Exchange Rate Dynamics

Case of Dollar Ranjit Sau We have derived a first-order nonlinear difference equation for exchange rate. In theory it generates a very complex dynamics. The equation is estimated with quarterly data of US dollar relative to the SDR, 1974-1991. It is utilised to forecast the value of dollar up to the first quarter of 1995. The dollar, it appears, will be in the upswing in the near future. It will remain all through at a higher level than presently. Hence, the Indian rupee, \f made fully convertible, would depreciate relative to dollar THE Indian economy is being opened up for greater integration with the outside world. The finance minister has announced India's intention to make the rupee fully convertible as soon as the conditions permit. Exchange rate is a link that binds different parts of the world economy. The currency crisis that had gripped Europe on the eve of the French referendum on the Maastricht treaty has raised many a question once again. Is the exchange market stable? Does it ensure efficiency in some sense? What are the laws that govern the course of a currency? Is the post-1973 experience of floating exchange rates disappointing? Answer to these questions is very relevant for us today as India awaits full convertibility of rupee.