Appreciating Rupee: Changing Paradigm?

This paper discusses the volatility behaviour of the rupee dollar movement. Analysing data on the forward premium in the rupee dollar forward market from 1997 to 2002, the authors attempt to understand the dynamics of the forward market and also, how optimal hedging works. This analysis shows that contrary to what an `efficient markets' perspective would predict, the forward premia systematically exceeds rupee depreciation, implying that there is an asymmetric advantage to sellers of dollar forwards.