IMPACT OF FED RATE ON US DOLLAR - INDIAN RUPEE EXCHANGE RATE

Abstract

Through this study, we attempt to understand the dynamics of Indian Rupee fluctuations against US Dollar that have been caused by the fluctuations in the Fed Rate. We tried to understand how the Fed Rate influence the Indian rupee - US Dollar exchange rate movements. After research work done via secondary method, we have observed that factors like differential interest rate, differential inflation rate, differential money supply in both the markets, differential output growth rate of both the countries, among others, are important factors which impact the fluctuation in the fed rate that accounts for approximately 91% variance of the Dollar-Rupee exchange rates and explain the exchange rate dynamics to a large extent. A few factors that were earlier considered to be important are not as significant as expected.