Abstract

Exchange rate risk is one part of systematic risk that able to be transfer between countries and markets. Therefore, many researchers are seeking the suitable way to reduce the exchange rate risk. This study aims to analyze the AEC’s exchange rates risk on interbank money market thereby we perform our test with econometric test by using the linear regression to be our model. This study has found some evidence from the variance decomposition test and impulse response test that suggested the exchange rates of AEC member countries such the Indonesian Rupiah (IDR), and Philippine Peso (PHP) can be explained the interrelationship between exchange rate and BIBOR better than other currencies. Moreover, we also found the degree of relation of the exchange rates vary direction with the tenor of BIBOR as well. And, almost every currency of the AEC’s exchange rates had positive relation on BIBOR except the PHP. The results from this study will be extending knowledge and understanding of exchange rate risk on BIBOR to the central bank, financial institution, and everyone who interesting in exchange rate risk moreover this result can apply for risk management as well.

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