indian foreign exchange market & rupee exchange rate

INDIAN FOREIGN EXCHANGE MARKET &

RUPEE EXCHANGE RATE

CONTENTSSR. NO.

PARTICULARS

1 Introduction

2 Instruments Of Foreign Exchange Market

3 Foreign Exchange Rate & Fluctuations in Exchange Rate

4 Types of Exchange Rates

5 Determinants of Exchange Rates

6 Appreciation & Depreciation of Indian Rupee

7 Rupee Exchange Rate

IntroductionPrice of a home currency with respect to foreign country’s currency is known as

Exchange Rate.

Currency Appreciation – An increase in the value of domestic currency with respect to the foreign currency.

Currency Depreciation - Loss in value of the domestic country's currency with respect to

the foreign currency.

Forex markets functions as anchors of trading between different types of buyers & sellers around the world.

The gradual liberalization of Indian economy has resulted in a substantial inflow of foreign currency capital into India.

Dismantling of trade barriers has also facilitated the integration of domestic economy with the world economy.

The Foreign Exchange Market comprises:Corporate

Commercial Banks (e.g. SBI, Kotak, ICICI etc.)

Exchange Brokers (e.g. FX Pro, Nord FX etc.)

Central Banks (e.g. Reserve Bank of India)

Introduction

ISSUES OF INCREASE IN EXCHANGE RATE

COSTLY IMPORTS

HIGHERINFLATION

DEPRECIATION OF LOCAL

CURRENCY

INCREASE IN EXTERNAL

DEBT

EFFECT OF INCREASE IN EXCHANGE RATE

• Only exporters will be happy like IT companies

• Importers will feel the heat

Importers & exporters

• CAD will grow more which in turn force the Indian govt. To go for international borrowing

Country’s fiscal health

• 3rd highest importer of crude oil increase in fuel prices

Fuel price

• Expenses for the college fees as well as living will shoot up

Students studying abroad

• The depreciating rupee price will hamper the people planning their holiday abroad.

Tourism

How TO CURB THE ISSUE• Using FOREX reserves• Raising interest rates• Make investments attractiveMEASURES BY

RBI

• Government should take some efforts to bring FDI and create a healthy environment for economic growth.MEASURES BY

GOVERNMENT

Instruments for foreign exchange market

Foreign Exchange Forwards

Currency Future

Currency Swaps

Currency Options

Foreign exchange rates

Foreign Exchange Rate -  The rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency.

E.g. US$1 = 62/-₹

Fluctuations in exchange rates

• A market-based exchange rate will change whenever the values of either of the two component currencies change. A currency will tend to become more valuable whenever demand for it is greater than the available supply.

• Increased demand for a currency can be due to either an increased transaction demand for money or an increased speculative demand for money. The transaction demand is highly correlated to a country's level of business activity, gross domestic product (GDP), and employment levels.

Types of exchange rates

• FLOAT EXCHANGE RATE• PEGGED FLOAT EXCHANGE RATE• FIXED EXCHANGE RATE

  Free float regime  Managed float regime  Pegged Regime  Fixed Regime

Determinants of exchange rates

• Differentials in Inflation• Differentials in Interest Rates• Current - Account Deficits• Public Debt• Terms of Trade• Political Stability & Economic Performance

Appreciation & depreciation on Indian

Rupee•An

increase in the value of domestic currency with respect to the foreign currency.

CURRENCY APPRECIATION

•Loss in value of the domestic country's currency with respect to the foreign currency.

CURRENCY DEPRECIATION

Reasons for depreciation of rupee

• Current account deficit• Inflation• Political paralysis• Recession in Euro zone• Negative remarks of credit agencies

Effects of Depreciation in Rupee in India

• Value of imported items will increase.• The current account deficit will increase.• Depletion in Forex reserves.• The borrowing cost for the companies will increase.• Deprecation in rupee is good for companies which

are billing to its customers in dollars.• It is good for employees who are abroad and getting

salary in dollars. 

Measures to Control Fall in Rupee

1. Allowing sovereign wealth funds, endowment funds and foreign central banks to invest in government bonds.2. Raising the foreign investment cap.3. Boost the slowing industrial growth.4. More exports incentives and reduce imports.5. Limit the foreign currency expenditure.

Rupee exchange rate

The rupee exchange rate is the

rate at which rupees are

exchanged for foreign currencies.

The following is the last 5 days value of

Dollar-Rupee Rate (1US$= ?):₹27th Dec 2013 (Fri): 61.98₹30th Dec 2013 (Mon): 61.89₹31st Dec 2013 (Tue): 61.90₹2nd Jan 2014 (Thu): 62.26₹3rd Jan 2014 (Fri): 62.19₹

Pound-Rupee Rate (1£= ?):₹27th Dec 2013 (Fri): 102.03₹30th Dec 2013 (Mon): 102.16₹31st Dec 2013 (Tue): 102.00₹2nd Jan 2014 (Thu): 102.74₹3rd Jan 2014 (Fri): 102.53₹

The following is the last 5 days value of

Euro-Rupee Rate (1€= ?):₹

27th Dec 2013 (Fri): 85.27₹30th Dec 2013 (Mon): 85.18₹31st Dec 2013 (Tue): 85.36₹2nd Jan 2014 (Thu): 85.15₹3rd Jan 2014 (Fri): 85.19₹

The following is the last 5 days value of

Yen-Rupee Rate (1¥= ?):₹27th Dec 2013 (Fri): 0.59₹30th Dec 2013 (Mon): 0.588₹31st Dec 2013 (Tue): 0.587₹2nd Jan 2014 (Thu): 0.587₹3rd Jan 2014 (Fri): 0.599₹

The following is the last 5 days value of

Conclusion

The Rupee decline affects everyone in the economy because it feeds directly and indirectly into general inflation which affects the common people.

More exports incentives and reduced imports would beneficial for appreciation in Rupee.

PRESENTED BY:

• Ishan Khanna- 13034• Karen D’souza- 13037• Kirk Coutinho- 13040• Mausumi Sen- 13042• Nikita Bhinde- 13046