The implications of global volatility on USD and NOK real interest rates and exchange rates.

This Master thesis investigates the impact of global volatility on exchange rates and interest rates for US-dollar and Norwegian krone (NOK) during global uncertainty. Due to the availability of data and for efficient calculations we have chosen to split the global uncertainty into three periods: Financial crisis (2000-2008), Oil crisis (2010-2015) and Covid-19 pandemic (2019-2023). Our study finds that oil price increase has a positive impact on the NOK relative to USD in the short, medium, and long-term. The real interest rate is also affected by oil price. So, the results imply that global volatility has a major impact on USD and NOK real interest rates as well as exchange rates. During Covid-19 pandemic, the Volatility Index (VIX) affects the exchange rate for the whole period. However, oil price shocks, interest rate difference and VIX does not have an immediate impact, but it will have a great effect in the long run. Real interest rates are also impacted by global volatility, which alters the cost of borrowing and lending. Further our findings show that there are several factors that should be explored to get the full understanding of the complex problem. To be summarized, this study helps our understanding of the intricate connection between global volatility, exchange rates, and real interest rates by giving us important new information on how the USD and NOK currencies behave in a volatile global financial environment