Analysis of lndia's Exchange Rate under the New Economic Policy Regime

Abstract

Exchange rate is a very important financial variable as it affects the decisions that are made by the foreign exchange investors, exporters, importers, bankers, financial institutions, business and policy makers in the developed and the developing countries. Exchange rate movement affects trade and capital flows. It is also important to understand the financial development and changes in economic policy. The study deals with analyzing the exchange rate behavior during the post reform period. The time period of the study is from April 1,1994 to March 31,2012. It looks into the major determinants of India's exchange rate in the long run. The findings from the study are that the exchange rate has been stable with the intermitted period of fluctuations. Exchange rate is determined by economic fundamentals such as the Economic Activity, Inflation, Bombay Stock Exchange Sensex, Rate of Interest, and Trade Deficit. The most significant variables are Bombay Stock Exchange Sensex and Interest Rate.