ANALYSIS OF SLOVAK CROWN EXCHANGE-RATE

Gradual liberalisation of the foreign currency mode is associated with its qualitative change, which started in the year 1996 and continues in the year 1997. Since 1994 the Slovak crown (SKK) has been linked to a currency cocktail of two currencies: the German Mark (DEM) and the American dollar (USD) at a ratio of 60 : 40. The situation of currency encashments and currency payments during the four-year period confirm s that the currency blend was set up correctly [1]. Along with the cur rency cocktail specified by DEM and USD, an artificial cocktail unit I DX was defined. IDX starts from selected units 1 SKK = (1/20.227) DEM and 1 SKK = (1/31.204) USD, while 1 IDX = 0.029633 DEM + 0.012817 USD. At ideally firm fixing the relation 1 SKK = 1 IDX holds true. Since I st January 1997 is the value of the currency band (1-D, 1+D), where D = +/- 7 %. The rules for the currency exchange rate inside the currenc y band are set by the National Bank of Slovakia (NBS). This paper eval uates real exchange rate movement and three approaches suitable for th e evaluation of exchange rate movement, well known from the economic l iterature, are presented. These are purchasing power parity (PPP), int erest rate parity (IRP) and Fisher's relation. At the end of the paper , quantification of SKK/DEM and SKK/USD exchange rates development up to the year 2000 according to purchasing power parity, is presented.