Significant Impact of Macro Economic Variables on Currency Exchange Rate: A Design Thinking Approach

Abstract

In the nation's foreign trade, the exchange rate is crucial. The exchange rate is a key macroeconomic indicator of a country's economic standing globally and is a measure for assessing its level of international competitiveness. The country's foreign exchange system is intimately tied to its development. The present study aimed to understand the significant impact of selected macro-economic variables on currency exchange rate between USD and INR. Current Account Balance, FDI Inflows, Interest Rate, Inflation Rate, GDP and Prime Lending Rate are considered as the macro-economic variables for this study. Data ranging from 2000-01 to 2020-21 are collected from the official websites and analysed using proper statistical tools like descriptive statistics, correlation coefficient and multiple regression analysis. The study found the significant influence of four variables namely, inflation rate, interest rate, FDI inflows and interest rate on the currency exchange rate between USD and INR.