Do Spot Rate Volatility and Forward Market Intervention by the Central Bank Impact the Forward Premia in India?

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Published: 2018-04-20

Page: 1-12


Dipankar Biswas

Department of Financial Markets Operations, Reserve Bank of India, Mumbai – 400001, India

Sunil Kumar *

Department of Economic and Policy Research, Reserve Bank of India, Mumbai – 400001, India

Anand Prakash

Department of Financial Markets Operations, Reserve Bank of India, Mumbai – 400001, India

*Author to whom correspondence should be addressed.


Abstract

This study investigates the impact of exchange rate volatility as well as forward market intervention on forward premia in the Indian case. The study finds that the exchange rate volatility positively impacts month-over-month change in forward premia. In fact, inclusion of the exchange rate volatility is found to reduce the out-of-sample forecast error of forward premia. Forward market intervention, however, is not found to have any significant impact on the forward premia.

Keywords: Foreign exchange market, forward premia, interest rate differential, exchange rate volatility, forward market intervention


How to Cite

Biswas, D., Kumar, S., & Prakash, A. (2018). Do Spot Rate Volatility and Forward Market Intervention by the Central Bank Impact the Forward Premia in India?. Asian Journal of Economics, Finance and Management, 1(1), 1–12. Retrieved from https://globalpresshub.com/index.php/AJEFM/article/view/677

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