the monetary values of rough palm oil can be stabilized by increasing the demand of palm Diesel.
Crude palm oil hereafters was foremost introduced in October, 1980 at the Kuala Lumpur Commodity Exchange ( KLCE ) . Bursa Malaysia is the largest thenar oil hereafters trading in the universe. There are 2 economic grounds to establish FCPO in Malaysia. First, to supply an efficient monetary value find mechanisms for the palm oil industry. Second, the grounds are to supply a fudging mechanism against the hazard of monetary value instability.
In the past decennary, the volatility in the energy trade good monetary values creates uncertainness which in bend signifiers an unstable economic system while this has caused many troubles to many economic systems and developed economic systems ( Abdul et al.,2011 ) . Harmonizing to the tabular array 1, it indicates that the Crude palm oil monetary values have the highest instability index which are 2.24 is comparatively volatile comparison with other trade goods merchandise in Malaysia. The fluctuation monetary values of rough palm oil is a noteworthy hazard facing by the manufacturers, bargainers, consumers, and anyone who involved in the production and selling of palm oil.
The monetary value prognosiss for rough palm oil is necessary for determination devising in such state of affairs of uncertainness and high hazard. Precise monetary value predict are really of import in order to excite an efficient determination devising as there is clip lag intervenes between doing determinations and the existent end product of the trade good in the market ( Mad Nasir and Fatimah, 1991 ) .
Figure 1.0: Palm Oil Yearly Price – Malaya Ringgit per Metric Ton
( Beginning: World Bank, hypertext transfer protocol: //www.indexmundi.com/commodities/ ? commodity=palm-oil & A ; months=120 & A ; currency=myr )
Harmonizing to the above Figure 1.0, it indicated that the Malaysia Crude Palm Oil monetary value was fluctuated from twelvemonth 2002 to twelvemonth 2012. There are many factors causes the volatility of rough palm oil monetary value such as conditions status, demand and supply every bit good as monetary value of other replacement ‘s merchandise. In the past decennaries, rough thenar oil is largely used in industry cookery oil, oleo, and nutrient merchandises. However, in the recent twelvemonth, demand of biodiesel had been steadily increase therefore it causes the demand of palm oil to be increasing excessively, which biodiesel is an alternate to petroleum ( Abdul et al. , 2011 )
From the Figure 1.0 indicates that there is a aggressively addition of rough palm oil monetary value from November 2006 to May 2008 as about RM3.65k per metric ton. Furthermore, the Figure 1.0 besides shows that the highest monetary value of rough palm oil from twelvemonth 2002 to twelvemonth 2012 is about RM3.8k per metric ton in February 2011. Because of the rough palm oil can be utilized to replace the crude oil fuels and manufactured biodiesel, so causes the demand of rough palm oil increasing. Therefore, there is a correlativity between rough oil and petroleum palm oil monetary values ( Basiron, 2008 ) .
Interest rate can be defined as the rate surcharge on the money borrowed or loan. However, it besides can be defined as the return derived from an investing. The involvement rate in a state is puting by the state ‘s cardinal bank. We besides called it as the loaning rate ( BLR ) . For illustration, the U.S. Fed financess rate is the sum Bankss charge each other for the nightlong loans. Interest Rate is changed based on the financial policy or pecuniary policy implement by authorities. As a consequences, involvement rate is necessary for determiner the trade good monetary values. Increasing on the involvement rate will diminish the demand for storable trade goods or increase the supply of the trade good through a assortment of channels: by increasing the inducement for extraction today instead than tomorrow ( think of the rates at which oil is pumped, gold mined, woods logged, or farm animal herds culled ) ; by diminishing houses ‘ desire to transport stock lists because of the cost of transporting stock list increased ( think of oil stock lists held in armored combat vehicles ) ; by promoting speculators to switch out of topographic point trade good contracts, and into exchequer measures ( Jeffrey Frankel, 2008 ) . Furthermore, when the involvement rate is higher, consumers have to pay more to finance their ingestion. The demand of trade good will diminish because of higher needed payments, therefore it affect the monetary values of trade good go down. However, if the involvement rate is lower it will hold the reverse consequence. Nowadays, trade goods are plus that ‘s portion of the portfolio for hedge financess. If involvement rate is lower, investor will desire to put in stock, bonds and besides include taking unfastened places in fiscal market for trade goods. The involvement rate utilizing for this survey is based on the loaning rate ( BLR ) of Bank Negara Malaysia.
Exchange rate can be described as the rate of one currency can be exchange for another different currency and it besides can be defined as the monetary value of one currency expressed in footings of another different currency. Exchange rate for a currency is altering from clip to clip, it is due to the currencies are traded on an unfastened market and demand for them varies based on what is go oning in that state. The net income of transnational corporations can be affected by the alterations in the exchange rate from clip to clip. There are several factors can do the exchange rate travel up and down such as, involvement rate, economic growing, demand and supply, and political issues. The alterations in the exchange rate will besides impact the value of foreign investing held by single investors. There are many researches had been prove that there is an impact on the volume of export and import towards the fluctuation of the exchange rate. The measures of supply and demand for trade good merchandises export and import can be influenced by the volatility on the exchange rate. On the point position of an exporter, if the exchange rate is appreciate, it will do cut downing the competiveness of exporter in international market, the gross revenues and net income will shrivel and the stock monetary value will diminish. However, in the point position as an importer, importer will have benefit such as increasing their competiveness in the domestic market while the local currency of the exporter is appreciated. Therefore, this will increase their net income and gross revenues. In contrary, while the exchange rate is depreciated, it will do the reverse consequence to the importers and exporters. Therefore, the volatility of exchange rate can displace the planetary market equilibrium. Harmonizing the above theory, it is really of import and necessary to look into the relationship between the exchange rate and monetary value of rough palm oil. The exchange rate of Malaysia Ringgit to USD will be utilizing in this surveies and the information is collected from Bank Negara Malaysia.
Crude Oil Price
Crude oil besides can name as crude oil, where it is of course happening substances found deep beneath the Earth ‘s surface. It can polish into gasolene, Diesel, jet fuel, kerosine, heating oil, and literally 1000s of other merchandises called petrochemicals. Crude oil plays a of import function to the society including in economic system, political relations and engineering. The volatility of the rough oil can do the direct and indirect impact to the universe economic system. Therefore, investors are really concern on motion of the rough oil monetary value in planetary. The highest of rough oil monetary value is bad for planetary economic system. The increasing in the monetary value of rough oil will convey consequence to the industries and concern across the board. There is many researches had been done on the survey of the consequence of alterations in rough oil monetary value towards the economic growing and besides investigates the relationship between trade good monetary value and rough oil monetary value. Furthermore, many surveies had been done indicates that higher monetary value of rough oil cause the high rising prices and recession economic system. Therefore, the increasing on the rough oil monetary value will increase the hazard to the planetary economic system growing. Harmonizing to the Figure 2.0, there is an upward tendency on the monetary value of petroleum oil throughout the 10 old ages. This consequences a heavy load towards the universe ‘s economic growing. During the fiscal crisis in twelvemonth 2008, the Figure 2.0 shows that the monetary value of rough oil is the most highest among the 10 old ages, where the monetary value of rough oil is RM430.78 per barrel. As a consequences, the higher monetary value of rough oil will progress palm oil hereafters. The higher monetary value of rough oil stimulated the states of export petroleum palm oil such as Malaysia and Indonesia take the advantages of purchase and selling large sum of fertiliser at discounted monetary value to plantation owners of rough palm oil and gum elastic to advance famers to works more oil thenar. Therefore, the volume of supply rough thenar oil will increase and this besides will do them to run into the turning demands for palm oil.
Figure 2.0: Crude Oil ( Petroleum ) Annually Price-Malaysia Ringgit per Barrel
1.2: Problem Statement
Presents, due to the rough palm oil can utilizing to bring forth bio-fuel, the demand of the rough thenar oil had been increasing over this few old ages. Crude palm oil is the 1 of the major beginning in lending the economic growing in Malaysia. It is because Malaysia is the 2nd largest exporter of rough palm oil in the universe. Lapp to the other agribusiness trade goods, crude palm oil monetary value is posed to important monetary value volatility. In the past decennaries, the monetary value of rough palm oil is changed without any clear inclination. Due to the fluctuations in rough palm oil is the important hazard to economic growing in Malaysia, manufacturers of palm oil, bargainers and consumers, hence, it is necessary for us to find the consequence of economic variable and rough oil monetary values on the monetary value of rough palm oil. There is many researches had been done on the survey of the alterations in rough palm oil monetary value, but they do non much focal point on survey the short-run and long term relationships of involvement rate, exchange rate, and rough oil monetary values with the monetary value of rough palm oil. The dynamic dealingss of economic variables and rough oil monetary value on the monetary value of rough palm oil must be foremost considered. Therefore, the job statement of this research is to happen out that “ What are the relationship of involvement rate, foreign exchange rate and petroleum oil monetary value towards the monetary value of rough thenar oil? ”
1.3: Research Question
This research is conducted to work out the undermentioned inquiry:
To find whether there is any consequence of involvement rate, exchange rate, and monetary value of rough oil towards the petroleum palm oil monetary values?
Does the relationship of involvement rate, foreign exchange rate and petroleum oil monetary value towards the monetary value of rough palm oil is in short tally, or long tally, or both?
1.4: Research Aim
The overall aim of this survey is to detect and research how the involvement rate, exchange rate and petroleum oil monetary value are straight and indirectly affect the monetary value of rough palm oil. Therefore, this research aims at look intoing the short-run and long-run relationship between the involvement rate, foreign exchange rate and petroleum oil monetary value towards the monetary value of rough palm oil.
1.5: Scope of the Study
The Scopess of this research are utilizing the monthly clip series informations from January 2001 through December 2011 in Malaysia which is obtained from the World Bank. This secondary informations would be used for look intoing the consequence of involvement rate, exchange rate, and monetary value of rough oil towards the monetary value of rough palm oil.
1.6: Significance of the Study
The proposed research will find the consequence of involvement rate, exchange rate, and rough oil monetary values toward the monetary value of rough palm oil. The consequences of this survey will profit the manufacturers, bargainers and consumers in the production of rough palm oil. They can foretell and calculate the rough palm oil monetary value by analysing the tendency and form of involvement rate, exchange rate and monetary value of rough oil. Furthermore, they besides can fudge their investing portfolio efficaciously from the information in this survey.
This chapter will cover the literature reappraisal of the relationship of involvement rate, exchange rate, and monetary value of rough oil towards the monetary value of rough palm oil.