An Analytical Study of the Impact of Dollar-Rupee Movement on Indian Equity Market.

Page 3: Introduction to the Financial System Page 7: Commercial Banks Page 12: The Share Market and the Corporation Page 15: Corporations Issuing Equity into the Share Market Page 19: Investors in the Share Market Page 24: Short-term Debt Page 28: Medium- to Long-term Debt Page 32: Interest Rate Determination and Forecasting Page 37: The Foreign Exchange Market Page 40: Factors that Influence the Exchange Rate Page 42: Futures Contracts and Forward Rate Agreements Page 47: Options

The exchange rates risk that is associated with economic, transaction, and translation exposure in Indian market. From the analysis, anticipate the fluctuations that seem to occur in the next 24 months

Carrying on research work is very circuitous, and is not direct at all. Problems regarding the morality of the questions, the permission or restriction to use certain information may arise. Also, understanding the information gathered and putting up the findings to the appropriate audience is also a challenge. Identifying the cause and effect can also be tricky. The causation and the relationship of the variables should be

One needs to have a base level understanding of what defines an exchange rate. According to Investopedia, a foreign exchange rate is “The price of one country's currency expressed in another country's currency. In other words, the rate at which one currency can be exchanged for another.”(Investopedia, 2012) The process by which foreign exchange rates are determined is really not any different than any other

(Market line, 2015) This risk is mainly caused by the relative movements of various currencies such as the US dollar, the Euro, the South African Rand, and the Indian Rupee. (Market line, 2015) In specie, as of December 2014 the currency exchange rate of Indian rupee was INR63.72 per $1, but appreciate to INR61.74 per $1in February 2015 and subsequently depreciated to INR66.1per $1in November 2015. (X-rates, 2015) A strong US dollar compare with a weak Indian rupee will cause an unfavourable effect on Apollo cost of borrowing. (Market line, 2015)As such, a rising financial expenses will lead to a huge impact on operations of company. (Market line,

The stock market as measured by the Dow 30 industrials bottomed in March at which time the Dollar index negatively correlated by peaking in price. In all the retracements and minor corrections that occurred, since then, in the Dow the dollar also experienced a similar but opposite reaction.

This sounds a little like guesswork and gambling, but there is more to it than what appears on the surface. The exchange rates are set by government agencies in each country. In the United States, most of us have become accustomed to waiting for word from Alan Greenspan about changes in

There are various factors that influence the exchange rate of a currency, such as: interest rates, current account balance, unemployment rate, gross domestic product, expectations on inflation rate, import and export capability of country, trade relationship of two countries, relative product price etc. In basic understanding these factors affect either demand or supply of currency and therefore exchange rate of currency. For example, if government of China determines the higher interest than USA then demand for Yuan in USA increases because foreign capital in china will increase due to potential higher rate of return on investment and by the law of supply and demand rate of Yuan too rises. Another example is China’s huge export amount which pushes the demand of Yuan in it’s trading partner nations, which is virtually all the world, subsequently leading to higher exchange rate.

The random walk model suggests that the current exchange rate is the best predictor of the future exchange rate. In other words, the current exchange rate reflects the future exchange rate. However, this model is questioned, past history of the exchange rate can’t predict the future of the exchange rate so we can say that the random walk model is inconsistent with the technical analysis because it tries to use today’s exchange rate to predict tomorrow’s exchange rate.

Conversely, a correlational research design does have limitations. The misinterpretation of correlations leads to assumptions of causality and directionality. A correlation does not imply causation, that is, a correlation between two variables does not necessarily mean one causes the other. A correlation coefficient can define a relationship between two

While the correlation between a cause and its effects may seem apparent, often too many different factors must be considered. Through experimentation, more accurate correlations may be made to determine a cause. This aspect of experimental research makes it somewhat superior to other forms of research (Rutter, 2007). Another advantageous characteristic of experimental research is the possibility of replication. In most research applications, too many variables may pollute a given situation and increase the difficulty with which to adequately make initial observations. Experimental research is more easily contained to the desired set of variables, and as such experiments can be replicated to further test hypotheses. Reproducing an experiment is much easier than conducting additional research by other means (Fagaras, Kovacs, Oros, Rafaila, Topa & Harrant, 2013).

The aim of this report is going to analyse the importance of forecasting future exchange rates and the relationship of Purchase Power Parity. Also is going to test if this is even possible by applying simple theory of the International Finance statistics. For many economists, governments and investors is very important the forecasting of exchange rate in order to organise their next strategical movements in order to invest money in a country in order to diminish the risks and increase the returns. By saying forecast future exchange rate is when we are able to predict the change in the exchange rates between two countries. Purchase Power Parity (PPP)

The interaction between exchange rates and stock prices particularly in recent times has attracted a lot of interest in particular due to increases in world trade and capital movement. Examples of this occurring can be found in studies from authors such as Katechos 2011, Ehrmann 2011 and Pan & Liu 2012 among others. This globalisation as well as the development of financial liberation means that currency represents one of the main determinants of business profitability and share prices therefore making the link between the two markets vital.

The Indian Rupee has depreciated significantly against the US Dollar marking a new risk for Indian economy. Till the beginning of the financial year (Apr 11-Mar 12) very few had expected Rupee to depreciate with most hinting towards either appreciation or status quo in the rupee levels. Those few who had even anticipated may not have imagined the scale of depreciation with rupee touching a new low of around Rs 54 to the US Dollar. What is even more interesting to note is that when other countries are trying to play currency wars and trying to keep their currencies devalued, India is trying to prevent depreciation of the currency. (Read our previous report for a review of the situation-

Only once as an independent nation India had choice of a exchange rate being defined as Indian rupee with reference to its foreign country trade partners. After successful independence and followed by constitution of India effect from 26th January 1950, India followed an exchange rate system which Indian Rupee linked to the British Pound Sterling. This system of exchange rate regime continues until mid- 1970’s, this period characterise by the breakdown of Bretton wood Exchange system around the world. In 1975 the system of Indian Rupee ties with Pound-sterling were broken and India started a managed or controlled floating exchange rate regime with which Indian Rupee linked to a number of currencies(‘basket currencies) of India’s major trading partners.