Impact of foreign exchange rates market on spot and futures markets: An empirical study on Indian Nifty Bank NSE Index

Abstract

Foreign Exchange rates affects to most of the variables of the economy. In this article an attempt has been made to examine the linkages and impact of the foreign exchange rates on Spot and Futures prices of Nifty Bank NSE Index. The analysis has been carried out with the econometrics techniques such as ADF Test, Co-integration Approach, Variance Decomposition, Granger Causality Test and Ordinary Least Square Regression Model (OLS). The Nifty Bank Index Spot and Futures prices and the foreign exchange rates (USD/INR, EURO/INR, YEN/INR and GBP/INR) have been taken as a sample of the study for a period ranging from June 2005 to January 2018. The results has showed that there is an absence of co-integration between Spot, Futures and Foreign exchange rates markets in most of the instances. The result also showed that there is an impact of Foreign exchange rates with an exception of EURO/INR rates on Spot and Futures Markets of Nifty Bank NSE Index. The outcome of this article will be the significant contribution to the Policy Makers, Spot market and Futures market traders and other investors.