Foreign Exchange Markets in India

36 Pages Posted: 18 Jan 2005

Date Written: January 17, 2005

Abstract

Since the onset of liberalization, foreign exchange markets have witnessed explosive growth in trading volume. The importance of the exchange rate to the Indian economy has also been greater than ever before. While the government has explicitly adopted a flexible exchange rate regime, in practice the rupee is one of most efficient trackers of the US dollar. Apprehensions of capital flow-driven currency crisis have held India back from capital account convertibility though the debate continues. The rupee's deviations from Covered Interest Parity (with respect to the dollar) exhibit relatively long-lived swings. An inevitable side-effect of the Indian exchange rate policy has been the ballooning of foreign exchange reserves to well over a hundred billion dollars. In an unprecedented move, the government is considering using part of these reserves to finance infrastructure investments in the country.

Keywords: Foreign exchange, India

JEL Classification: F31, N25, N15

Suggested Citation

Chakrabarti, Rajesh, Foreign Exchange Markets in India (January 17, 2005). Available at SSRN: https://ssrn.com/abstract=649858 or http://dx.doi.org/10.2139/ssrn.649858

Rajesh Chakrabarti (Contact Author)

O. P. Jindal Global University ( email )

Sonepat Narela road
Sonepat
Sonepat, Haryana 131001
India

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