The Impact of Currency Fluctuations on Equity and Debt Market

Abstract

Purpose: This study attended to investigate the impact of currency fluctuations on equity and debt markets. Furthermore, the study deals with investments in equity considering the currecy as rupee vs. dollar relationship. The European Central Bank has been considered for the external debt market investments considering the euro as the currency. The study mainly focused on the impact of rupee vs. dollar on equity and the euro impact on ECB for debt market investments. Design/Methodology/Approach: The tools applied are Bivariate Correlation, Ordinary least square method, ARCH model and Vector autoregressive model. Findings: The study reveals that from 2008 to 2019, the bivariate correlation result indicates that equity investments have a significant relationship with the rupee vs. the dollar. It has been observed that the euro has also a moderate relationship with the debt investments and the OLS result indicated that the euro impact on debt investments is observed to be insignificant. The ARCH result stated that the currency is having a significant effect on the fund's volatility. The VAR estimated that future equity and debt markets are expected to go up shortly. Practical Implications: The present study result stated that the rupee vs. dollaris having the impact on the equity investments but the euro impact is observed to be insignificant. Therefore, the equity investors should focus more on the rupee vs. dollar fluctuation, so that inflows and outflows of FII funds in to Indian equity market can be identified. Originality/value: The present study added the scholarly value to the equity markets with regard to the currency fluctuations effect on the equity and debt market investments. The investors of equity and issuers of ECB’s investments can consider this study for their decision making.