International Journal of Management and Commerce Innovations ISSN 2348-7585 (Online) Vol. 7, Issue 2, pp: (273-277), Month: October 2019 - March 2020, Available at: www.researchpublish.com
Trends in Exchange Rate of Indian Rupee as against Euro 1
Mandeep Kaur, 2Dr. Navkiranjit Kaur Dhaliwal Commerce Deparment, Punjabi University, Patiala, India
Abstract: The foreign exchange market is an important element of the financial market of any country. It is the market where exchange rates are determined. An exchange rate regime is the way at which one currency may be converted into another currency. Exchange rate mechanism can be classified as fixed exchange rate and floating exchange rate. In fixed exchange rate the value of currency is determined and controlled by the Government and central banks, whereas, in floating exchange rate the value of currency is determined by the market and in which government and central banks do not interfere. The study examined the trends in exchange rate of Indian Rupee as against Euro in pre-recession period as well as in post- recession period. The trend analysis revealed that the value of rupee as against Euro depreciated during the period 2001-02 to 2016-17. The trends in exchange rate of Indian Rupee as against Euro in the pre- recession period and the post- recession period were polynomial trends which showed that there were fluctuations in the exchange rate during the period. Keywords: Exchange Rate, Indian Rupee, Euro, Growth Rate, Trends, Pre- Recession Period, Post- Recession Period.
I. INTRODUCTION The nominal exchange rate is expressed as a domestic country’s currency price in relation to a foreign country’s currency. The real exchange rate is the rate at which goods and services in the domestic country can be exchanged for the goods and services in a foreign country. The exchange rates are quoted either in direct quotation or in indirect quotation. The direct quotation is the quotation in which exchange rates are expressed as number of units of domestic currency per unit of foreign currency. In indirect quotation, exchange rates are expressed as number of units of foreign currency per unit of domestic currency. An exchange rate mechanism is the way at which one currency may be converted into another currency. Exchange rate mechanism can be grouped as fixed exchange rate and floating exchange rate. One of the most integral features of Flexible Exchange Rate system is the high volatility of Exchange rate. Volatility represents the degree or the extent to which one variable changes over a time period. The larger the magnitude of a variable change, or the more quickly it changes over time, the more volatile it is. The exchange rate of a country’s currency plays an important role in that country’s trade because a country with a high value of currency will spend more on exports rather than imports. An increase in exports gives rise to demand for a domestic currency and this will lead to appreciation in the exchange rate of domestic currency in relation to foreign currency. A lower value currency makes country’s exports cheaper in foreign exchange market whereas country’s imports will be expensive. If there is an increase in imports, all other things being equal, there will be an increase in demand for foreign currency. This will lead to appreciation in the exchange rate of foreign currency rather than domestic currency. Kurihara (2013) examined that there were no negative effects on international trade in developing countries due to exchange rate fluctuations; however, this relationship was not found in developed countries. Jayachandran (2013) revealed that real exports and imports are co-integrated with exchange rate volatility and real exchange rate.
II. REVIEW OF LITERATURE Prakash (2012) in his paper analysed major episodes of volatility in Indian foreign exchange market in the past two decades from 1993 to 2013, caused either by exogenous or endogenous factors, or a combination of both. The analysis revealed that there had been a significant increase in exchange rate volatility in the aftermath of the global financial crisis, signifying the greater influence of volatile capital flows on exchange rate movements. An important aspect of the policy
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