The purpose of this research is to study the uncertainty of a country from a newrnperspective. Besides, we also further our study into the determinants of the uncertainty.rnThis study consists of data from sample 20 countries both developed and developingrncountries from 2000 to 2015, using quarterly data for exchange rate while annual datarnfor the independent variables. The reason we used quarterly data for exchange rate isrnthat we will be composing our own exchange rate uncertainty index (EUI) using thernquarterly data. Then, we applied the pooled OLS, Fixed Effect Model (FEM) andrnRandom Effect Model (REM) to analyze the significance of the determinant of EUIrnbased on the panel data. In overall, we found that global factors are significant to EUIrnwhereas domestic factors are insignificant except the country’s trade factor. To the bestrnextend of our knowledge, we found that most of the previous researchers have studyrnthe exchange rate using the volatility. So, we intend to establish a new study based onrnthe skewness of exchange rate among developed and developing countries.

Copyright Page II

Declaration - III

Acknowledgements IV

Table of Contents - V

List of Tables VIII

List of Figures IX

List of Abbreviations X

List of Appendices XII

Abstract - XIII

10 Introduction - 1

11 Research Background 2

12 Problem Statement - 4

13 Research Objectives - 6

131 General Objective 6

132 Specific Objectives - 6

14 Research Questions - 6

15 Hypotheses of the Study - 6

16 Significance of the Study - 7

17 Chapter Layout 7

18 Conclusion 8

20 Introduction - 9

Theory underlying the model - 10

Does Global Factors Matter? - 11

Or is it Influenced by Domestic Factors? - 12

22 Gap to be filled 16

30 Introduction - 18

31 Model Specification 18

311 Interaction between VIX and KAOPEN - 19

32 Data Collection Method - 20

321 Data Processing 21

322 Data Description 21

33 Empirical Methodology - 23

331 Composition of Exchange Rate Uncertainty Index 23

332 Independent Variables Data Processing 24

333 Pooled Ordinary Least Square (POLS) 25

334 Fixed Effects Model (FEM) 27

335 Random Effects Model (REM) - 30

34 Model Selection - 31

341 Redundant Fixed Effects- Likelihood Ration 31

342 Omitted Random Effects - Lagrange Multiplier

 (Breusch-Pagan LM-test) - 31

343 Correlated Random Effects (Hausman Test) 32

35 Conclusion - 32

40 Introduction - 33

41 Central Tendencies Measurement of Constructs 33

42 What can we observe from the POLS table? - 39

421 Which model can fit the best to our study? - 42

43 Interpretation of the Model - 45

44 Conclusion - 46

50 Introduction - 47

51 Major Findings 47

How global factor affect the EUI? - 47

Or the EUI will be affected domestically? - 48

Why EUI will have different impact on developed and developing countries? 48

52 Policy Implication - 49

53 Limitation of Study 50

531 Omission of relevant variables - 50

532 Limited time frame - 51

533 Inclusive of irrelevant variables 51

54 Recommendation for future research 52

55 Conclusion - 52

Table 31: Sources of data independent variable - 20

Table 32: Description of data - 22

Table 41: Descriptive data 33

Table 42: List of countries 35

Table 43a: Exchange Rate Uncertainty Index - 37

Table 43b: Exchange Rate Uncertainty Index - 38

Table 44: Testing of relationship of independent variables and dependent variables - 41

Table 45: Summary Result of POLS, FEM and REM - 44

Figure 21: Relationships between exchange rate, domestic and global factors 10

Figure 31: Steps of data processing - 21

Figure 41: Exchange rate uncertainty index 34

ARDL Autoregressive Distributed Lag

BP-LM Breusch Pagan Lagrange Multiplier

CBOE Chicago Board Options Exchange

CNBC Consumer News and Business Channel

DCC Dynamic Conditional Correlation

EMS European Monetary System

EPU Economic Policy Uncertainty

EUI Exchange Rate Uncertainty Index

FEM Fixed Effect Model

GARCH Generalized Autoregressive Conditional Heteroscedasticity

GDP Gross Domestic Production

GFCF Gross Fixed Capital Formation

INF Inflation

KAOPEN Capital Account Openness

LSDV Least Squares Dummy Variable

POLS Pooled Ordinary Least Square

PPP Purchasing Power Parity

R&D Research and Development

REER Real Effective Exchange Rate

REM Random Effect Model

U Unemployment

VK VIX KAOPEN

VIX Volatility Index