Group 2

Exchange rates
in India: A time
series
analysis
21PGDM061 - Ayush Misra 21PGDM097 - Soumadip Kumar
21PGDM092 - Shivani Tripathi 21PGDM060 - Avijit Dhar
21PGDM058 - Arkodoy Roy 21PGDM076 - Piyush Agarwal
 Introduction:
Exchange rate is a rate at which two national currenciess
exchange for each other.
It is a important variable for decision making in foreign
excahnge market in both developing and developed
countries.Since most foreign exchange transactions are
settled in the future, exchange rate forecasts become
important to predict the future cash flows In India foreign
exchange market became popular when government allows
banks to trade foreingn exchange market with each other in
1978.
Some important foreign exchanges rate in India are :
1 USD = 81.57 rupees
1 pound= 100.18 rupees
1 euro = 88.12 Indian rupees
Exchange Rate Management in India:
:
Since Independence, the exchange rate system in India has transited from a fixed
exchange rate regime where the Indian rupee was pegged to the pound sterling on
account of historic links with Britain to a basket-peg during the 1970s and 1980s and
eventually to the present form of market-determined exchange rate regime since
March 1993.
Par Value System (1947-1971): After gaining Independence, India
followed the par value system of the IMF whereby the rupee's external
par value was fixed at 4.15 grains of fine gold.
Pegged Regime (1971-1992): India pegged its currency to the US dollar
(from August 1971 to December 1991) and to the pound sterling (from
December 1971 to September 1975).
The Period Since 1991: A two-step downward adjustment of 18-19 per
cent in the exchange rate of the Indian rupee was made on July 1 and 3,
1991.
Research 01

questions &
To develop an optimal ARIMA
model for the analysis of the
Indian Rupee / other exchange

objectives rate.

02 To predict the Indian Rupee /

otherexchange rate over the
period 2006 – 2023 in months

03 To understand the relationship

between the independent
variables - inflation and G-sec
securities (monthly data) and the
exchange rate using regression
 Methodology

Exponential
Regression Moving Average
Smoothening
(MA) Models

Autoregressive
Integrated Moving
Least Square Method Data Collection
Average (ARIMA)
Models
 Theories of Exchange Rate Determination

1. Purchasing Power Parity Theory

2. Interest Rate Parity Hypothesis
3. Balance of Payment Theory
4. Monetary Approach to Exchange Rate
Determination
5. Portfolio Balance Approach
EXCHANGE RATE
Forecasting the Exchange Rates
Moving Average

Exponential Smoothening

Least Square Method

ARIMA Modelling
Least Square Method
 Least Square Method
GBP
Moving Average
GBP
USD

YEN EURO
Exponential Smoothing
 ARIMA Modelling
Manual
Automatic
Process
Identification
Estimation
Diagnostic
Forecasting
 Rupees per Euro

Forecasted
Values
 Rupees per Pound

Forecasted
Values
 Rupees per Dollar

Forecasted
Values
 Rupees per 100 Yen

Forecasted
Values
Data Analysis:

EURO / INR
Data Analysis:

USD / INR
Data Analysis:

YEN / INR
Data Analysis:

GBP / INR
 Conclusion

Exchange rates have long fascinated, challenged and puzzled researchers in international
finance . Exchange rate prediction is one of the demanding applications of modern time
series forecasting. The rates are inherently noisy, non-stationary and deterministically
chaotic . Generating quality forecasts is not an easy task . Given the analysis and
forecasts of this study, our recommendation is that policy makers in India ought to
devalue the Rupee in order to restore and maintain exchange rate stability. Once
devaluation is implemented in India, the local manufacturing sector will grow
phenomenally and this is likely to be accompanied by inflows of the much awaited
foreign capital.
THANK YOU