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Research Journal of Humanities and Social Sciences
Year : 2019, Volume : 10, Issue : 3
First page : ( 840) Last page : ( 846)
Print ISSN : 0975-6795. Online ISSN : 2321-5828.
Article DOI : 10.5958/2321-5828.2019.00138.4

Indian Financial Integration: Evidence from the NDF Market

Srivastava Vineet1,*, Chattopadhyay Arup2

1Research Fellow, Department of Economics, The University of Burdwan, Golapbag, 713104, West Bengal, India

2Professsor, Department of Economics, The University of Burdwan, Goplapbag, 713104, West Bengal, India

*Corresponding Author Email: srivineet13@gmail.com

Online published on 31 December, 2019.


This study seeks to investigate the extent and causes of financial integration of India with the rest of the world during the sample period of January 2000 to October 2017. The study compares the interest rate which ought to prevail, with respect to the Non-Deliverable Forward (NDF) rate, in case of Covered Interest Parity and what actually does prevail. The difference between the Covered Interest Parity implied domestic interest rate and the actual domestic interest rate is our measure of financial integration. The study tries to find out different macroeconomic variables which affect the financial integration of India. The study used ordinary least squares, Johansen's Cointegration technique along with VECM and Granger causality to unearth the long run and short run relationship of financial integration with plausible macroeconomic variables. We found India to be significantly non-integrated. Inflation volatility, changes in NEER and GDP along with Bank Rate and CRR were found to unequivocally influence financial integration of India. We also found structural break present in variables under study at June 2008.



Financial integration, Covered interest parity, NDF, Structural break, Cointegration, VECM.


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