Volatility in Monetary Policy and Exchange Rate Effects on the Mutual Funds Sector

Abstract

Exchange rate and monetary policy plays a major role of financial markets, particularly the mutual fund market. This research aims to investigate the impact of interest rate and exchange rate volatility on mutual fund performance, fund flows, and investor behavior. As financial markets become increasingly globalized, changes in central bank policies and currency values can significantly influence investment strategies and risk exposure. The core objective of this research is to fill a gap in the literature of particularly examining how monetary policy and movements in the exchange rate affect mutual funds specifically, as compared to general movements in the stock market. This research aims to offer useful insights to fund managers, financial professionals, investors, and policymakers regarding how they can be better equipped to recognize and react to macroeconomic shocks. The research applies two simple hypotheses; monetary policy shocks cause variations in mutual fund prices, and exchange rate fluctuations affect the returns of mutual funds, especially internationally exposed ones. A quantitative design is applied, with the use of financial market data and questionnaires, analyzed using Smart PLS. Through the study of these relations, the study will add to greater knowledge of dynamic interactions among exchange rates, monetary policy, and mutual fund performance.