Determining the Optimal Ratio of Foreign Currency in Commercial Banks: An Analytical Study of Exchange Rates

Authors

• Abbas Ebd Al-Khudair Al-Shalan, University of Al-Muthanna - College of Administration and Economics - Department of Business AdministrationFollow

Abstract

The research aimed to help commercial banks avoid losses resulting from currency differences between the Iraqi Dinar and the US Dollar in their banking transactions and to estimate the optimal ratio for dealing in dollars. The research proved the impact of exchange rate fluctuations on local inflation rates and demonstrated the possibility of determining the optimal ratio for commercial banks' transactions in foreign currency, which avoids currency difference losses in their commitments and investments, as well as liquidity reduction risks. The research was conducted on a set of data on exchange rate fluctuations and inflation rates during the period (2005-2024). The results demonstrated a significant impact of the exchange rate on inflation, with a coefficient of β =0.616; accordingly, the optimal ratio was calculated to be 38.11% of liquid assets. The research concluded that the inflation regression rate on exchange rates is the optimal ratio for the amount of foreign currency that commercial banks should deal with. Therefore, the research recommends that commercial banks monitor inflation and exchange rate fluctuations and adjust the ratio of foreign currency they deal with compared to the local currency.

Keywords

Foreign currency, Optimal rate of dealing, Exchange rate, Inflation rate

Recommended Citation

Al-Shalan, Abbas Ebd Al-Khudair (2026) "Determining the Optimal Ratio of Foreign Currency in Commercial Banks: An Analytical Study of Exchange Rates," Muthanna Journal of Administrative and Economics Sciences: Vol. 16 : Iss. 3 , Article 16.
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