Hedging rupee currency pairs
REAL-LIFE PROBLEMS, INNOVATIVE SOLUTIONS
BACKGROUND: The extreme range-bound movement of the USD/INR currency pair this calendar year has resulted in very low implied volatilities in the pair. At the same time, the high implied volatility in the EUR/USD pair has percolated into other EUR currency pairs, including EUR/INR.
EUR/USD one-year volatility is currently at 9.25%, compared with 8.85% a month ago. The increase in volatility can be traced to the murky outlook on both the US and EU economies. Growth in the US economy is
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