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Title: quotInternational Financial Integration and Interest Rate Parity in India quot
Researcher: Preeta George
Guide(s): P.A.JOHNSON
Keywords: Economics, Finance, Foreign Exchange Markets
University: Birla Institute of Technology and Science
Completed Date: 
Abstract: India is on the path to Fuller Capital Account Convertibility . The opening up of the economy on the capital account, an effort towards financial openness, is justified on grounds that when savings fall short of investment, the excess investment can be funded by external flows and vice versa. In such a situation, it is then imperative to have a well developed financial system which not only signals the profitable avenues of investment but is also efficient in ensuring free capital flows across different segments. The interaction between the domestic markets and foreign exchange market is of great importance in this context. This interaction is represented by the parity/disparity between the interest rate differential (the difference between the interest rate on domestic currency assets and the interest rate on foreign currency assets) on the one hand and the forward premium on the foreign currency on the other. This phenomenon is called Covered Interest rate Parity (CIP). newline newlineThere have been a number of studies in literature on the role of the forward rate as an unbiased predictor of the future spot rate. These papers have studied both covered and uncovered parity conditions to analyze the same. There have also been studies which have used covered interest parity and uncovered interest parity as indicators of financial integration in the case of advanced economies and emerging economies like India. A monetary policy reaction function has also been used to test the importance of the monetary policy of the central bank in the fulfillment of parity conditions, but only in the context of advanced economies. Central Bank intervention and its role in controlling volatility have also been documented by various authors. newline newlineIn this study, parity conditions in India and the role of central bank intervention in interest parity has been dealt with. A monetary policy reaction function has been used to study the impact of monetary policy on the interest rate differential.
Pagination: 1.90 MB
Appears in Departments:Economics & Finance

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03_table of contents.docAttached File38.5 kBMicrosoft WordView/Open
05_list of figures.doc30 kBMicrosoft WordView/Open
06_list of tables.doc43 kBMicrosoft WordView/Open
10_references.doc75 kBMicrosoft WordView/Open
chapter 1 introduction.doc185 kBMicrosoft WordView/Open
chapter 2 literature review.doc177 kBMicrosoft WordView/Open
chapter 3 conceptual framework.doc185 kBMicrosoft WordView/Open
chapter 4 analytical framework.doc246.5 kBMicrosoft WordView/Open
chapter 5 data analysis and results.doc590.5 kBMicrosoft WordView/Open
chapter 6 conclusions.doc149 kBMicrosoft WordView/Open

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