Impact of Forex Movement on Foreign Institutional Investments in India

Abstract

Since early 1990s foreign institutional investors have been playing a significant role in Indian financial market. Thus, they are expected to be influenced by the foreign exchange rate movements. Thus, this paper is an attempt to study the impact of foreign exchange rate movements on foreign institutional investments. Using the correlation and regression analyses, it is observed that the relationship were negative thereby implying that FII is not governed by foreign exchange movement. However, the investigation of the nature and trend of foreign institutional investments reveal that such flows have the ability to affect the sources of funds in Indian capital market, strengthen the liquidity system, improve the efficiency of the company and motivate the Indian companies to adopt modern financial techniques and international best practices. Thus, the role of FIIs in developing Indian market cannot be ignored.