Financial Market Volatility: RBI Sold $34.5 Billion in FY25
Why in the news
The RBI sold dollars heavily to tame rupee swings. This is a handy peg to learn volatility.
Key facts
- Forward book: $84.34 billion (31 March 2025) from $88.75 billion in February.
- The rupee fell sharply in H2 FY25 after almost two years of calm.
- Dollar strength came from inflation expectations and uncertainty after Donald Trump returned as US President.
Volatility basics
- How widely an asset’s price varies over time; usually gauged by standard deviation or variance.
- More volatility means more risk; it can go either way and helps price options.
- Variance = mean of squared deviations; SD is its root.
- Example: prices ₹1-₹10 give mean ₹5.5, variance ₹8.25, SD ₹2.87; roughly 68% fall within one SD.
Types
| Type | Basis |
|---|---|
| Historical (HV) | Past closing prices over a set period |
| Implied (IV) | Options prices; reflects expected future swings |
In options
- Higher volatility raises premiums; used in Black-Scholes and Binomial Tree models.
Exam angle
- HV looks back; IV looks forward.
- Volatility derives from variance but is not the same.