Purely based on the emerging needs of the market, RBI has permitted introduction of exchange traded currency options contract in recognized exchanges from 2010. The primary objective of the study was identifying the effect of introduction of exchange traded currency options on spot exchange rate of USD/INR and also to examine whether introduction of currency options has altered arrival of news into market or not during post currency options period. The study was for a period of 18 years of which nine years of pre currency options introduction period. The widely used time series techniques of estimation such as ARCH - LM test, GARCH model, unit root test, and GJR GARCH model were made use of in the analysis of the selected secondary data. The result derived from GARCH techniques show that introduction of currency options in India has reduced volatility in spot exchange rate of American dollar against Indian rupee. The study also indicate that the impact that the recent news has on current spot exchange rate volatility of has increased during post currency options introduction period. The study further shows that there was an asymmetric effect as far as spot exchange volatility is concerned.
Currency derivatives, Options, Volatility, GARCH
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