Question

Exchange rate and its impact on indian foreign trade

Answer 1

This study empirically examines the effects of real exchange rate volatility on India's exports using time series data for the period from 1970-71 to 2011-12. This study uses a simple rolling standard deviation as a measure of exchange rate volatility and implements the Johansen cointegration technique to understand the long run relationship among the variables. This study finds that there exists one co-integrating the relationship among exports, real exchange rate volatility and World GDP. India's export volume is positively related to the World GDP. India's export volume is negatively affected by its own real exchange rate volatility. The empirical results indicate that a moderation in the exchange rate volatility can increase the export volume in case of India.