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INTERNATIONAL JOURNAL
OF CURRENT RESEARCH
International Journal of Current Research
Vol. 12, Issue, 09, pp.13628-13631, September, 2020

DOI: https://doi.org/10.24941/ijcr.39662.09.2020
ISSN: 0975-833X
RESEARCH ARTICLE

THE EFFECT OF EXCHANGE RATE FLUCTUATIONS ON INTERNATIONAL TRADE OF INDIA

* Prof. Sudhir Pasricha

Amity Global Business School

ARTICLE INFO ABSTRACT

Article History: The current study has emph asized on fin ding out the impact of exchang e rate on intern ation al trade of
th
Received 15 June, 2020 th e count ry. A higher-valu ed currency makes impo rts of a nation less costly, and its int ernational
Received in revised form expo rts more costly . A lower-valu ed currency makes impo rts more costly for a nation and
th
27 July, 2020 in ternation al markets less costly for its exports. A high er exchange rate can be expected to worsen a
th
Accepted 04 August, 2020 count ry's trade balan ce wh ereas it can be expected to be boosted by a lower exchange rate. The
th
Published online 30 September, 2020 current study has been conduct ed on the annual values of foreig n exchange rate of Ind ia (Indian
rup ees and USD $) and intern ation al trade of Ind ia covering the data from 199 1 to 2019. The ordinary
Key Words: Least Square regression mod el has been used to establish the relationship betw een exchange rate and
Exchange rate, International trade, Ordinary in ternation al trad e of th e count ry. The fin di ngs of th e study sugg est the relationship between taken
least square regression, ADF test, Phillips variabl es.
Perron test.

Copyright © 2020, SudhirPasricha. This is an open access article distributed under the Creative Commons Attribution Lice nse, which permits unrestricted use,
distribution, and reproduction in any medium, provided the original work is properly cited.

Citation: Prof. SudhirPasricha. 2020 . “The effect of exchang e rate fluctuations on in ternation al trade o f India”, Internationa l Journal of Cur rent Research, 12, (09), 13628 -13631.

INTRODUCTION
Chile, for example, is the world's leading export er o f copp er.
If global copper demand rises, demand for the country's
The exchange r ate plays an important part in the success of a currency, the Chilean peso, will also rise since that time. The
country's trade. Whether dictated by exogenous shocks or important factors that affect exchange rates are in flation
policies, currency relative valuations and volatility can hav e rates, interest rates, current account, government debt,
major impacts on foreign trade, balance of payments, and political and economic stability and speculation in the
overall economic growth. This paper explores the value o f country. I have divided th e study into six sections. First
exchange rat es for international business. As per the section deals with theoretical framework and supportive
literature available the vol atility of the foreign exchange rate backing for current study. The second section discusses the
has a negative effect on trade flows. Trade balance affects review of related literature and potential scope for study on
currency exchange rates through its impact on the foreign topic taken into consideration. The third portion is related to
exchange supply and demand. There is comparatively more the data and research tools used to make analysis and
supply or demand for a country's currency, which affects the interpretation. The fourth portion presents the results and
price o f that currency on th e world market, when a country's discuss thereof. The fi fth section shows the validity
trade account does not net to zero — that is, when exports (limitation) of current study. The final segment presents the
are not equal to imports. The relative values are in fluenced conclusion, suggestion and future direction of research on
by currency demand whi ch, in turn, is influenced by trade. If current study.
a country exports more than it imports, its products, and
therefore its currency, are in high demand. The supply and Review of literature: Auboin, M., &Ruta, M. (2013)
demand economies dictate that when demand is strong, presented a comprehensiv e literature review on the
prices increase and the value of th e currency appreciates. relationship between exchange rates and international trade.
Current Account defi cit is also responsible for impacting Chaudhary, G. M. et al. (2016) analyze the exchange-rate
international trade of a country, Sharma, P. (2020). The relationship of major South Asian and Southeast Asian
exchange rate is defined as "the rate at which one country's economies to exports and imports using the Autoregressive
currency can be conv erted into another. Usually, these rates Distributed Lag (ARDL) approach to integration and the
flu ctuate daily in response to the supply and demand forces correction of errors. The model is used to an alyze the long-
for the currencies of different countries. term and short-term r elationship between s ample economies
variables. Sharma, P (2017) examined the effectiveness o f
*Co rrespo ndi ng author: Prof . Sudhir Pasri cha,
Amit y Global Bus iness School. trade between India and ASEAN country taking exchange
13629 SudhirPasricha, The effect of exc hange rate fluctuations on international trade of India

Descriptive Statistics
N Minimum Maxim um Mean Std. Deviation
International trade 29 37409.0000 892896.5600 368199.333966 312749.2150307
Exchange rate 29 24.4737 69.9700 47.576934 12.6408944

Source: SPSS output

Fig ure 1. Trends of International Trade

Source: Author’s work

Fig ure 2: Trends of Exchange Rate

Source: Author’s work

Fig ure 3: Percentag e change in international trade and exchange rate

Tabl e 2: Correla tio ns

IT EXR
**
Pearson Corre lation 1 .850
IT Sig. (2-tailed) .000
N 29 29
**
Pearson Corre lation .850 1
EXR Sig. (2-tailed) .000
N 29 29
**. Correlation is significant at the 0.01 level (2-tailed).
 13630 International Journal of Current Research, Vol. 12, I ssue, 09, pp.13628-13631, September, 2020

Tabl e 4: Model Summaryb

Variable Augm ented Dickey fuller test Phillips Perron Test

t-statistic p-value z-alpha p-value
International Trade -2.0226 0.5639 -16.237 0.08852

Exchange Rate -1.7618 0.6637 -32.568 0.08852

a. P redictors: (Constant), EXR

b. Dependent Va riable: IT
Source: SPSS Output

Tabl e 5: Coefficients a

Model Unstandardized Coefficients Standa rdized t Sig. Collinearity Statistics

Coefficients
B Std. Error Beta Tolerance VIF
1 (Constant) -632268.936 123356.427 -5.126 .000
EXR 21028.431 2508.692 .850 8.382 .000 1.000 1.000
a. Depende nt Variable: IT Source : SPSS output

Sou rce: SP SS output

Fig ure 4. No rmali ty check of International trade

Source: SPSS output

Fig ure 5. The residual of dependent variabl e (Model fit)

rate as one o f the determinants of international trade between Objectives of Study

two. Kang, J. W ., &Dagli, S. (2018), In the context of the
global financi al crisis ( GFC), they studied the correlation 1. To study the trends of Foreign Exchange rate and
between international tr ade and exchange-rate l evels and the international trade o f India.
growth of global and regional value ch ains (GVCs).Sharma, 2. To study the impact of foreign exchange rate on
P. (2020) examined the direction of causality and international trade o f India.
relationship among international trade, GDP and foreign
exchange rate o f India.
13631 SudhirPasricha, The effect of exc hange rate fluctuations on international trade of India

RESEARCH METHODOLOGY Figure 5 presents the deviation of r esidual values from actual
and as p er figure, it can b e said that the mod el developed is
suitable as it shows a good fit to the data taken.
The current study has been conducted on the annual values of
foreign exchange rate of India (Indian rupees and USD $)
Conclusion and Future direction of Research
and international trade o f India covering the d ata from 1991
to 2019. The data has been used after di fferencing (as we
This paper’s principal results can b e summarized as follows.
have to calculate fluctuations in exchange rate and change in
Second, the uncertainty of the ex change r ates in fluences the
international trade). To study the trends of foreign exchange
Indian sense of foreign trade. The second result is that
rate and international trade trend plots and descriptive table
misalignment of the exchange rates greatly affects foreign
analysis has been us ed. And to study the impact of ex change
trade flows. Currency undervaluation promotes exports and
rate on international trade of India, ordinary least square
limits imports, and vice versa in the case of overvaluation.
regression has been used. To check the assumption of
There is a lot of potential in the study as the study uses only
stationary (for running OLS regression) ADF unit root test
exchange rate as one o f the v ariables to p redict international
and Phillips perron unit root test have been applied to the
trade of the trade. In future study other variables like GDP,
data. In next section, the res earch presents th e empiri cal
exports and imports policies, tarrif and duties etc. can be
results of the study.
taken to predict international trade o f the country.
EMPIRICAL RESULTS
REFERENCES
Table 1 presents the descriptive results of variabl es taken for
Auboin, M., & Ruta, M. 2013. The relationship between
study. And Figure 1 and 2 presents the trends of international
exchange rat es and international trade: a literature
trade and exchange rate ov er the p eriod of 29 years (1991 to
review. World Trade Rev., 12, 577.
2019). The trends show positive movements in both the
Chaudhary, G. M., Hashmi, S. H., & Khan, M. A. 2016.
variables taken. When we see the flu ctuations in international
Exchange rate and foreign trade: a comparative study of
trade and exchange rat e (Figure 3) exchange rate is
major South Asian and South-East Asi an
flu ctuation more and even has negative change while
countries. Procedia-Social and Behavioral Sciences, 230,
international trade also fluctuating a lot. Table 2 p resent the
85-93.
coeffi cient of correlation between the v ariables taken and as
Sharma, P. 2017. The study of Effectiveness of FTA between
per r esults the high correlation between the va riables can b e
India and ASEAN on international trade relations
concluded. Table 3 presents the results of ADF unit root and
between India and ASEAN. Vimarsh: An Endeavour to
Phillips Perron Unit root test. As per the results it can be said
Share Knowledge 8 2, 1-7
that both the time series of exchange rate and international
Kang, J. W., &Dagli, S. 2018. International trade and
trade are stationary. So it ful fills the assumption to run OLS
exchange rates. Journal of Applied Economics, 211, 84-
regression. Table 4 shows the results of regression model
105.
summary. The results show that exchange rate is signifi cant
Sharma, P. 2020. The Study of Co-integration and Direction
in predicting the values of international trade of India. The
of Causality among International Trade, GDP and
value of adjusted R-square is .712 which implies that the
Foreign Exchange Rate in India. International Journal of
exchange rate is capable of explaining 71.2% change in
Scientific Research in Engineering and Management
international trade of India. Table 5 shows the values o f
IJSREM. 43
coeffi cient of exchange rate in explaining international trade
Sharma, P. 2020. A Trend Analysis of Current Account
and it is significant. Figure 4 presents the distribution of time
Deficit and Its Determinants in India. International
series data of international trade. The normality of data
Journal of Scientific Research in Engineering and
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square regression. From the figure the normal distribution of
Shao J. 2003. Mathematical Statistics. 2nd ed. New York,
international trade data c an be confirmed.
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