Relationship between dollar-rupee exchange rates and the stock prices in India and US and the relation between various exchange rates

Abstract

The stock prices in India have an impact on the exchange rates of Dollar, Euro, Yuan and Yen. There are periods when exchange rates and sensex show very high degree of correlation and low correlation in other periods. Predicting the periods of high correlation without considering all factors influencing exchange rates and sensex is not possible. Foreign Currency Assets is one of the factors that affect the exchange rates. It can be used to identify the RBI intervention to influence exchange prices. But exchange rates are determined by a very large number of factors. It is easy to attribute a fall/rise in rupee to certain factors in retrospection but predicting the movement in the exchange rates is very tricky