This study looks at how the difference between the exchange rates set by the market and those set by customs in India affects behavior and institutions. India uses a managed floating exchange rate system, but the exchange rates used for customs purposes are decided by the Central Board of Indirect Taxes and Customs. This setup can lead to differences between the market rates set by the Reserve Bank of India and the rates used for customs.

The research uses a quantitative method, looking at secondary data on the USD/INR exchange rate from January to February 2026. It uses statistical tools to examine the link between the two sets of exchange rates and to measure the size and importance of the differences. The results show that the difference between market and customs exchange rates is statistically significant and changes over time. However, the short-term connection between the two rates isn't strong. This suggests that customs exchange rates are shaped more by administrative decisions than by ongoing market changes. The study also points out that this difference creates a complex environment for businesses, affecting how they set prices, choose when to do transactions, and manage risks. Psychological factors like anchoring, loss aversion, and decisions based on expectations influence how companies respond to these exchange rate differences.