Foreign Exchange Rate Movements in Iran: A Monetary Perspective

In recent years, one of the most important challenges of policy makers in Iran has been the level of foreign exchange rate. Some people believe that the existing rate is not the right one. While some of them consider the existing exchange rate higher than the equilibrium level, others think it is lower than that. In this paper, by utilizing theoretical approach, an attempt is made to analyze the past trend of exchange rate. The conclusion of this paper indicates that the trend of the foreign exchange rate movement is following the monetary policy. This approach has been proved in most of the third world countries which are experiencing high rates of inflation. With respect to findings of this paper one can believe that the growth of money supply, income and the difference between home and foreign interest rates USA are most important factors that determine the trend of money value at home.