Banking Project on Currency Fluctuations

Only available on StudyMode
  • Download(s) : 25
  • Published : January 30, 2013
Open Document
Text Preview
IBS HYDERABAD

BANKING MANAGEMENT PROJECT ON: CURRENCY FLUCTUATIONS & ITS IMPLICATIONS ON INDIAN BANKS

SUBMITTED BY: PIYUSH SULTANIA 11BSPHH010580 IBS HYDERABAD

Table of Contents
INTRODUCTION: WHAT IS CURRENCY ..................................................................................................... 3 REASONS FOR FLUCTUATION .................................................................................................................. 3 IMPACT OF RECESSSION IN INDIAN ECONOMY ....................................................................................... 7 FOREIGN EXCHANGE MARKET ................................................................................................................ 9 CURRENCY FLUCTUATION IN INDIAN RUPEE ......................................................................................... 10 FACTORS RESPONSIBLE FOR APPRECIATION OF RUPEE ......................................................................... 11 CURRENCY FLUCTAUTION IMPLICATIONS ON INDIAN BANK…………………………………………………………….. 16 RBI’S ROLE IN CURRENCY FLUCTAUTION……………………………………………………………………………………………22 HOW TO HEDGE CURRENCY RISK……………………………………………………………………………………………………….24 REFERENCES………………………………………………………………………………………………………………………………………28 APPENDIX………………………………………………………………………………………………………………………………………….29

Page

2

WHAT IS CURRENCY?
Currency is a generally accepted form of money, including coins and paper notes, which is issued by a government and circulated within an economy. Currency is used as a medium of exchange for goods and services; currency is the basis for trade.

The Indian rupee (sign: ; code: INR) is the official currency of the Republic of India. The issuance of the currency is controlled by the Reserve Bank of India. The modern rupee is subdivided into 100 paise (singular paisa), although this division is now theoretical; as of 30 June 2011, coin denominations of less than 50 paise ceased to be legal tender. Banknotes are available in nominal values of 5, 10, 20, 50, 100, 500 and 1000 rupees. Rupee coins are available in denominations of 1, 2, 5, 10, 100 and 1000; of these, the 100 and 1000 coins are for commemorative purposes only; the only other rupee coin has a nominal value of 50 paise, since lower denominations have been officially withdrawn.

Currency Fluctuations:

Currency fluctuation refers to a situation where the currency of a particular country changes its value in relation to the currency of another country. A currency has value, or worth, in relation to other currencies and those values change constantly. For example, if demand for a particular currency is high because investors want to invest in that country's stock market or buy exports, the price of its currency will increase. Just the opposite will happen if that country suffers an economic slowdown, or investors lose confidence in its markets.

Reasons for currency fluctuations: Before we take a look at the reasons for currency fluctuations, we should sketch out how the fluctuations affect a nation's trading relationships with other nations. A higher currency makes a country's exports more expensive and imports cheaper in foreign markets; a lower currency Page

3

makes a country's exports cheaper and its imports more expensive in foreign markets. A higher fluctuation can be expected to lower the country's balance of trade, while a low fluctuation would increase. There are a number of reasons why currencies fluctuate in comparison to others, and to cover all the individual bases for fluctuation is beyond the scope of this project. However some of the main reasons for currency fluctuations are described as under: Reason 1: Intention The first major reason why currencies fluctuate in value is because the relevant governments decide intentionally to stimulate the fluctuation. There are several key economic tools at their disposal for interfering with a currency’s natural value, and these can be deployed in situations...
tracking img