Did Fed’s Rate Policy Benefit U.S. Company: Evidence from Tesla

Research Article
Open access

Did Fed’s Rate Policy Benefit U.S. Company: Evidence from Tesla

Linxuan Li 1*
  • 1 Wenzhou-Kean University    
  • *corresponding author lilinx@kean.edu
Published on 13 September 2023 | https://doi.org/10.54254/2754-1169/9/20230388
AEMPS Vol.9
ISSN (Print): 2754-1177
ISSN (Online): 2754-1169
ISBN (Print): 978-1-915371-45-4
ISBN (Online): 978-1-915371-46-1

Abstract

This paper studies the impact of the Federal Reserve's interest rate policy on American companies, taking Tesla as evidence. Data on the Tesla stock as well as the USD/RMB exchange rate for the previous year were gathered. The impact of a rising exchange rate on companies goes in two directions. On the one hand, the appreciation of the dollar means the depreciation of foreign operating income, and the depreciation of the domestic currency is bad for exports. On the other hand, it will affect how the stock market operates. An increase in dollar holdings in international financial markets would increase the demand for stocks, which would increase stock prices. The conclusion is that the Fed's interest rate policy to control inflation in the United States has, to some extent, come at the expense of stock market growth. The VAR model and ARMA-GARCH model were used to model and analyze the data, and forecast the trend of the company's stock price, then make recommendations for policymakers and investors. For policymakers, it is necessary to adjust the policy appropriately to minimize the volatility of stock market returns, and investors should turn to assets with lower risk instead of blindly investing.

Keywords:

China, US, interest rate policy, exchange rate, VAR model, ARMA-GARCH model

Li,L. (2023). Did Fed’s Rate Policy Benefit U.S. Company: Evidence from Tesla. Advances in Economics, Management and Political Sciences,9,242-251.
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References

[1]. P. Franck, A. Young, (1972) Stock prices reaction of multinational firms to exchange realignments. Financial Management, pp. 66-73.

[2]. B. Bhattacharya, J.Mukherjee, (2003) Casual Relationship between Stock Market and Exchange Rate, Foreign Exchange Reserves and Value of Trade Balance” Presented in 5th Annual Conference on Money and Finance in India. https://www.african-markets.com/en/stock-markets/luse

[3]. L.L.Ong, H.Y.Izan, (1999) Stocks and currencies: Are they related?.Applied Financial Economics, pp.523-532.

[4]. L.A.Soenen, E.S.Henniger, (1988) An analysis of exchange rates and stock prices: The US experience between 1980 and 1986. Akron Business and Economic Review, pp.7-16.

[5]. P.Jorion, (1990) The exchange rate exposure of US multinationals. Journal of Business, pp.331-346.

[6]. S.Nydahl, (1999) Exchange rate exposure, foreign involvement and currency hedging of firms. European Financial Management, pp.241-257.

[7]. H.Kiymaz, (2003) Estimation of foreign exchange exposure: An emerging market application. Journal of Multinational Financial Management, pp.342-363.

[8]. J.M.Griffin, R.M.Stulz, (2001), International competition and exchange rate shocks: a cross-country industry analysis of stock returns. Review of Financial Studies, pp.215-241.

[9]. S.Daniel, (2004), Comparison of financial markets development in the czech republic and in the European union. Czech Journal of Economics, pp.141-161.

[10]. M.Bahmani-Oskooee, A.Sohrabian, (1992), Stock prices and the effective exchange rate of dollar. Applied Economics, pp.459-464.

[11]. C.W.Granger, B.Huang, C.Yang, (2000), A bivariate causality between stock prices and exchange rates. The Quarterly Review of Economics and Finance, pp.337-354.

Cite this article

Li,L. (2023). Did Fed’s Rate Policy Benefit U.S. Company: Evidence from Tesla. Advances in Economics, Management and Political Sciences,9,242-251.

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The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

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About volume

Volume title: Proceedings of the 2nd International Conference on Business and Policy Studies

ISBN：978-1-915371-45-4(Print) / 978-1-915371-46-1(Online)
Editor：Canh Thien Dang, Javier Cifuentes-Faura
Conference website: https://2023.confbps.org/
Conference date: 26 February 2023
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.9
ISSN：2754-1169(Print) / 2754-1177(Online)

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References

[1]. P. Franck, A. Young, (1972) Stock prices reaction of multinational firms to exchange realignments. Financial Management, pp. 66-73.

[2]. B. Bhattacharya, J.Mukherjee, (2003) Casual Relationship between Stock Market and Exchange Rate, Foreign Exchange Reserves and Value of Trade Balance” Presented in 5th Annual Conference on Money and Finance in India. https://www.african-markets.com/en/stock-markets/luse

[3]. L.L.Ong, H.Y.Izan, (1999) Stocks and currencies: Are they related?.Applied Financial Economics, pp.523-532.

[4]. L.A.Soenen, E.S.Henniger, (1988) An analysis of exchange rates and stock prices: The US experience between 1980 and 1986. Akron Business and Economic Review, pp.7-16.

[5]. P.Jorion, (1990) The exchange rate exposure of US multinationals. Journal of Business, pp.331-346.

[6]. S.Nydahl, (1999) Exchange rate exposure, foreign involvement and currency hedging of firms. European Financial Management, pp.241-257.

[7]. H.Kiymaz, (2003) Estimation of foreign exchange exposure: An emerging market application. Journal of Multinational Financial Management, pp.342-363.

[8]. J.M.Griffin, R.M.Stulz, (2001), International competition and exchange rate shocks: a cross-country industry analysis of stock returns. Review of Financial Studies, pp.215-241.

[9]. S.Daniel, (2004), Comparison of financial markets development in the czech republic and in the European union. Czech Journal of Economics, pp.141-161.

[10]. M.Bahmani-Oskooee, A.Sohrabian, (1992), Stock prices and the effective exchange rate of dollar. Applied Economics, pp.459-464.

[11]. C.W.Granger, B.Huang, C.Yang, (2000), A bivariate causality between stock prices and exchange rates. The Quarterly Review of Economics and Finance, pp.337-354.

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