The Role of Inflation Rate Effect as A Mediating Variable between The Foreign Exchange Rate and Market Performance

Abstract

Market performance is inherently influenced by macroeconomic indicators, notably the foreign exchange rate and inflation rate. The volatility of currency values often leads to price level fluctuations, which in turn may affect the overall behavior of financial markets. This research aims to investigate the influence of foreign exchange volatility, interest rates, GDP, and foreign ownership on stock performance and the inflation rate, by considering the mediating role of the inflation rate. The research method used is Structural Equation Modeling-Partial Least Squares (SEM-PLS) analysis, using secondary data obtained from various trusted sources. The research results show that the variables FEV (X1), IR (X2), GDP (X3), and FO (X4) have a significant influence on the level of SP (Y). Research reveals that the higher the FEV, IR, GDP, and FO values, the higher the SP level. Apart from that, the IR (M) variable was also found to have a positive and significant influence on SP, indicating that an increase in the IR (M) value is associated with an increase in SP. Another interesting finding is the full mediation effect of FEV, IR, GDP, and FO on SP through IR (M). The private and non-profit sectors generally do not have specific policies in place, which makes them more vulnerable to the financial impact of disasters.