“Impact of exchange rate fluctuation on stock market volatility - a study to predict the economic scenario in India” - An Article Review

The paper titled “Impact of exchange rate fluctuation on stock market volatility - a study to predict the economic scenario in India” was published in the journal International Journal of Pure and Applied Mathematics in the year 2018, by Piyali Roy Chowdhury and Anuradha Arthanari. 

Macroeconomic fundamentals and stock market volatility do play an important role in determining and forecasting the future position of an economy as a whole. In this study, research made an attempt to analyze one of the macroeconomic variables, the exchange rate, which is studied along with the Indian Stock Market (BSE Index), this linkage is an important contributor to predicting the growth/ business cycle of any economy. To identify this relation researcher considered 15 years of data (from 2010 to 2016) on the exchange rate and stock market index related to the Indian Economy.

The main focus of the researchers is to find out the impact of exchange rate fluctuation on stock market volatility to predict the economic scenario in India. Two way is explained, graphically and mathematically. The two normalized datasets are plotted against the time period and the result shows that they both have increasing trends with them in long term (Figure 1).

Figure 1

In contrast with the long-term results, in the short term, they have a negative correlation with each other and if the currency depreciates, SENSEX actually falls. The interpretation behind this is that if there is a depreciation of the rupee, the price level increase. Investors will sell their financial assets because of higher in the situation of hike prices, Which leads to Sensex fall.

By Suhaib P

 Assistant Professor, Department of Commerce, Al Shifa College of Arts & Science, Kizhattoor, Perinthalmanna