IRP: Indian Rupee Vis-a-Vis Us Dollar
| Comparison of Interest rate differentials to exchange rate movement for Indian Rupee vis-a`-vis US Dollar | ICF | | | |
|
Introduction 4 Literature Review 5 Interest Rate Parity 6 Methodology 10 Data 10 Spot Exchange Rate Data: 10 Forward Rate Data: 10 Interest Rate Data for India: 11 Interest Rate Data for US: 11 Analysis and Discussion 11 Deviations from Interest Rate Parity (DIRP): 11 One Month Forwards: 11 3 Month Forwards: 13 6 Month Forwards: 14 9 Month Forwards: 15 12 Month Forwards 16 Econometrics 17 Unit testing for validating stationary data 17 Regression Analysis 18 Analysis 18 One-month forward 18 Three-month Forward 20 Six Month Forward 21 Nine Month Forward 22 Twelve Month Forward 24 Analysis using Capital Inflows 25 Conclusion 27
Introduction
Financial openness exists when residents of one country are able to tradeassets with residents of another country, i.e. when financial assets are traded goods. Aweak definition of complete financial openness, which one might refer to as financialintegration, can be given as a situation in which the law of one price holds forfinancial assets- i.e. domestic and foreign residents trade identical assets at the sameprice. A strong definition would add to this the restriction that identically definedassets e.g. a six-month Treasury bill, issued in different political jurisdictions anddenominated in different currencies are perfect substitutes in all private portfolios.
The degree of financial integration has important macroeconomic implications interms of the effectiveness of fiscal and monetary policy in influencing aggregatedemand as well as the scope for promoting investment in an economy.The free and unrestricted flow of capital in and out of countries and the everincreasingintegration of world capital markets can be attributed to the process ofGlobalization. The benefits of such integration are liquidity enhancement on one handand risk diversification on the other, both
|
Introduction 4 Literature Review 5 Interest Rate Parity 6 Methodology 10 Data 10 Spot Exchange Rate Data: 10 Forward Rate Data: 10 Interest Rate Data for India: 11 Interest Rate Data for US: 11 Analysis and Discussion 11 Deviations from Interest Rate Parity (DIRP): 11 One Month Forwards: 11 3 Month Forwards: 13 6 Month Forwards: 14 9 Month Forwards: 15 12 Month Forwards 16 Econometrics 17 Unit testing for validating stationary data 17 Regression Analysis 18 Analysis 18 One-month forward 18 Three-month Forward 20 Six Month Forward 21 Nine Month Forward 22 Twelve Month Forward 24 Analysis using Capital Inflows 25 Conclusion 27
Introduction
Financial openness exists when residents of one country are able to tradeassets with residents of another country, i.e. when financial assets are traded goods. Aweak definition of complete financial openness, which one might refer to as financialintegration, can be given as a situation in which the law of one price holds forfinancial assets- i.e. domestic and foreign residents trade identical assets at the sameprice. A strong definition would add to this the restriction that identically definedassets e.g. a six-month Treasury bill, issued in different political jurisdictions anddenominated in different currencies are perfect substitutes in all private portfolios.
The degree of financial integration has important macroeconomic implications interms of the effectiveness of fiscal and monetary policy in influencing aggregatedemand as well as the scope for promoting investment in an economy.The free and unrestricted flow of capital in and out of countries and the everincreasingintegration of world capital markets can be attributed to the process ofGlobalization. The benefits of such integration are liquidity enhancement on one handand risk diversification on the other, both
References: i. http://www.fimmda.org/Information_Center/Statistics/ASP/stats.asp ii. http://www.fedai.org.in/ iii. http://www.ustreas.gov/ iv. http://www.rbi.org.in/ v. http://www.sebi.gov.in/ vi. http://www.indiastat.com/ vii. Vipul Bhatt and ArvindVirmani, 2005, “Global Integration of India’s Money Market: Interest Rate Parity in India”, Indian Council for Research on International Economic Relations, New Delhi Working Paper viii. Menzie Chinn, 2007,”World Economy – Interest Rate Parity I”, Princeton Encyclopedia of the World Economy ix. O.Pipatchaipoom_and Stefan C. Norrbin, 2006, “Reexamining Real Interest Rate Parity”, School of Business, Stanford University x. DogaUnay, 2005, “A Note on Interest Rate Parity”