MODELING THE IMPACT OF THE RUSSIAN-UKRAINIAN WAR ON THE FOREIGN EXCHANGE MARKET

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Liubov KIBALNYK
Volodymyr KIBALNYK
Hanna DANYLCHUK
Danylo SEREDA

Abstract

The article is dedicated to modeling the foreign exchange market to assess the impact of the Russian-Ukrainian war. For this purpose, methods such as the calculation of the Hurst exponent, the local Hurst exponent, and recurrence analysis were utilized. The study examined currency pairs including BTC/USD, ETH/USD, EUR/USD, GBP/USD, CNY/USD, USD/RUB, and USD/UAH. Based on the modeling results, it was concluded that certain changes in the dynamics of these currency pairs were observed from 2022 to November 2024. The calculated Hurst exponent allowed for an assessment of the persistence of the currency pairs. The local Hurst exponent provided further insights into the states of the foreign exchange market at different points in the study period. Recurrence analysis was conducted, which helped refine conclusions regarding the impact of crises on the foreign exchange market.


The obtained models demonstrated that all analyzed currency pairs experienced negative effects due to Russia's full-scale invasion of Ukraine. The authors argue that the response of the EUR/USD currency pair can be explained by the European Union's dependence on Russian energy resources. Additionally, the introduction of economic and political sanctions against Russia has had a significant impact on the foreign exchange market, as these sanctions restrict access to international financial markets, reduce foreign investment and trade volumes, thereby decreasing liquidity and increasing the volatility of the national currency. Moreover, sanctions create significant uncertainty among investors, disrupt supply chains, and force the country to seek alternative financial and economic partnerships, ultimately affecting the stability of the foreign exchange market and the overall economic situation.


Evidently, the war in Ukraine has also influenced the USD/UAH and USD/RUB currency pairs, as the hryvnia and ruble are the national currencies of Ukraine and Russia, respectively. An interesting result was observed in the modeling of the CNY/USD currency pair. The war in Ukraine was found to have an impact on this pair as well, given that China, while maintaining ties with Russia, seeks to strengthen its global position, whereas the United States supports Ukraine, further influencing the foreign exchange market. This occurs in the broader context of U.S.-China rivalry.


For cryptocurrency pairs, the models demonstrated a relatively low dependence on events in Ukraine. The findings of the study suggest that the use of fractal and recurrence analysis is advisable, as these methods offer new opportunities for a deeper understanding of the foreign exchange market and the development of adaptive strategies for managing economic risks, which is particularly relevant in the context of global instability.

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References

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