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Abstract: The study gives an overview of the various determinants of the exchange rate movements in India. Out of the multiple factors affecting the Rupee-Dollar value the impact of Interest rate differential, Trade deficit of India, Foreign Net investment inflows to India, Oil prices, and Gold prices (in the short term) on the exchange rate has been studied using Regression analysis and correlation and the role they played by the above mentioned variables in determining the exchange rate during the Global Financial Crisis of 2008-2010 and during the Covid-19 Period from 2020-2023. Exchange rate fluctuations play a crucial role in shaping the economy of a country, and India is no exception. The exchange rate of the Indian rupee against major world currencies is subject to constant fluctuations, influenced by a multitude of domestic and global factors. These fluctuations have significant implications for various stakeholders, including businesses, consumers, investors, and policymakers. Several factors contribute to the exchange rate fluctuations in India. One of the primary factors is the demand and supply dynamics of foreign exchange. Factors such as trade balance, foreign direct investments, portfolio investments, remittances impact the demand for and supply of foreign currency, Crude oil prices, Gold prices, and thereby affecting the exchange rate. In addition, macroeconomic variables like inflation, interest rates, and economic growth also play a crucial role in determining exchange rate movements. For instance, a high inflation rate in India compared to trading partner countries can lead to a depreciation of the rupee. Global economic conditions and geopolitical events are other significant factors influencing exchange rate fluctuations in India. Economic developments in major trading partners, changes in global commodity prices, and geopolitical tensions can all impact investor sentiment and capital flows, leading to fluctuations in the exchange rate. For example, uncertainties related to Brexit or trade tensions between major economies can trigger volatility in currency markets. Monetary policy decisions by the Reserve Bank of India (RBI) also play a crucial role in influencing exchange rates. Interest rate changes, open market operations, and forex interventions by the central bank can impact the value of the rupee visa-vis other currencies. The RBI often intervenes in the foreign exchange market to stabilize the rupee or prevent extreme volatility. Apart from these factors, market speculation, investor sentiment, and technological advancements in the financial markets can also contribute to exchange rate fluctuations. High-frequency trading, algorithmic trading, and the use of complex financial instruments by market participants can amplify exchange rate movements and increase volatility
Mohammad Samal Shah (Tue,) studied this question.