Abstract

http://ssrn.com/abstract=2008959
 


 



Foreign Exchange Market, Money Market and RBI Intervention


Kunal


Indian Institute of Technology Kanpur - Department of Industrial and Management Engineering

February 21, 2012


Abstract:     
This research work investigates the role of intervention by Reserve Bank of India (RBI) in foreign exchange market and money market in India. I observed that domestic foreign exchange is efficient since forward premium captures market information. Purchasing power parity (for price index series) and interest rate parity hold true in Indian economy. In money market, change in interest rate in money market causes change in money in circulation however reverse is not true. In other words, RBI cannot manage interest rate in money market by controlling money in circulation through open market operation, which is crucial for foreign capital inflow. This is emerging challenge before RBI due to low efficiency of banking transmission system.

Keywords: Exchange Rate, Purchasing Power Parity, Market Efficiency, Open Market Operation, Interest Rate

JEL Classification: E5, E58, F31

working papers series


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Date posted: February 22, 2012  

Suggested Citation

Kunal, Foreign Exchange Market, Money Market and RBI Intervention (February 21, 2012). Available at SSRN: http://ssrn.com/abstract=2008959

Contact Information

Kunal (Contact Author)
Indian Institute of Technology Kanpur - Department of Industrial and Management Engineering ( email )
Kalpyanpur
Kanpur, Uttar Pradesh 208016
India
91-9005850295 (Phone)
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