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ISSN: 2168-9601
Journal of Accounting & Marketing
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Dynamics of the Exchange Rate in India

Rabia Najaf1* and Khakan Najaf2

1Department of Accounting and Finance, University of Lahore, Islamabad Campus, Pakistan

2Riphah International University, Islamabad, Pakistan

*Corresponding Author:
Rabia Najaf
Department of Accounting and Finance
University of Lahore
Islamabad Campus, Pakistan
Tel: +92 (0)42 111-865-865
E-mail: [email protected]

Received Date: October 17, 2016; Accepted Date: December 20, 2016; Published Date: January 05, 2017

Citation: Najaf R, Najaf K (2017) Dynamics of the Exchange Rate in India. J Account Mark 6:207. doi:10.4172/2168-9601.1000207

Copyright: © 2017 Najaf R, et al. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

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Abstract

Exchange rate is act as the main role in the integral part of the economic development. India is also facing this issue like other Asian countries impact of increase exchange rate on the growth of the economy. It is source of the external funds and act as the channel between risk and investment. In this research, we have taken the data from 1998 to 2008 and applied the ADF test, normality test and Jarqu e-Bera statistics test for taking the proper results about the impact of exchange rate on the development of India. Normality test explains the nature of the data. Our results are showing that increase exchange rate has negative impact on the stock exchange of India. Our suggested that Government should focus about the exchange rate policy.

Keywords

Economic development; Asian countries; ADF test; Normality data; Exchange rate policy

Introduction

In simple words, exchange rate volatility is also known as the name of risk and uncertainty. Most of the studies have shown that volatility in prices has two types 1) upwards 2) downward both are showing that exchange rate can be appreciate and can be depreciate. Exchange rate depends upon the supply and demand. Stock market return is considered the most important metric for the shareholders of the organization. Why the share prices are flocking it is most interesting topic for every researchers. Fr enhancing the economic condition stock market is come on most of sensitive assets which makes the causal association between macroeconomic variables and stock prices. This topic did not take the attention of policy makers also take the attention of economists. Shaock prices are best way for policy makers to predict about the upcoming policies.

In the modern area, globalization has created the different links for the development of financial market.

Impact of exchange rate volatility on the growth of the stock exchange

Robust of the studies have been observed that there is causal association between stock market and exchange rate. Exchange rate is crucial element for analysis the performance of the stock exchange. Stock prices have the main tool through which investors can take proper decision about the future investments. For the better investment public must be aware about the stock market prices. It is also act as the risk seeker. There are no of variables, which have influenced on the stock market performance. Exchange rate is such the shock that can block the stock market. Therefore most of the researchers take it for analysis the performance of the stock market. Exchange rate is also affected on the industries production. This thing has proved that there is negative association between increase exchange rate and stock market.

Overview of Bombay stock exchange

Bombay stock exchange is the oldest stock exchange of India. It is most faster stock exchange regarding to trade. It was organized in 1876. It has the 11th no in the world. Near about 5700 companies listed in it. Large capitalization is the reason that huge no of investors want to invest their money in it. According to rules and regulation of securities act, Bombay stock exchange was known as the recognized stock exchange. It is also famous with the name of derivate market. In the Bombay stock exchange the operation system is electronic. In this way; investors can invest their money throughout the world and at any time.

Objectives

1) The prime objective of this paper is to find out the impact of exchange rate of Indian stock exchange

2) Impact of stock exchange from the last few years.

3) In this paper, we have also shown the capitalization of Bombay stock exchange.

4) How can increase the foreign investors in Indian stock exchange.

Problem statement

Impact of exchange rate on the Bombay stock exchange is shown in Figure 1.

accounting-marketing-global-exchange-rates

Figure 1: Global exchange rates movement.

Literature Review

Rabia najaf, khakan najaf, explored the impact of exchange rate on the stock market of Malaysia. For this purpose, they had taken the data from year 1998 to 2008 and applies the VAR model. Their results are showing that there is negative association between exchange rate volatility and stock market. This study suggested that policy makers should work in the case of decrease the exchange rate [1].

Aggarwal analyzed the impact of exchange rate on the stock market Austria. For this purpose, they had taken the data from year 1999 to 2009 and applies the ECM model. Their results are showing that there is negative association between exchange rate volatility and stock market. This study suggested that policy makers should work in the case of decrease the exchange rate [2].

Babu and Prabheesh examined the impact of exchange rate on the stock market of Bahrain. For this purpose, they had taken the data from year 1996 to 2006 and applies the unit root model. Their results are showing that there is negative association between exchange rate volatility and stock market. This study suggested that policy makers should work in the case of decrease the exchange rate [3].

Ajayi and Mougoue observed the impact of exchange rate on the stock market of Indonesian. For this purpose, they had taken the data from year 1993 to 2004 and applies the regression analysis model. Their results are showing that there is negative association between exchange rate volatility and stock market. This study suggested that policy makers should work in the case of decrease the exchange rate [4].

Doong et al. studied the impact of exchange rate on the stock market of Bahamas. For this purpose, they had taken the data from year 1999 to 2012 and applies the VAR analysis model. Their results are showing that there is negative association between exchange rate volatility and stock market. This study suggested that policy makers should work in the case of decrease the exchange rate [5].

Joseph, N, Analyzed the impact of exchange rate on the stock market of India. For this purpose, they had taken the data from year 1998 to 2008 and applies the OLS model. Their results are showing that there is negative association between exchange rate volatility and stock market. This study suggested that policy makers should work in the case of decrease the exchange rate [6].

Yau and Nieh, observed the impact of exchange rate on the stock market of Bangladesh. For this purpose, they had taken the data from year 1995 to 2015 and applies the Autogressive model. Their results are showing that there is negative association between exchange rate volatility and stock market. This study suggested that policy makers should work in the case of decrease the exchange rate [7].

Wu explored the impact of exchange rate on the stock market of USA. For this purpose, they had taken the data from year 1998 to 2008 and applies the multi regression model. Their results are showing that there is negative association between exchange rate volatility and stock market. This study suggested that policy makers should work in the case of decrease the exchange rate [8].

Takeshi viewed the impact of exchange rate on the stock market of UK. For this purpose, they had taken the data from year 1995 to 2005 and applies the OLS model. Their results are showing that there is negative association between exchange rate volatility and stock market. This study suggested that policy makers should work in the case of decrease the exchange rate [9].

Parkinson examined the impact of exchange rate on the stock market of Malaysia. For this purpose, they had taken the data from year 1997 to 2007 and applies the ECM model. Their results are showing that there is negative association between exchange rate volatility and stock market. This study suggested that policy makers should work in the case of decrease the exchange rate [10,11].

Gaps in literature

1) In the prior studies nobody had discussed about the impact of exchange rate on the other variables.

2) From the last few decades, nobody has viewed both increase and decrease impact on the Bombay stock exchange.

3) Impact of stock exchange on the monetary policy of India.

4) Which factors are affected on the growth of economy?

Theoretical framework

Theoretical framework is shown in Figure 2.

accounting-marketing-theoretical-framework

Figure 2: Theoretical framework.

Methodology

In the paper, we are viewing the linkage between Indian stock rate movements and volatility. For these proper results, we have used the daily data (Tables 1 and 2).

r = ln P(t) / P(t −1)

  Stock Returns Exchange Rates
Observations 355 355
Mean -0.001165 0.000126
Median -0.001715 0.000217
Maximum 0.061572 0.031269
Minimum -0.110131 -0.011267
Std. Deviation 0.016261 0.003247
Skewness -0.195281 0.197228
Kurtosis 4.112681 9.026138
Jarque-Bera 47.11652 540.1171
Probability 0 0
Sum -0.719532 0.282188
Sum Sq Dev. 0.218016 0.018118
Result Not Normal Not Normal

Table 1: Results of augmented dickey fuller test.

  Coefficient Std. Error t-Statistic Prob.
RETURN(-1) -1.15124 0.120893 -9.52636 0
D(RETURN(-1)) 0.203939 0.104893 1.944731 0.0591
D(RETURN(-2)) 0.187599 0.090453 2.073497 0.0327
D(RETURN(-3)) 0.158121 0.074293 2.128202 0.032
D(RETURN(-4)) 0.040239 0.054393 0.739231 0.469
C 0.000119 0.002893 0.039136 0.9612
1 -1.45E-05 1.44E-02 -1.0061 0.3122
R-squared 0.479675 Mean dependent var 5.87E-09
Adjusted R-0.4703256 S.D. dependent var 0.035239
S.E. of regression 0.0261577 Akaike info criterion 4.442913
Sum squared resid 0.228498 Schwarz criterion 4.350219
Log likelihood 762.1738 F-statistic 51.31296
5Durbin-Watson 2.009114 Prob(F-statistic) 0
Stock exchange Returns Exchange Rates
Nifty Returns 7 -0.08678
Exchange Rates -0.0978 9

Table 2: ADF on return series.

Empirical analysis

In methodology, there are four main steps1) normality test 2) jarqu e-bera statistics 3) ADF. The purpose of normality test to determine the nature of the data and Jarqu e-bera statistics for the disturbing purpose. We also checked that data is stationary or not. The values of Skeweness and Kurtosis are showing that these are normally disturbed. Skeweness value are 0.28538 and 0.247329 respectively. Mean and variance are constant here, ADF results are -9.522393 and -8.078962 respectively, at level form data are stationary.

Conclusion

The prime objective of our study to find out the association exchange rate and stock maker; According to William there is long run association between stock exchange and stock market. For this purpose, they have applied the latest models to find out the better results. According to pettron there is inverse relationship between stock market and exchange rate.

Policy recommendation

1) There is need of proper polices for the investment in stock exchange in the condition of decreasing exchange rate.

2) Government should give attention towards the issue of high stock exchange.

3) There should make polices about the controlling exchange rate, it is best way to increase the investors.

References

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