Exchange Rate Volatility Measure And Relative Price

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

Currency exchange rates can be categorised as floating, in which case they constantly change based on a number of factors, or they can subsequently be fixed to another currency, where they still float, but they additionally move in conjunction with the currency to which they are pegged. Floating rates are a reflection of market movement, demonstrating the principles of both demand and supply, as well as limit imbalances in the international financial system. Fixed exchange rates are predominantly used by developing countries as they are preferred for their greater stability. They grant further control to central banks to set currency values, and are often used to evade market abuse. (MacEachern, A. 2008; Simmons, P.

Because Australia has a floating exchange rate, the currency’s value is left to be determined by the market forces of international demand and supply. There is no specific measure of exchange rate volatility. Economists instead refer to movements in Australia’s bilateral exchange rate or movements in Australia’s TWI to demonstrate exchange rate volatility. Since floating in 1983, Australia’s exchange rate has been remarkably volatile. This has been seen especially in the past six to seven years, where the Australian dollar has appreciated substantially against the US dollar, from record lows in August 2001 of US48 cents

Exchange rates play a pivotal role in the relationships between individual economies and the global economy. Almost all financial flows are processed through the exchange rate, as a result the movements and fluctuations of the exchange have a significant impact on international competitiveness, trade flows, investment decisions and many other factors within the economy. Due to the increasing globalisation of the world economy, trade and financial flows are becoming more accessible

In the similar time period Japanese Yen has been in the third position with a turnover position of 20.8% in the year 2005. The overall financial market currency structure has seen a decline in the turnover position of the US Dollar to 85% from a strong position of 88%. Similarly a decline has been in the position of the Japanese Yen to 17.2% from an acceptable turnover position of 20.8%. While considering the trend of these two currencies during the period starting from 2007 and ending at 2010, it is to be noted that minute changes were seen in the two different currencies with regards to their share in foreign currency market. The US Dollar witnessed a continued fall to 84.9% from its previous 85.6% however, the Japanese Yen saw a rise from its previous position of 17.2% to an increase of1.8% that is 19%. During the same time period the US dollar and Japanese Yen were the second most traded paired currencies and was traded at around 14% of the overall foreign currency market second to the US Dollar and Euro pair. Conclusion The foreign exchange market has seen considerable changes owing to the global financial crisis. It is to be seen how different factors like economy and global politics further impact strong currencies like the US Dollar and other competing currencies such as the Japanese Yen.

The internet has allowed the money market to operate 24 hours a day. It has been noted however that exchange rate volatility has increased,[v] which makes it more difficult for the government to set monetary policy.

First time in the history of 30 years finally in 2007 in September, the Canadian dollar saw its peak against the U.S. dollar at 1.0052, from where it went on to see a hit at US$1.1024 at the time of trading, and again witnessed a high recently after China made an official announcement that it would branch out its approx. 1.44 trillion United States Dollar reserve from the U.S. dollar. However November saw the Canadian dollar come at same level with the value of the U.S. dollar, and in December the dollar had moved back to 0.98 United States Dollar, with reducing rate of interest rates implemented by the Bank of Canada because of their apprehension vis-à-vis its exports to the U.S. Canadian dollar went on to gain fame and Time magazine conferred the recognition of Canadian Newsmaker of the Year for 2007.

September to November took a huge hit daily on different foreign exchange markets with very volatile market. Government control had a very complex impact on the currency values and continues to do so, leading investors to tread lightly. As the stabilization of growth to support commodity prices has quite improved in the first quarter of 2017. It leads a favorable exposure of commodity producing countries and currencies – which increases the purchasing power measured by the amount of goods that can be purchases with the units of money. The differences in currencies and commodities show that countries do not fall under absolute purchasing power parity and clearly shows that this does not hold in the real-time situations. Absolute purchasing power believes that two countries are completely identical and share the law of one price, meaning that the good is the same price across all countries. Relative purchasing power acknowledges all of the market imperfections that our country is currently enduing and adjusts to the difference in inflation rates so that relative purchasing power can remain unaffected. Currencies, commodities, and inflation are all important factors of the current emerging markets and will continue to change the fluctuations of the market. If the commodity prices continue to improve, it may lead to a more kind market and maybe even leading the Mexican Peso as an attractive investment. Only time will tell where the market takes us, as the United States is faced with administration changes and confused

Stanek, M. B. (2002). A review of exchange rate policies and their effect upon nations and

Since the great depression, the global economy has been facing a number of ups and downs. With the markets being built rapidly and crashing down in the other instant, elements that actually make up the skeleton of the international economy seems to have correlated variables. These variables seems to have been correlated with each other in numerous combinations and their correlation is what makes the market fluctuate. The volatility of the global market becomes more apparent in times of recession when the correlation between variables like stocks, bonds, US dollar, Euro, gold and oil becomes more apparent. Therefore, it is of paramount importance that these correlated variables should be studied with a very keen eye. Since the link between currencies, commodities, stocks an bonds runs very deep, change in any one of them seems to have a profound impact on the rest hence changing the face of the market.

Whilst popular opinion centres on the assumption that rising exchange rate has mostly positive effects on the economy, the impacts are both diverse and extensive. In the short run, a major implication is the improvement in the terms of trade as exports become more expensive and imports become relatively cheaper. This rise in the terms of trade leads a larger

The above Graphs shows the Year on Year appreciation / Depreciation of US dollar over British Pound, and if we divide the entire Year on Year data into four different time Periods i.e. 1995 -2000, 2001-2005, 2006-2010, 2010-2014 we can easily analyze the Exchange Rate fluctuation of Dollar against Pound over a period of 5 years of time by considering the closing Exchange rates of the respective currencies during the starting and the ending of the 5 year time horizon.

The performance of a stock market is usually associated with the movements in the exchange rate because of its influence on the stock price of a firm. The foreign exchange market is a place where trading of international currencies occurs between many buyers and sellers around the world. Any fluctuations occur in the currency rate can influence the business activities between two different countries. For example, a strong home currency can leads to the firm’s profit when doing business in the country which have a weak currency rate.

Exchange rate represents the external value of a currency. Changes in exchange rates may affect the relative position of a country in the international trade. Politicians and economists concern about exchange rate variability for lots of reasons, among which that the exchange rate variability discourages trade comes first. However, a large empirical literature on this issue does not confirm a significant effect of exchange rate on the volume of trade [1]. Instead other variables such as employment should be much more important from a practical point of view, for it is closely related to people’s livelihood.