Yearly time series data have been used to figure out that type of relevant variables that are very much momentous for the determinants of foreign exchange reserves. This study undertakes an econometric analysis of the determinants of foreign exchange reserves. Key words: Purchasing Power Parity, Price Level, Exchange Rates, Bilateral Trade Balance ![]() Finally the results also specify about the trade patterns among the countries and fairly conclude the efficient and beneficial trade partner in respect of Bangladesh with India and China. ![]() The empirical results of the study provides an explanation of how relative inflation rates (changes of price level) between two countries can influence an exchange rate and also critically focuses on the degree of deviation between countries which may help to draw a forecast long-run movements in exchange rates. India and China (foreign countries) over a given period of time by using the PPP. The main purpose of the study is to get a comparative picture of trade balance between Bangladesh (home country) and two major trade partners, i.e. The PPP theory is an attempt to explain and perhaps more importantly measure statistically, the equilibrium rate of exchange and its variation by means of the price levels and their variations in different countries. ![]() The paper examines the existence of the Purchasing Power Parity (PPP) theory for both Bangladesh and its two important trading partners- India and China.
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