Does FX market in India integrated to exchange rate theories? a review amidst COVID-19

Q3 Business, Management and Accounting Contaduria y Administracion Pub Date : 2023-05-22 DOI:10.22201/fca.24488410e.2023.4643

A. M.

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Abstract

The exchange rate theories argue that the parity between two currencies is determined by various macro-economic factors prevailing across economies. It is quite interesting to examine what happened to currency exchange rates in a period of inactivity for the overall economies due to COVID-19 outbreak. In this context a study was carried out during the period of turbulence to empirically test whether foreign exchange market in India moves in accordance with the principles of exchange rate theories. The bound test of co-integration (Pesaran,et.al., 2001) was employed to examine the evidence of a long-run relationship between the macroeconomic variables with the exchange rate of hard currencies such as USD, EUR, GBP and JPY against INR. The cross sectional relationship was further validated by using auto regressive distributed lag (ARDL) model. The absolute version of purchasing power parity theory (PPP) is evident in the Indian foreign exchange market as the analysis established a strong integration of Wholesale Price Index (WPI) and Consumer Price Index (CPI) with leading hard currencies such as USD, EUR and JPY. The association of 364 days Treasury bill return (TBR) and government Bond Return (GBR) further confirmed the postulation of Interest Rate Parity (IRP) theory as any increase in interest rate can cause exchange rate depreciation to INR. Results of this study add to the existing literature by confirming the bondage between price levels across the economies and the exchange rates during COVID-*

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印度外汇市场是否融入了汇率理论?2019冠状病毒病回顾

汇率理论认为，两种货币之间的平价是由经济体中普遍存在的各种宏观经济因素决定的。在因新冠肺炎疫情而导致整体经济停滞的时期，研究货币汇率的变化是非常有趣的。在此背景下，在动荡时期进行了一项研究，以实证检验印度外汇市场是否按照汇率理论的原则运行。协整的界检验(Pesaran等)。(2001)被用来检验宏观经济变量与硬通货(如美元、欧元、英镑和日元)对印度卢比的汇率之间的长期关系的证据。采用自回归分布滞后(ARDL)模型进一步验证了横截面关系。购买力平价理论(PPP)的绝对版本在印度外汇市场上很明显，因为该分析建立了批发价格指数(WPI)和消费者价格指数(CPI)与主要硬通货(如美元、欧元和日元)的强大整合。364天国库券回报(TBR)和政府债券回报(GBR)的关联进一步证实了利率平价(IRP)理论的假设，因为任何利率的增加都可能导致汇率对印度卢比的贬值。本研究的结果证实了COVID-*期间各经济体的价格水平与汇率之间的联系，从而补充了现有文献

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来源期刊

Contaduria y Administracion Business, Management and Accounting-Business, Management and Accounting (all)

CiteScore

0.90

自引率

0.00%

发文量

审稿时长

14 weeks

期刊介绍： Contaduría y Administración (Accounting and Management)is a quarterly journal aimed to the academic community. Being peer-reviewed by double blind process,seeks to contribute to the advancement of scientific and technical knowledge in the financial and administrative disciplines. This journal publishes original theoretical or applied research (No case studies, descriptive and exploratory) in Spanish and English on the following subjects: • Organization Management • Production Management and Operations • Human Resources Management • Management of Information Technology • Accounting and Auditing • Management and Leadership • Business Economics • Entrepreneurship • Business Environment • Finance • Operations Research • Innovation and Technological Change in Organizations • Marketing • Micro, Small and Medium Enterprises • Planning and Business Strategies • Management Theory • Financial Theory • Business Decisions Contaduría y Administración (Accounting and Management) also receives research papers on related areas to the above mentioned.