Effect of Central Bank Intervention in Estimating Exchange Rate Exposure: Evidence from an Emerging Market

This study examines the relationship between the value of the firm and unanticipated changes in exchange rate. Using a sample of 651 Indian firms over the period from 2001 to 2013, this study finds that unanticipated changes in exchange rates are more appropriate than actual changes to discover statistically significant and economically important exchange rate exposure. Using a vector error correction model (VECM) to generate unanticipated exchange rate changes, this study provides new evidence that the intervention by central bank has a major impact on the level of Indian firms’ exchange rate exposure