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

Rajas Parchure (), Lalitagauri Kulkarni () and Kalluru Siva Reddy ()
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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

A chapter in Studies in International Economics and Finance, 2022, pp 489-511 from Springer

Abstract: 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.

Keywords: Exchange rate volatility; Critical exchange rate; Firm defaults; Stability; India (search for similar items in EconPapers)
JEL-codes: C20 C31 G10 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:isbchp:978-981-16-7062-6_24

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DOI: 10.1007/978-981-16-7062-6_24

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