This study aims to illustrate the effect of the reciprocal relationship between the exchange rates and interest rates on the bond market by using the SVAR model for China during (2000 -2020), this is to analyze and measure the relationship between exchange rates and interest rates and showing their impact through changes in the bond index and monitoring the changes that occur in their traded prices in the financial markets. This study is based on three standard model estimations. The first model includes the effect of interest rates and inflation on the exchange rates. The second model shows the effect of the exchange rates and money supply on the interest rate. The third model includes the effect of exchange and interest rates on the bond index. The Structural Vector Auto Regression Model (SVAR) was used to test the long-term relationship between the variables of the study, in addition to the variance Decomposition analysis and the analysis of the Impulse response functions (IRF). The results showed that the reciprocal relationship between the exchange rates and interest rates is a positive inverse relationship, and the effect is in both directions. In other words, when the prevailing interest rate rises in the country, it leads to an appreciation in the value of the currency due to the increase in demand for the currency of that country, resulting in a depreciation in its exchange rate and conversely. In addition, the results indicated that the bond index is sensitive to any shock or any unexpected change in exchange rate and interest rate and that these shocks manifest in the short term and stabilize in the long term.

This study aims to demonstrate the impact of the reciprocal relationship between the exchange and interest rates on the Malaysian financial markets for the period (2000-2020) using the structural autoregressive vector model, through analyzing and measuring the relationship between the exchange and interest rates to show their impact on the market value index of the financial markets. This study relied on estimating the standard model of the reciprocal relationship of exchange and interest rates and the variables affecting them, including gross domestic product growth, inflation, and broad money supply. The model of the capital market index as a dependent a variable and the exchange rate and interest variables as independent variables, as the model includes the effects of the interest rate and the exchange rate. The SVAR model was used to test the long-term relationship between the study variables, in addition to the analysis of impulse response function (IRF) and the analysis of variance decomposition (VD) to test future shocks in the short and long terms. According to these analyses, the study concluded that the relationship between the exchange rate and interest according to Malaysian data was significant in one direction, from the exchange rate to the interest rate, as it was found that there is a negative relationship between the interest rate on deposits and the real effective exchange rate. While the impact of the reciprocal relationship between the exchange rates and interest rates was positive and direct on the capital market index, as any increase or decrease in the two variables leads to the same effect and shock on the market value index.