Influence of Exchange Rate on BSE Sensex & NSE Nifty

Predicting currency movements is perhaps one of the hardest exercises in economics as it has many variables affecting its market movement. The changes in the capital market bring transformation in the entire economy of the country. The boom and depression of the capital market are reflected in all sectors of the economy. The foreign exchange market and the stock market are vital for any well-defined financial system of a country. Stock price downward movement continuously in the market forewarns the crisis period in advance. This study analyses the dynamic relationship between stock market and exchange rate and explores the long-run and short-run causal relationship between the stock market and the exchange rate in India for the major decade 2005-2014 of indices BSE Sensex and Nifty NSE. As US Dollar is a prominent currency for foreign trade, the exchange rate of rupee and US Dollar has been taken for the study. BSE Sensex NSE NIFTY index is a bench marking index that is used to measure the economic development of a country like India. The present study conducted from 2005-2014 for a period of 10 years. Correlation between NSE NIFTY, BSE SENSEX with reference to Exchange Rates can be calculated. This explains about the relationship between the variables