India moved away from a pegged exchange rate to the LERMS in 1992 and the currency market-determined exchange rate regime in 1993 which is considered an important structural change in the exchange rate market. With increased volatility in the exchange rate and to mitigate the risk arising out of excess volatility, currency futures were introduced in India in 2008 which is considered as the second important structural change. It is believed that currency futures will help in hedging the exposures of the exchange rate to favorable movements in the exchange rate. This research paper examines the volatility of the currency. The daily closing values of the Spot and Futures of USD/INR were gathered from 2017 to 2020 and represented by applying GARCH methods. The methods capture the volatility clustering and leverage effect during the study period. The test of unit root, volatility clustering, and ARCH effect is confirmed and established. The USD/INR spot and futures returns are further analyzed by GARCH (1, 1), EGARCH (1, 1), and TGARCH (1, 1) models. The results revealed that the coefficient has the possible indication in the EGARCH (negative and significant) as well as in the TARCH (positive and significant) models. Further, EGARCH (1, 1) model is proved to be the finest model to arrest the asymmetric volatility.

India moved away from a pegged exchange rate to the LERMS in 1992 and the currency market-determined exchange rate regime in 1993 which is considered an important structural change in the exchange rate market. With increased volatility in the exchange rate and to mitigate the risk arising out of exc...