Does FX market in India integrated to exchange rate theories? a review amidst COVID-19

The exchange rate theories argue that the parity between two currencies is determined by various macro-economic factors prevailing across economies. It quite interesting to examine what happened currency rates in a period of inactivity for overall economies due COVID-19 outbreak. In this context study was carried out during turbulence empirically test whether foreign market India moves accordance with principles theories. bound co-integration (Pesaran,et.al., 2001) employed evidence long-run relationship macroeconomic variables hard such as USD, EUR, GBP and JPY against INR. cross sectional further validated using auto regressive distributed lag (ARDL) model. absolute version purchasing power theory (PPP) evident Indian analysis established strong integration Wholesale Price Index (WPI) Consumer (CPI) leading EUR JPY. association 364 days Treasury bill return (TBR) government Bond Return (GBR) confirmed postulation Interest Rate Parity (IRP) any increase interest can cause depreciation Results add existing literature confirming bondage price levels crisis. result urges active intervention from policymakers even if economy not fully functional.