Comparative Analysis With Other Currencies

Empirical Analysis

Our analysis is consisted of comparing Indian rupee (INR) against 5 other currencies.
The compared currencies are USD, SGD, GBP, MYR and EUR. Since the rupee is
very weak against those currencies, 100 rupee has been used for ease of comparison.
In these 15 years period, 2007-2008 global financial crisis was a major shock to global
economy. During the crisis, international trade and flow of investment were
significantly disrupted which led to huge fluctuations in individual currencies’
exchange rate.

Therefore, time period has been divided into three parts according to two major
shocks in this period. First one was the hit of the crisis to global economy that was
followed by monetary easing or quantitative easing (QE) by the Federal Reserve Bank
and second one was leaving the QE and tightening the money supply. Based on these
two milestones, comparison has been made in different periods:

a) Pre-crisis period (Jan 2001-Nov 2007)

b) Crisis and post-crisis period (Dec 2007-April 2013)

c) Monetary tightening period (May 2013-Sep 2014)

1. Indian Rupee versus USD (INR/USD)

The United States dollar (USD; also abbreviated US$ and referred to as the dollar,
U.S. dollar, or American dollar) is the official currency of the United States and its
overseas territories. It is a Federal Reserve Note and consists of 100 smaller cent units.

The U.S. dollar is fiat money. It is the currency most used in international transactions
and is the world's most dominant reserve currency. Several countries use it as their
official currency, and in many others, it is the de facto currency. Besides the United
States, it is also used as the sole currency in two British Overseas Territories in the
Caribbean: the British Virgin Islands and the Turks and Caicos islands. A few
countries use only the U.S. Dollar for paper money, while the country mints its own
coins, or also accepts U.S. coins that can be used as payment in U.S. dollars, such as
the Susan B. Anthony dollar.

1.1 Pre-crisis Period.

During post-independence of India in 1947, one USD was equal to one INR, and there
was no budget deficit. In 1951, the government started foreign borrowing. In 1966, the
government announced rupee devaluation to encourage exports. In 1991 rupee was
further devalued in two stages. India was in the grip of high inflation, low growth and
insufficient foreign reserves. In 1993 India moves to a market determined exchange
rate system. In 1997 a series of measures were introduced in response to Asian
currency crisis, which hit in 1998. In 2006 India’s Growth rate hits a record of 9.8%
owing to high domestic and global demand. Reaping the benefits of reforms,
macroeconomic stability, and a supportive external environment, India achieved
growth of 7.54 percent on average during 2000/01- 2007/08, with a significant
reduction in poverty.
Based on the measures taken as stated above, during January 2001 to November 2007
Indian Rupee (INR) appreciated by 17.6% against USD. It was 2.15 USD in Jan 01
and 2.53 in Nov
07. The mean was 2.19 USD and the standard deviation during this period was 11
percent. The volatility was less comparing to that of 100 INR/ EUR pair (0.23). It was
almost in line with 100 INR/GBP (0.10) and 100 INR/SGD (0.11).

During this period, the INR stopped declining and stabilized ranging between 1 USD
= INR 44–48. In late 2007, the Indian Rupee reached a record high of Rs.39 per USD,
because of sustained foreign investment flows into the country. This posed problems
for major exporters, IT and BPO firms located in the country who were incurring
losses in their earnings given the appreciation in rupee.

The pair had strong positive correlation with 100 INR/ MYR (0.72) and some
correlation with INR/SGD (0.04), whereas it had negative correlation with both
INR/GBP (-0.52) and INR/EUR (-0.57).

1.2 Crisis and Post-crisis Period

India faced the first global economic crisis since emerging as an economic
powerhouse in 2008. Foreign investors transferred huge sums out to their own
countries. Growth rate of exports decreased from 26.7% in 2005 to -4.69 percent in
period 2009 because of Global financial crisis, with public debt at about 80 percent of
GDP. The annual growth rate dropped from 9.8% in 2006/07 to 3.89% in 2007/08.
High commodity prices and the global turmoil have weakened India’s external
position. With the oil import bill rising by over 50 percent (y/y), the current account
deficit widened from 2.6% of GDP in 2004/05 to 4.4% in 2007/08.

Amidst taking several measures by RBI like Cut in policy rates, cut in cash reserve
ratio (CRR), Cut in statutory liquidity requirement (SLR), Repurchase of market
stabilization bonds, Term repo facility, Refinance facilities and other measures, the
Indian Rupee depreciated sharply by 27.72% during this time, from 2.53 USD per 100
INR in Dec 2007 to
1.84 USD in Apr 2013.

The volatility was very high, and standard deviation was about 19 cents, which was
the highest comparing to 100 INR/EUR (0.09) and 100 INR/GBP (0.093) during this
period.

The pair had strong positive correlation with all pairs INR/ MYR (0.85), INR/SGD
(0.87), INR/EUR (0.71) and INR/GBP (0.42). This suggests the similar trend in all
currencies during the global financial crisis and post crisis recovery period.

1.3 Monetary Tightening Period

With the beginning of US Federal Reserve’s aggressive policy of QE, the investors
borrowed cheap money in the US and invested in higher yielding assets in India,
Indonesia, South Africa and other emerging nations. This resulted in more money
flowing into debt, equity and commodity markets in these countries. In India, many
corporates resorted to heavy borrowings overseas. The massive capital inflows also
enabled India to comfortably finance its deficits. However, this money quickly left
India and other emerging markets when the tapering of QE program begins. The
foreign investors pulled out a record Rs.620 bn ($10 bn) from the Indian debt and
equity markets during June-July 2013.

In Aug 2013, Indian Rupee plunges to a all-time low. 1 USD = INR 68.85. Outflow of
foreign investment stuck up economic policies, poor infrastructure, high current
account deficit, low growth - all reasoned behind the depreciation. Despite a modest
recovery in the rupee’s value between 4th September 2013 and 12 September 2013,
the investors remain wary of India’s excessive dependence on volatile “hot money”
flows to finance its current account deficit.

India’s Balance of Payments mostly balanced in 1970s. In 1980s, current account

deficits started to rise culminating into a BoP crisis in 1991. It was in 1991 when
Indian rupee was devalued twice. India always had current account deficit since initial
years in 2000s. The deficit has been financed by capital flows and capital flows have
been higher than current account deficit most of the times resulting in balance of
payments surplus.

During this period the INR depreciated by about 10%, from 100 INR = 1.82 USD in
May 2013 to USD 1.64 in September 2014. The volatility was the lowest among other
periods, where the mean was 1.64 USD and standard deviation was only 5 cents. This
was in line with other pairs like 100 INR/ EUR (0.059), 100 INR/ GBP (0.059) and
100 INR/ SGD (0.067). This suggests that amidst further depreciation of the currency,
it tended to be stable comparing to pre-crisis and post crisis periods.

The pair had strong positive correlation with all pairs INR/ MYR (0.74), INR/SGD
(0.97), INR/EUR (0.91) and INR/GBP (0.78).
2. Indian Rupee versus Euro (INR/EUR)

The Euro is the official currency of the Euro-zone, which covers 19 countries and 337
million people combined. The Euro is the second largest reserve currency and second
most traded currency worldwide, only next to the U.S. dollar. The Euro was first
introduced into the market on January 1st, 1999 in replacement of the European
Currency Unit as the accounting currency, and formally entered day-to-day circulation
since January 1st, 2002. The management and administration mainly rest in the hand
of the European Central Bank (ECB), which locates in Frankfurt, Germany and
operates as a monetary authority independent from governments of Euro-zone’s
member countries. The European debt crisis starting in late 2009 delivered a huge
blow all across the Euro-zone, yet after several rounds of massive rescues the integrity
of the Euro-zone has been guaranteed and the Euro remains one of the most important
currencies around the world.

2.1 Pre-crisis Period

During the period from January 2001 to November 2007, the Indian Rupee
experienced long-term consistent downstream fluctuation, depreciating by around
24% from 2.29 Euro per 100 Rupee to 1.73 per 100 Rupee. Considering the length of
the time interval, the standard deviation of INR/EUR exchange rate was medium in
this period (0.233538), which may be interpreted by a strong yet highly inflating
Indian economy during that time.
During pre-crisis period, 100INR/EUR exchange rate had positive correlation with
100INR/GBP (0.9634) and 100INR/SGD (0.4573), and the correlation with
100INR/GBP approximated to 1.0 and therefore was very strong. On the other hand,
the correlation with 100INR/USD and 100INR/MYR were negative (-0.5796 and
-0.4481 respectively).

2.2 Crisis and Post-crisis Period

The hit of the global financial crisis was significant on the INR/EUR exchange rate in
the first two years after November 2007, when Rupee continued its pre-crisis trend of
depreciation, and the depreciating process was much sharper than it was in the seven-
year period before the crisis. In September 2009, Rupee reached its historical low both
since the crisis and since January, 2001, of 1.41 Euro per 100 Rupee, depreciating by
another 18% within 22 months since the beginning of the crisis (compared to 24% in
almost seven years before November 2007).The standard deviation of INR/EUR
exchange rate within this short period was 0.096653.
After touching that valley Rupee entered a drastic appreciation, rising within nine
months by 24% from the historical low point of 1.41 Euro per 100 Rupee to its peak
of 1.75 Euro per 100 Rupee in June, 2010. In the light of then continuously sluggish
Euro-zone economy and the comparatively brilliant recovery of India because of
government stimulus, there was no surprise on the massive capital influx into India to
create a surge of the INR/EUR exchange rate, despite the absence of significant
change of monetary policies by the European Central Bank. The standard deviation of
INR/EUR exchange rate within this nine months’ appreciation (0.126354) was more
than 30% higher than the counterpart value of previous 22 month’s depreciation
(0.096653), although the time length of the appreciation was only 40% of that of the
early-stage period. As a result, the volatility of the INR/EUR exchange rate during
this nine months’ appreciation grew very high in comparison with the early stage of
the crisis.

At last, the INR/EUR exchange rate fell again, from 1.75 to 1.40Euro per 100 Rupee
in May 2013, which was 20% depreciation. The 35 months period witnessed a
0.097409 standard deviation, which, when time length is taken into consideration,
indicated a smaller volatility than both previous stages. In this stage, shrinking growth
rate, high inflation together with a serious dual deficit in both India’s current account
and its public finance was noticed by the market and thus shocked the investor,
leading to a massive outflow of foreign capital and therefore significant depreciation
of the Indian Rupee. Although the European debt crisis emerged at that time and drove
down the Euro against U.S. Dollars, the Euro’s fall was not comparable to the Rupee,
which reflected lower market confidence on India, an emerging economy, than on the
Euro-zone, which is a developed market. Another reason for the remaining strength of
the Euro when compared to the Rupee might be the reluctance of the European
Central Bank to execute radical monetary expansion as the Reserve Bank of India had
done.

During crisis and post-crisis period, 100INR/EUR’s correlation with both

100INR/USD and 100INR/MYR, endured a drastic change from positive to negative:
the former rate from - 0.5796to 0.7179, and the latter data from -0.4481to 0.5900. The
correlation with 100INR/SGD also moved up slightly, from 0.4573 to 0.6623. In
contrast, the correlation with 100INR/GBP reduced significantly from 0.9634 to
0.6882.
2.3 Monetary Tightening Period

In this period, the India Rupee first endured a further depreciation from 1.4 to 1.18 the
INR/EUR exchange rate in November 2013, a15.7% depreciation within only six
months, but reached the bottom there and slightly recovered in the subsequent 10
months, arriving at
1.27 the INR/EUR exchange rate in September 2014 (a 7.6% appreciation from
November, 2013), the end of the period. The volatility of the INR/EUR exchange rate
in the whole tightening period, measured by standard deviation, was 0.117046, and
can be mainly attributed to the first six months’ fall that obtained a standard deviation
of 0.084825. We can thus interpret the first six months’ drop of the INR/EUR
exchange rateas a continuation of market shock in face of India’s critical post-stimulus
economic conditions, and link the following exchange rate stability to both the effects
of India’s successful monetary adjustment and the accelerated deterioration of the
European debt crisis, which further pulled down the Euro.

During monetary tightening period, 100INR/EUR’s correlation with both

100INR/USD and 100INR/SGD rose further to strong positive ones approaching 1.0,
the former from0.7179 to 0.9114, and the latter from 0.6623 to 0.9191. The correlation
with 100INR/GBP changed its course and rebounded from 0.6882 to 0.8934. The
correlation with 100INR/MYR, however, dropped slightly, from 0.5900 to 0.5545.

3. Indian Rupee versus British Pound (INR/GBP)

British pound (showed as GBP shortly) ranks number 4 behind the US dollar, the Euro
and the Japanese Yen for the world’s most traded currency. While the years between
2007 and2009 have been tumultuous for the world economies and currencies, the
pound has been able to maintain its higher value, never dropping below its other
floated competitors.

The journey between Indian rupee and British pound started at 1950. After getting its
independency from Britannia in 1947, India`s currency was linked to British pound
until 1973. On 24th September 1975 Indian rupee faced devaluation and its ties with
pound disengaged. In 1991, India was in the grip of high inflation, low growth and
insufficient foreign reserves. Therefore, the government opened up the economy,
devalued the rupee and attempted to change exchange rate regime. The movement
away from pegged exchange rate regime to partially floated in 1992 and fully floated
in 1993 was influential in developing market-determined exchange rate of the rupee
and was a significant step in the progress towards total account convertibility.2

With other adverse events, rupee sank further against foreign currencies (including
GBP) with Asian currency crisis in 1998. By end of the 2000, rupee has recovered its
high depreciation against other currencies and reached the pre-crisis rates. 1 GBP was
selling more than 68 rupees currently.

The factors that affect currency rates have become more significant in 21th century
with power of the globalization and strong interconnection of the economies. The
Figure 1 shows the relationship between GBP and INR in last 15 years which will be
elaborated in detail in the following parts.
3.1 Pre-crisis Period

From 2001 to financial crisis hit to global economies, end of 2007, Indian rupee had
many ups and downs against British pound. However, downward movements were
stronger than upward ones where rupee has ended up depreciating almost 16% in this
period. While INR 100 = 1.45 GBP in January 2001, it declined to 1.22 GBP in
November 2007.

During this period, it is observed that the volatility of INR is not high against superior
currencies. In other words, standard deviation of INR against GBR is low in this
period (0.103448). The role of tightly managed exchange rate policy by Reserve Bank
of India cannot be denied in this partially stable currency.

During pre-crisis period, 100INR/GBP exchange rate had strong positive correlation
with 100INR/EUR (0.9634) and 100INR/SGD (0.5611), yet correlation was negative
with 100INR/USD and 100INR/MYR (-0.529 and -0.3352 respectively).

3.2 Crisis and Post-crisis Period

The most prominent impact of the financial crisis hit on INR is that it has increased its
volatility significantly. The value of 100 INR depreciated from 1.26 GBP to 1.18 GBP
in 10 months (6.34%). However, it sharply appreciated against GBP (10.1%) within
December 2008 right after Federal Reserve Bank of America decided to apply
monetary easing for recovery of the crisis. The INR continued to appreciate slightly in
following months until March 2009. After this time until global monetary tightening
period, Indian rupee has had many upward and downward movements against GBP
and experienced its highest rate at May 2010 (100 INR =1.48 GBP) in parallel with
the positive improvements in domestic input. However, INR continued its volatile
movements against GBP and ended up with 1.2 just before FED has announced to cut
quantitative easing.

The summary of this period is that rupee was highly volatile against pound in this
period. Although it has experienced some powerful times, it ended up almost same
rate with pre- crisis period (from 1.22 to 1.20). Therefore, we have significant
evidence that global financial crisis had impact on volatility episodes of the rupee
against pound, but we do not have enough evidence to prove that Indian rupee has
been affected from the crisis negatively.

The crisis has had significant changes in the correlation coefficient between currency
pairs such that it has changed the direction of the correlation for some of them. In the
post-crisis period, 100INR/GBP had positive correlation with all other currency
parities. The magnitude of correlation was strong with 100INR/EUR (0.6881) and
relatively strong with 100INR/SGD (0.4488), 100INR/MYR (0.4302) and
100INR/USD (0.4259).

3.3 Monetary Tightening Period

Federal Reserve Bank’s declaration of stopping quantitative easing incrementally in

the middle of May 2013 had severe impacts on Indian rupee. Unlike the post-crisis
period where INR were able to partially protect its value against other currencies, the
decision of leaving monetary easing has depreciated INR sharply over against GBP in
short period of time. INR lost 20% of its value over GBP in only 3.5 months (100 INR
declined from 1.20 to 0.96). After September 2013, INR continued its volatile action
against GBP, but it did not move away from its highly depreciated rate. 100 INR was
selling from 1 GBP at the end of the September 2014.
It seems that ending the period of the plethora of money has had permanent effect on
INR against foreign currencies including GBP, because INR has never re-increased the
its pre-Fed declaration rates against British pounds until today.

The monetary tightening period also offers us different case where 100INR/GBP had
positive strong relationship with 100INR/EUR (0.8933), 100INR/SGD (0.8369) and
100INR/USD (0.7865) where its relationship was positive and relatively weak with
100INR/MYR (0.3905).

4. Indian Rupee versus Singapore Dollar (INR/SGD)

4.1 Pre-crisis Period

During 2001-2005 periods, Indian rupee (INR) showed stable movements against
Singapore dollar (SGD). The volatility among currencies was very low in this period
(0.07). In the beginning of the year 2001, 100 INR was 3.73 SGD and this rate was
3.67 at the end of 2005 (1,6 % depreciation of INR). However, with new year2006,
INR/SGD suddenly started to decrease and INR has lost 9% of its value in six months
(100INR/SGD declined from 3.68 to 3.38).

After learning India economy has broken growth record by growing 9.8% in 2006,
Indian rupee experienced strong upward movement against foreign currencies. Before
financial turmoil hits to global economies, INR has enjoyed appreciation and
100INR/SGD came to the same position where it was at the end of the 2005.
During pre-crisis period, 100INR/SGD exchange rate had positive correlation with all
currency pairs and coefficients were high except 100INR/USD (0.0493). The
correlation coefficients were (0.5611), (0.4754) and (0.4573) with 100INR/GBP,
100INR/MYR and 100INR/EUR, respectively. In the post-crisis period, correlation of
currency parities was even higher than pre-crisis time.

4.2 Crisis and Post-crisis Period

As discussed in above parts, global financial crisis hit Indian economy influence
adversely and weakened the India’s external position. Current account deficit of the
country has been almost doubled in 2007-2008 period. After the crisis Indian currency
has depreciated a lot against superior currencies and maybe the sharpest one occurred
against Singapore dollar. INR depreciated strongly by 38% during this time, from 3.67
SGD per 100 INR in Dec 2007 to 2.28 SGD per 100 INR in Apr 2013. Also the
volatility was high in this period reaching 36 %.

During post-crisis period, INR has depreciated against almost all major currencies, but
the magnitude and time slice show some differences among these currencies. One of
the reasons behind this various performance is related with the trade volume between
countries. For example, there is considerable bilateral trade between India and
Singapore, reaching to USD 10 billion in 2014.

Singapore dollar was one of the few currencies that almost was not affected negatively
from the financial crisis. The robust stance of SGD against USD, EUR and GBP
where its value appreciated significantly caused INR to lose its value over SGD. By
depreciating more than 37% against SGD, INR has exhibited its worst currency
performance in this period. Another point to be noted is that INR depreciated
persistently in this period which means that except short temporary increase (one or
two months), INR declined continuously.
The correlation coefficients of 100INR/SGD were (0.9919) with 100INR/MYR,
(0.8750) with 100INR/USD, (0.6623) with 100INR/EUR and (0.4488) with
100INR/GBP. Almost perfect correlation between 100INR/SGD and 100INR/MYR
are remarkable detail in these numbers.

4.3 Monetary Tightening Period

Monetary easing policy by FED has made US money cheap and skyrocketed
investment in higher yielding assets in India, Indonesia, Turkey, South Africa and
other emerging markets. This cheap and abundance of cash has prevented INR to
depreciate further, although Indian rupee was very weak against Singapore dollar in
this period.

However, FED’s declaration for leaving QE incrementally vitiated the INR which was
already weak over SGD. It depreciated by more than 12% in 4 months, from 2.27
SGD per 100 INR in May 2013 to 1.98 SGD per 100 INR in Aug 2014. After this
time, it is observed that INR increased slightly and 100 INR reached 2.07 SGD in Sep
2014.

Even though there was a sharp decline in the beginning of the period, volatility (6 %)
was relatively low compared to other periods.

The positive, strong and increasing trend in correlation coefficients among currency
pairs continued in the monetary tightening period as well. 100INR/SGD had positive
strong relationship with 100INR/USD (0.9726), 100INR/EUR (0.9191), 100INR/GBP
(0.8369) and
100INR/MYR (0.7971). The correlation between 100INR/SGD and 100INR/MYR
was remarkably highest (almost perfect) in the post-crisis period, it draws attention
again by having lowest correlation coefficient in monetary tightening period. It
shows how unstable correlation exists between 100INR/SGD and 100INR/MYR,
although these countries are geographically very close to each other.

5. Indian Rupee versus Malaysian Ringgit (INR/MYR)

The Malaysia Ringgit is the official currency of Malaysia and is issued and
administered by Bank Negara Malaysia, the country’s central bank. The word
“ringgit” is an ancient term for "jagged" in the Malay language and was later
borrowed to mean the silver Spanish dollars which used to circulated widely in
Southeast Asia four and five centuries ago. Malaysia first issued its currency in 1967
and changed the currency’s name to “Ringgit” in 1975. The Ringgit was first allowed
to float freely in 1995. Due to the severe hit of the East Asian financial crisis,
however, the ringgit lost 50% of its value against the U.S. dollar between 1997 and
1998, and compelled Bank Negara to peg the Ringgit to the U.S. dollar in 1998. On
July 21st, 2005, the peg to the dollar was substituted for the managed float regime, in
which the Ringgit moves with a basket of world currencies, and which allows the
monetary authorities of Malaysia to intervene whenever the currency’s fluctuation
transcend the limits assigned ex ante. The Ringgit suffered another drastic fall since
late 2014, as the price of oil endured a free fall and imposed tremendous downward
impact onto the Malaysian economy, which remains heavily dependent on energy
production and exportation.

5.1 Pre-crisis Period

During the pre-crisis period since 2001, the Indian Rupee maintained a comparatively
stable exchange rate against the Malaysian Ringgit, from 8.16per 100 Rupee in
January 2001 to8.49 Ringgit per 100 Rupee November 2007, resulting in a purely 4%
appreciation within seven years. The standard deviation of INR/EUR exchange rate
was medium in this period (0.290497).

During pre-crisis period, 100INR/MYR exchange rate had positive correlation with
100INR/USD (0.7224) and 100INR/SGD (0.4755), and the correlation with
100INR/USD surpassed 0.5 and therefore was very strong. On the other hand, the
correlation with 100INR/EUR and 100INR/GBP were negative (-0.4481 and -0.3352
respectively).

5.2 Crisis and Post-crisis Period

The global financial crisis delivered a significant impact on the INR/MYR exchange
rate, leading the Rupee to depreciate more than 17% against the Ringgit within 11
months after November 2007. Compared to its 4% drop against Ringgit between
January 2001 and November 2007, this dramatic depreciation demonstrated a clear
transformation of the INR/MYR exchange rate from its pre-crisis pattern of long-term
narrow shocks to post-crisis short-term plunge. In October 2008, the Rupee arrived at
its eight-year low of 7.00 Ringgit per 100 Rupee, in contrast to 8.49 Ringgit per 100
Rupee in November 2007, The standard deviation of the INR/MYR exchange rate
within this short11-month period was 0.432918, a shocking reflection of high
volatility of the INR/MYR exchange rate during this early stage of the global financial
crisis.
The next 16 months after the October 2008 bottom proved a plateau stage of the
INR/MYR exchange rate, during which the Rupee slightly appreciated against the
Ringgit by 4.6%, from 7.00 Ringgit per 100 Rupee in October 2008 to 7.32 Ringgit
per 100 Rupee in February 2010. Such temporary stability of exchange rate between
the Indian and Malaysian currencies could result from the highly parallel stimulus
policies executed in face of the global financial crisis and the correspondingly
analogous policy effects entered on the respective currency’s price trend in the foreign
exchange market. The standard deviation of INR/MYR exchange rate within this16
months’ stability (0.089615) was as small as 20% of the counterpart value of previous
11 month’s depreciation (0.432918), furnishing another indication that the trend of the
INR/MYR exchange rate in this period had altered itself to an approximately
horizontal move which produced a very low-degree volatility, from its previous free
fall.

In the last 39 months’ stage of this crisis and post-crisis stage, Rupee again lost
strength against Ringgit and endured a 25% depreciation, from 7.32Ringgit per 100
Rupee in February 2010 to 5.48 Ringgit per 100 Rupee in May 2013, which is the end
of this whole period. The standard deviation of the INR/EUR exchange rate within the
39 months also rebounded to 0.578444, exposing a high volatility when compared to
the abovementioned plateau stage (whose corresponding standard deviation was as
low as 0.089615). The last stage virtually saw remarkably effective monetary and
fiscal adjustment of the Indian authorities and the progressive recovery of the Indian
economy, both of which gave rise to the Rupee in the foreign exchange market.
However, in this time interval crude oil prices also remained historically high,
fluctuating around $100, and contributed to the overvaluation of the currency of
Malaysia, an important energy exporter. As a result, the skyrocketing of the Malaysian
Ringgit outpaced the simultaneous strengthening of the Indian Rupee.
In the whole crisis and post-crisis period, the Rupee depreciated by more than 35%
against the Malaysian Ringgit, and obtained a huge standard deviation of 0.790788,
indicating the high volatility of the INR/MYR exchange rate during the period.

During crisis and post-crisis period, 100INR/MYR’s correlation with both

100INR/GBP and 100INR/EUR, endured a drastic change from positive to negative:
the former rate from - 0.3352to 0.4302, and the latter data from -0.4481to 0.5900. The
correlation with 100INR/USD also moved up slightly, from 0 .7224 to 0.8555, and the
correlation with 100INR/SGD had a more significant increase from a weak positive
correlation (0.4755) to a strong positive one (0.9919).

5.3 Monetary Tightening Period

In this period, the India Rupee endured a further slash against the Ringgit from 5.48 to
5.08Ringgit per 100 Rupee in September 2013, amounting to a7% depreciation within
only four months, but stopped there and moved narrowly up and down in the
subsequent 12 months, arriving at 5.28 Ringgit per 100 Rupee with a less than 4%
appreciation in September 2014, the end of the period. The latter stage of appreciate
doesn’t suffice to compensate for the former stage’s bigger exchange rate fall, and in
the whole tightening period, the Rupee fell by 3.65% against the Ringgit. The
volatility of the INR/EUR exchange rate in the whole tightening period, measured by
standard deviation, was 0.117339, and can be mainly attributed to the first four
months’ fall that earned a standard deviation of 0.154855. The first four months’ drop
of the INR/MYR exchange rate presumably result from the continuation of the
divergently paced appreciations of the Indian Rupee and the Malaysian Ringgit, and
the later moderate recovery of the INR/MYR exchange rate illustrates the direct hit
of oil price plunge onto the Malaysian economy and the opposite effects of such price
upheaval onto the Indian economy.

During monetary tightening period, 100INR/MYR’s correlations with all other four
exchange rates decrease: from 0.5900 to 0.5545 for 100INR/EUR, from 0.8555 to
0.7491 for 100INR/USD, from 0.4302 to 0.3905 for 100INR/GBP, and from 0.9919 to
0.7972 for 100INR/SGD.