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Estimation of Critical Level of Exchange Rate to Manage Corporate Default and NPAs

In: Studies in International Economics and Finance

Author

Listed:
  • Rajas Parchure

    (Gokhale Institute of Politics and Economics)

  • Lalitagauri Kulkarni

    (Gokhale Institute of Politics and Economics)

  • Kalluru Siva Reddy

    (Gokhale Institute of Politics and Economics)

Abstract

The paper analyzes the impact of exchange rate volatility on profit and loss accounts and balance sheets of listed corporate firms in India. We estimate the critical exchange rate for NSE-listed firms from various industries in India. Using the data on bank NPAs in India, the paper also examines the link between exchange rate volatility, corporate default, and bank NPAs. The results suggest that the exchange rate in the range of Rs. 50/$ to Rs. 60 /$ is a safe rate for corporate firms and even for banks to maintain a lower level of NPAs. Any movement outside this critical exchange rate band is likely to trigger defaults, though there is an asymmetry, viz. depreciation of the rupee has more serious consequences as compared to appreciations.

Suggested Citation

  • Rajas Parchure & Lalitagauri Kulkarni & Kalluru Siva Reddy, 2022. "Estimation of Critical Level of Exchange Rate to Manage Corporate Default and NPAs," India Studies in Business and Economics, in: Naoyuki Yoshino & Rajendra N. Paramanik & Anoop S. Kumar (ed.), Studies in International Economics and Finance, pages 489-511, Springer.
    • Handle: RePEc:spr:isbchp:978-981-16-7062-6_24
    DOI: 10.1007/978-981-16-7062-6_24
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    More about this item

    Keywords

    Exchange rate volatility; Critical exchange rate; Firm defaults; Stability; India;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General

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