Abstract

The exchange rate volatility of a nation plays a critical role in determining its economic stability. In India the exchange rate has been highly volatile influenced by numerous external and internal factors. This paper explores the interactions between implied and realized variances in Indias exchange rate volatility aiming to understand the underlying dynamics and the forecasting abilities of implied and realized volatilities. Implied volatility often derived from options pricing represents the markets expectation of future volatility while realized volatility captures the actual past movements of the exchange rate. By examining the relationship between these two volatilities the study contributes to the literature on exchange rate prediction and risk management in emerging markets focusing on India. The methodology adopted in this research includes a quantitative analysis using high-frequency data on the Indian Rupee (INR) and key global currencies. The results provide insights into