Understanding the effect of Exchange Rate of US Dollar and Pound Sterling on The Indian Rupee

Generally changes in the exchange rates of US dollar and pound Sterling influences the Indian rupees per unit. The present paper investigates the effect of US dollar and pound Sterling on the Indian rupees per unit for the period starting from 1970–71 to 2014–15 using yearly data. The present paper has been designed with the application of unit root test, Johansen cointegration test and Granger causality test. Two indicators of exchange rate of the Indian rupees per unit, to be exact, US Dollar and the Pound Sterling have been used for the purpose of the study. Johansen cointegration test result indicates that there exists a long-term relationship among the selected variables. Granger causality test result shows that there must be either bidirectional or no causality among the variables.