Abstract

Exchange rate volatility plays an increasingly influential role in shaping macroeconomic outcomes in open economies particularly in emerging markets such as India. The Indian foreign exchange market has undergone a substantial transformation over the past two decades marked by greater integration with global capital flows heightened participation by institutional investors and advances in derivative markets. As a result understanding the interaction between implied variance—derived from option prices reflecting market expectations—and realized variance—calculated from historical exchange rate movements—has become essential for interpreting currency dynamics and assessing financial risk. This research paper examines the structural relationship between implied and realized variances in India’s exchange rate markets specifically focusing on the Indian rupee (INR) against key global currencies. Through an analytical lens grounded in financial econometrics and volatility modelling the study