Exchange Rate and Stock Exchange Indices: An Empirical Study on BSE and NSE Indices
Abstract
Exchange rate is a key financial change that affects the decisions made by foreign investors, exporters, foreigners, banks, businesses, economic organizations, policy makers and visitors to the developed and developed world. Exchange rate fluctuations affect the number of overseas investment portfolios, shipping and export competition, the value of international reserves, the amount of debt repayments, and the cost to tourists depending on the value of their currency. Exchange rate fluctuations have important effects on the business cycle of the economy, trade and cash flows and therefore it is important to understand financial development and changes in trade and industry policy. Therefore, studying the impact of changes in exchange rates on the Indian stock market is needed. The stock market and foreign
exchange plays an important role in the development of the country. The Asian crisis (1997-1998) is the main reason for establishing a relationship between the exchange rate and the stock price. At this time, the bond market suffered a decline in exchange rates and therefore resulted in a decline in the stock price. So from this, it is understood that although trade flows have a certain impact on the share of corporate stocks, the main source of revenue comes from foreign exchange. Thus, for macro environment the impact of the exchange rate on stock prices depends on global trade and the level of trade imbalance. High intensity in world trade and capital flows have made exchange rates as one of the key determinants of business profitability and equity prices. The present study analyzes the relationship between stock indices and price movements in India. Exchange rate fluctuations have important effects on the business cycle of the economy, trade and cash flows and therefore it is important to understand the financial developments and changes in trade and industry policy. Therefore, studying the impact of changes in exchange rates on the Indian stock market is needed.
