The Spot Forward Exchange Rate Relation in Indian Foreign Exchange Market - An Analysis

Golaka Nath

MPRA Paper from University Library of Munich, Germany

Abstract: Forward exchange rate bias explanation generally falls into two categories – assumption of rational expectation resulting in a risk premium and expectation errors which is systematic. The paper tests the bias in the Indian forward exchange markets using one-month and three month forward contracts. The study finds that the three month contracts have larger prediction errors than the one-month contracts. The also paper finds that the prediction errors have information content which leads to assume the presence of risk premium. The study also finds that risk one-month contracts have lesser variability vis-à-vis the three month contracts.

Keywords: forward exchange rate; India; CCIL; bias; puzzle; exchange rate premium; exchange rate (search for similar items in EconPapers)
JEL-codes: F31 G12 G13 G14 G17 (search for similar items in EconPapers)
Date: 2013-10-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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