Empirical Relationship between Foreign Direct Investments & Exchange Rates in the Post Liberalization Era

This paper tries to investigate the Long Term and Short term casual relationship between Foreign Direct Investment (FDI) and Foreign exchange rates (FX) in India's post-liberalization period. Econometric models have been used in this study too long term relation is measured through Johansen Cointegration test and Granger causality test is employed measure the short-term relationship. The result of the cointegration test proves that there is the significant long-term relationship between the Foreign Direct Investment (FDI) and Foreign exchange rates (FX) expect for YEN/INR. The Short-term relationship test confirms that there exists a uni-directional relationship between the FX and FDI. Therefore FX has stronger ability to predict subsequent FDI Inflows whereas there is no implication in the vice versa