An empirical analysis of foreign trade capital on the nominal exchange rate in India

Abstract

Abstract: This study is an endeavor to establish the relationship that subsists between trade and exchange rate in India. This study provides an empirical contribution to the subsisting literature which has been studied to date. The variables opted in this study include export, import of goods and accommodations, and exchange rate in India. All components of foreign trade are explanatory variables whereas the nominal exchange rate in India is taken to be the dependent variable. This study is mostly predicated on secondary data which have been sourced from RBI for a period of 30 years i.e. from 1991 to 2020. The nominal exchange rate in India i.e. US dollar to Indian rupee has been taken as the dependent variables. The method of the Multiple Regression model has been employed to examine the degree of relationship among the aforesaid variables. The findings of the study show that export and import paramount variables to expound the exchange rate in India. Export and import are paramount variables to expound the dependent variable. Most of the studies have focussed on ascertaining the impact of exchange rate on foreign trade both in developing as well as emerging economies as has been conspicuous from the review of past literature but this study has highlighted the consequentiality and consequentiality of foreign trade on the nominal exchange rate in India. This study contributes to the subsisting literature that if export increases then the exchange rate appreciates and vice versa. The regime of India should initiate measures to promote export in India which would stabilize the nominal exchange rate in India.