Non-Deliverable Forwards Market for Indian Rupee: An Empirical Study

Abstract:     
This paper looks at NDF Rupee market more closely, focusing on activity in these markets overtime and reasons for possible growth. It empirically tests the linkages between spot, domestic forward and NDF markets for Indian Rupee using Granger causality tests, cointegration tests and ARCH-GARCH models, over the period January, 2007 to April, 2009. The paper looks at changes in dynamics of these linkages with advent of exchange traded currency derivatives markets in the country in September, 2008. Tests indicate that NDF markets are now exerting increased influence on the domestic currency markets through spillover effects and better information content. Thus, the policy makers may need to take a closer look at these markets as there could be risks in overlooking as the Indian regulators seek to keep short-term capital movements under control.

Number of Pages in PDF File: 18

JEL Classification: G15, G18

Accepted Paper Series