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We propose a tractable model for the exchange rate in a target zone with realignment. The target zone exchange rate dynamics is assumed to obey a bounded regular diffusion with two-sided unattainable barriers. The realignment is modeled as a continuous-time two-state Markov chain. Under the stationary setting of the Markov chain, a general pricing formula for the derivative written on the exchange rate is derived in the presence of the realignment risk. The Jacobi diffusion model is studied as an example and numerical results are presented for illustration.

Like much of the rest of the world, East Asia (Northeast and Southeast Asia) has recently experienced a democratic “fall” in which several electoral democracies have undergone autocratization. This synchronized with China’s rise through what can be called illiberal realignment as autocratizing regimes in the region have sought increasing material and ideological support from Beijing in the face of Western human rights criticism and occasional (although usually only the threat of ) sanctions. China has viewed this regress as a rejection of “Western-style democracy.” Yet a democratic “spring” which preceded the fall left a legacy of democratic normativity in the region as backsliding regimes continued to seek legitimacy through (however unfair and unfree) elections and (partial) liberalization. Residual democratic normativity combined with geopolitical insecurities have limited the region’s illiberal realignment toward China during this democratic fall.

Historically, Afghanistan has remained an active and one of the determining factors in shaping regional power structure. The U.S. withdrawal from the country is regarded as a turning point in the ongoing regional realignment process. Once the allies in the United States’ “War on Terror” campaign like Russia, Iran, Qatar, and Central Asian Republics have changed their side and are working very actively with the Taliban regime. These countries even consider the regime as the only option that has the capacity to address their national security threats arising from the country. Considering the situation and India’s strained relations with the Taliban, Pakistan, and China, will Iran emerge as a crucial ally for India in safeguarding its national interests and maintaining its strategic influence in Afghanistan and the wider region? This paper aims to analyze how a Taliban-led Afghanistan could impact India’s relationship with Iran. The research adds a new dimension to the analysis of India and Iran relations and highlights the significance of Iran for India in changing regional and global power structures. The research method was based on the review of research articles, reports both governmental and non-governmental, and surveys published in newspapers. The qualitative analysis clarifies and deepens the understanding of the issue.