Abstract:
This study prominently aimed to find the relationship between the tourist’s arrivals and the exchange rates
in Sri Lankan context using the quantitative approach method. The time series data for the period of 1950
to 2014 were collected from the annual report of the central bank of Sri Lanka. The tourists arrivals was
the dependent variable and Exchange rate of French Franc, Exchange rate of Indian Rupee, Exchange rate
of Japanese Yen, Exchange rate of Pound Sterling, Exchange rate of US dollar, and Dummy (D) were the
independent variables in this study. The dependent variable was influenced by the independent variables
influenced by external determinants. All the variables used in this study were stationary at its first
difference. That is, all the six variables were integrated of same order one I(1). There was a one way causal
relationship between exchange rate of Japanese Yen and exchange rate of French Frank, Exchange rate of
Sterling Pound and exchange rate of US dollar. The arrival of tourist decreased by 0.84 percent before
1977 and the arrival of tourists increased by 0.84 percent after 1977 along with the changes in exchange
rates. Exchange rate of French Franc, Exchange rate of US dollar and Dummy were related directly with
the tourists’ arrival. The value of R-squared is 0.910208 which is less than Durbin-Watson Statistic
(1.434773). All the variables were having a long run associationship or all the variables were finally moving
together. The contribution of the tourism sector to the Gross Domestic Product of the country would be
motivated and energized by the exchange rate of Sri Lankan currency with other foreign currencies.
