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Summer Project Report Submitted In the partial fulfillment of the Degree of Master of Business Administration Semester-II



Submitted To: CENTER FOR MANAGEMENT STUDIES Ganpat University, Kherva.



This is to certify that the contents of this report entitled IMPACT OF CURRENCY MARKET IN INDIAN ECONOMY by Nitish Patel, 12 submitted to Center for Management Studies for the Award of Master of Business Administration (MBA Sem-II) is original research work carried out by him under my supervision.

This report has not been submitted either partly or fully to any other University or Institute for award of any degree or diploma.

Pro. Niki Sanghvi. Centre for Management Studies, Ganpat University, Ahmadabad. Date:


CERTIFICATE BY THE MENTOR This is to certify that the contents of this report entitled IMPACT OF CURRENCY MARKET IN INDIAN ECONOMY by Nitish Patel, 12 submitted to Center for Management Studies for the Award of Master of Business Administration (MBA Sem-II) is original research work carried out by him under my mentoring. I, hereby certify the authenticity of the data and facts mentioned in the report.

This report has not been submitted either partly or fully to any other University or Institute for award of any degree or diploma.

Date : Place :



I hereby declare that the work incorporated in this report entitled IMPACT OF CURRENCY MARKET IN INDIAN ECONOMY in partial fulfillment of the requirements for the award of Master of Business Administration (Sem.- II) is the outcome of original study undertaken by me and it has not been submitted earlier to any other University or Institution for the award of any Degree or Diploma.

Nitish Patel Date: Place:


As a Part of MBA Program, Student has to pursue a project duly approved by the Faculty of Concerned area. I had the privilege of undertaking the project on Impact of Currency Market in Indian Economy at Religare Securities Limited. Main aim of the Project is to find out the factors which impact on Indian economy of currency market of glob & India.

The foreign exchange trading introduced in India since 2008. There are several products traded in forex market. As far as the study is consent the report is mainly focusing on the currency market in India. There are two exchanges MCX-SX and NSE for currency trading in India. There are four main currency pairs been traded in India are USD, EURO, GBP and JPY. There is major four ways to invest in or we can say financial instrument to invest in currency are spot, forward, swap, future and option.

There are mainly three factors which impact the currency market are economic, political and market physiology. Foreign exchange reserves in a strict sense are only the

foreign currency deposits and bonds held by central banks and monetary authorities. These are assets of the central bank held in different reserve currencies, mostly the US dollar, and to a lesser extent the euro, the UK pound, and the Japanese yen, and used to back its liabilities, the impact on any economy can be measured by analyzing the GDP, GNP, Import and export growth of the country and additionally the foreign reserve of the country.

The report contains the market research of currency investors as in-depth interview with questioner. This Project work is divided into following parts which are as under. 1. Objective of the Study 2. Limitations of the Study 3. Research Methodology. 4. To Understand Global Forex Market 5. To Understand Indian Forex Market 6. To Study Indian Economy 7. Data analysis & Interpretation 7. Conclusion 9. Annexure 10. Bibliography 4

I am thankful to Mr. Siddharth Doshi (Branch Manager) and the management of Religare securities limited for permitting me to go through my summer training.

First and for most I would like to thank my company guide Mr. Nishank Patel ( Sales Manager) for his constant encouragement, guidance and advice at every stage of my training. I would like to thank Mr. Pratik Adhvayu (Relationship Manager), Mr. Sameer Pandya (Relationship Manager), Mr. Ritesh Panchal (Dealer). This project would not have been successfully completed without their great support.

I am very much thankful to Center for Management Studies, Ganpat University for their excellent guidance, support and appreciation and also provided me with this great opportunity to work in such a reputed organization.

I express my sincere thanks to Mr. M. Sharma (chancellor), CA. Ujal Mehta (central coordinator), Dr. Vipul Patel (coordinator) and a sincere thanks to Prof. Niki Sanghvi, Center for Management Studies, Ganpat University, Ahmadabad, who helped me in understanding the project and the implementation of the same. Her suggestions really helped me think on a broad perspective and give me motivation to do my best. I would again like to thank Center for Management, Ganpat University, Ahmadabad for helping and supporting me for my Summer Internship Program at RELIGARE SECURITIES LIMITED.

Date: Place: Nitish Patel

Table of Content
Chapter Particulars Certificate By the Guide Certificate by Mentor Candidates Statement Preface Acknowledgments Table of content List of Tables List of Figures & Graphs
Objective & limitations of the study



Chapter 1 Chapter 2

Introduction Company Profile 2.1. introduction of the company 2.2. Religare Securities Limited 2.3. Religare securities offering different services. 2.4. Group of companies 2.5. General information

1 2 2 4 5 6 7 8 8 10 11 12 14 16 20 21 24 25 26 31 32 6

Chapter 3

Research Methodology 3.1 Research Design 3.2. Define the target population 3.3. The six W

Chapter 4

Foreign Exchange Markets in India 4.1. Market Size and liquidity 4.2. Market participants 4.3. Trading characteristics 4.4. Determinants of FX rates 4.5. Financial instruments 4.6. Speculation 4.7. Foreign exchange reserves

Chapter 5

Economy of India 5.1. Post-liberalization period (since 1991)

5.2. Sectors 5.3. External trade and investment 5.4. Indian currency exchange 5.5. Foreign Exchange Department of RBI 5.6. FEMA Rules & Policies Chapter 6 Impact of currency market in Indian economy 6.1. GDP & GNP 6.2. Exports & Imports in FY'11 Chapter 7 Interpretation of questioner 7.1 Demographic Questions 7.2 Main Questions Chapter 8 Chapter 9 Conclusion Annexure 9.1 Questioner Chapter 10 Bibliography

33 36 39 48 49 50 50 52 53 53 58 68 69 69 71

List of Table
Table No. 1 2 3 4


Page no.

Major Players of Online Trading in India Top 10 currency traders Most traded currencies Top 20 largest countries by foreign exchange reserves inter-governmental free-trade associations and supranational organizations Share of top five investing countries in FDI inflows Shareholders of MCX-SX Contract Specifications for USD INR Contract Specifications for Euro INR Contract Specifications for Pound Sterling-INR Contract Specifications for Japanese Yen-INR GDP & GNP of India Monetary Policy Rates: India Lending & Deposit Rates : India
Data interpretation of gender Data interpretation of age Data interpretation of education qualification Data interpretation of occupation Data interpretation of annual income Data interpretation of currency preference Data interpretation of primary object of investing Data interpretation of time duration Data interpretation of factors to determine Data interpretation of percentage criteria of investment Data interpretation of currency relay on Data interpretation of risk in currency market Data interpretation of return in currency market Data interpretation of service provided by broker

4 15 19 29

6 7 8 9 10 11 12 13 14
15 16 17 18 19 20 21 22 23 24 25 26 27 28

38 42 43 44 45 46 50 51 51
53 54 55 56 57 59 60 61 62 63 64 65 66 67

List of Graphs
No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Pie chart of gender Pie chart of age Pie chart of education qualification Pie chart of occupation Pie chart of annual income Pie chart of investment avenues Pie chart of currency preference Pie chart of primary object of investing Pie chart of time duration Pie chart of factors to determine Pie chart of percentage criteria of investment Pie chart of currency relay on Pie chart of risk in currency market Pie chart of return in currency market Pie chart of service provided by broker Particulars Page no.
53 54 55 56 57 58 59 60 61 62 63 64 65 66


Objective of the study

Primary Objective: To Study Impact of Currency market in Indian economy. Secondary Objective: To study the on board aspects of corporate. To Study the various services provided by Broker house to their clients. To know investors experience in Forex market, To study what other services investors expect from their broker house.

Limitations of the study

Theoretical data are taken from internet; possibilities of wrong data can take in the report. Respondent could provide wrong data. Shortage of time. May small sample size doesnt cover the all population characteristics.

1 0

Chapter 1. Introduction
The foreign exchange market or Currency market is a global, worldwide decentralized overthe-counter financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies. The primary purpose of the foreign exchange is to assist international trade and investment, by allowing businesses to convert one currency to another currency. For example, it permits a US business to import British goods and pay Pound Sterling, even though the business's income is in US dollars. It also supports direct speculation in the value of currencies, and the carry trade, speculation on the change in interest rates in two currencies. In a typical foreign exchange transaction, a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market began forming during the 1970s after three decades of government restrictions on foreign exchange transactions (the Bretton Woods system of monetary management established the rules for commercial and financial relations among the worlds major industrial states after World War II), when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.


Chapter 2. Company Profile

2.1. Introduction of the Company Religare is a global financial services group with a presence across Asia, Africa, Middle East, Europe and the Americas. Religare is promoted by the promoters of Ranbaxy pharmaceuticals Limited. In India, Religares largest market, the group offers a wide array of products and services ranging from insurance, asset management, broking and lending solutions to investment banking and wealth management. The group has also pioneered the concept of investments in alternative asset classes such as arts and films. With over 10,000 employees across multiple geographies, Religare serves over a million clients, including corporate and institutions, high net worth families and individuals, and retail investors. Religare operate from six regional offices and 25 sub-regional offices and have a presence in 330 cities and towns controlling 979 locations which are managed either directly by Religare or by our Business Associates all over India, the company have a representative office in London. While the majority of Religare offices provide the full complement of its services yet it has dedicated offices for investment banking, institutional brokerage, portfolio management services and priority client services. The Company is empanelled with UTI, IDBI, IFCI, SBI, BOI-MF, Punjab National Bank, PNB-MF, Oriental Insurance, GIC, UTI-Offshore, ICICI Can bank MF, Punjab & Sind Bank, Pioneer ITI, SUN F&C, IDBI Principal, Prudential ICICI, ING Baring and J M Mutual Fund. RELIGARE was founded with the vision of providing integrated financial care driven by the relationship of trust. The bouquet of services offered by RELIGARE includes Broking (Stocks, currency and Commodities), Depository Participant Service, Advisory on Mutual Fund Investments and Portfolio Management Services. RELIGARE is a pioneer in the concept of partnership to reach multiple locations in order to effectively service its large base of individual clients. Besides the reach of RELIGARE, the clients of the company greatly benefit by its strong research capability, which encompasses fundamentals as well as technical knowledge.


Religare is a Latin word that translates as 'to bind together'. This name has been chosen to reflect the integrated nature of the financial services the company offers.

The Religare name is paired with the symbol of a four-leaf clover. Traditionally, it is considered good fortune to find a four-leaf clover as there is only one four-leaf clover for every 10,000 three-leaf clovers found. For us, each leaf of the clover has a special meaning. It is a symbol of Hope, Trust, Care, and Good Fortune. For the world, it is the symbol of Religare. For us, each leaf of the clover has a special meaning. It is a symbol of Hope, Trust, Care, And Good Fortune. For the world, it is the symbol of Religare.

The first leaf of the clover represents Hope. The aspirations to succeed. The dream of becoming. Of new possibilities. It is the beginning of every step and the foundation on which a person reaches for the stars.

The second leaf of the clover represents Trust. The ability to place ones own faith in another. To have a relationship as partners in a team. To accomplish a given goal with the balance that brings satisfaction to all, not in the binding, but in the bond that is built.

The third leaf of the clover represents Care. The secret ingredient that is the cement in every relationship. The truth of feeling that underlines sincerity and the triumph of diligence in every aspect. From it springs true warmth of service and the ability to adapt to evolving environments with consideration to all.

The fourth and final leaf of the clover represents Good Fortune. Signifying that rare ability to meld opportunity and planning with circumstance to generate those often looked for remunerative moments of success.

Hope, Trust, Care, Good Fortune. All elements perfectly combine in the emblematic and rare, four-leaf clover to visually symbolize the values that bind together and form the core of the Religare vision.


2.2. Religare Securities Limited

Religare Securities Limited (RSL), a 100% subsidiary of Religare Enterprises Limited is a leading equity and securities firm in India. The company currently handles sizeable volumes traded on NSE and in the realm of online trading and investments; it currently holds a reasonable share of the market. The major activities and offerings of the company today are Equity Broking, Depository Participant Services, Portfolio Management Services, International Advisory Fund Management Services, Institutional Broking and Research Services. To broaden the gamut of services offered to its investors, the company offers an online investment portal armed with a host of revolutionary features. RSL is a member of the National Stock Exchange of India, Bombay Stock Exchange of India, Depository Participant with National Securities Depository Limited and Central Depository Services (I) Limited, and is a SEBI approved Portfolio Manager. Religare has been constantly innovating in terms of product and services and to offer such incisive services to specific user segments it has also started the NRI, FII, HNI and Corporate Servicing groups. These groups take all the portfolio investment decisions depending upon a clients risk / return parameter. Religare has a very credible Research and Analysis division, which not only caters to the need of our Institutional clientele, but also gives their valuable inputs to investment dealers. VISION AND MISSION Vision To build Religare as a globally trusted brand in the financial services domain and present it as the Investment Gateway of India'. Mission Providing complete financial care driven by the core values of diligence and transparency. Brand Essence Core brand essence is Diligence and Religare is driven by ethical and dynamic processes for wealth creation. Major Players of Online Trading in India (table 1) Religare Securities Share Khan India bulls Motilal Oswal HDFC HSBC Networth

Angel Trade ICICI Direct Reliance Money Standard Chartered IDBI Paisa Builder Geojit Kotak Securities

2.3. Religare securities offering different services.

a). Equity & Derivative: Religare is one of the heavyweight equity players in India with membership of National Stock Exchange of India and Bombay Stock Exchange - both major exchanges of India. We believe in innovative services that could cater a range of customers according to their requirements. b). Commodities: Religare Commodities Limited is a member of both the exchanges (MCX & NCDEX) that allows you to trade in all the commodities traded at both the exchanges. At present, trading in commodities is restricted to futures contracts only. Religare is currently offering special services to our esteemed investors in commodities:. Portfolio Advisory Services (COMPASS) - This allows investors to get the benefit of our in-depth research services and generate better returns with minimal risk. c). Depository Services: Religare is among the few major Depository Participants holding securities worth more than Rs.6000 crore under its management. RSL provides depository services to investors as a Depository Participant with NSDL and CDSL. d). Portfolio Management Services The main idea behind Portfolio Management Services is to manage our client's wealth more efficiently, reduce risk by diversifying across assets, sectors and funds, and maximizing returns.


2.4. Group of companies

Religare Securities Ltd Religare Health Insurance Reli areli ga re fin est limited

Aegon Religare Life insurance


Religare Finance limited

Religare assets Managem ent Company Religare Insurance Broaking Limited Religare Capital Market Limited

Religare Commodit ies Limited

2.5. General information

Name- Religare Securities Limited Corporate office address Religare Securities Limited, D3, P3B, District Centre, Saket, New Delhi-110017, Phone: +91-11-39125000

Board of directors 1. Mr. Sunil Godhwani Chairman and Managing Director 2. Mr Shachindra Nath Group CEO 3. Mr. Anil Saxena Chief Financial Officer 4. Mr. Harpal Singh Non Executive Director 5. Mr. Deepak Ramchand Sabnani Independent Director 6. Ms. Kathryn Matthews Independent Director 7. Mr. Padam Bahl Independent Director 8. Mr. J. W. Balani Independent Director 9. Ms. Sunita Naidoo Independent Director 10. Mr. Stuart D Pearce Independent Director 11. Mr. Ravi Mehrotra Board Member 12. Mr. R. K. Shetty Alternate to Mr. J. W. Balani 13. Capt. G. P. S. Bhalla Alternate to Mr. Deepak Sabnani


Chapter 3. Research Methodology

3.1. Research Design
A research design is a framework or blueprint for conducting the marketing research project. It specifies the details of the procedures necessary for obtaining the information needed to structure and solve marketing research problems.

2. Exploratory research Conclusive research 1. Exploratory Design:In exploratory design first collect the information about research. Understand foreign exchange market About foreign exchange market in India About Indian economy Impact of currency market in Indian economy Collection of primary data from past research. Then collection secondary data from Books, Magazines, Internet etc. Then start qualitative research in this the interview of branch manager & relationship manager of Religare securities limited. 2. Conclusive research design: In conclusive research main part is survey. In this research design we get perfect conclusion. It is structure. In conclusive research design two types a. Causal research b. Descriptive research In this research use Descriptive research descriptive research two types i. Cross sectional ii. Longitudinal design In cross sectional In cross sectional use Single cross sectional design because in our research the information collects only ones a time. In longitudinal design use panel.

Research design


1. Exploratory research 2. Conclusive research

1. Exploratory research


a. Secondary research b. Qualitative research I. Focus group interview II. In-depth interview Descriptive research. I. cross sectional signal cross-sectional

2. Conclusive research Descriptive research Cross-sectional

> > >

3.2. Define the target population

1. Target population: The collection of elements or objects that process the information sought by the researcher and about which inferences are to be made. 2. Elements: An object that possesses the information sought by the researcher. 3. Sampling unit: The basic unit containing the elements of the population to be sampled. 4. Sampling frame: A representation of the elements of the target population. It consists of a list or set of direction for identifying the target population. 5. Extent: Extent refers to the geographical boundaries. 6. Time: Time is time period under consideration. Target population: All the account holders of Religare Securities Limited, who trade in currency. Elements: investors of currency market. Sampling unit: investors of currency market Sampling frame: Not available. Extent: Ahemadabad Time: 11.00 A.M to 5.00 P.M

3.3. The six W

1. Who: who are respondent? The accounts holder in Religare Securities who are trading in Forex Market 2. What: what information should be obtained from the respondent? A wide variety of information could be obtained, including: a. What are income criteria? b. In which financial instrument they invest in? c. Factors they determine before investing. 3. When: when should the information is obtained from the respondent? 11.00a.m. to 5.00p.m. 4. Where: where should the respondent is contacted to obtain the required information? The information was collected from the Religare Securities, Parimal Garden, Ahmedabad. 5. Why: why are we obtaining information from the respondent? It is the necessary step to determine the factors of currency market impact in Indian economy because of the research project assigned. 6. Way: In what way are we going to obtain information from the respondent? a. Personal interview with questioners b. Expert opinion


Chapter 4. Foreign Exchange Markets in India

Historically the value of goods was expressed through some other goods, for example - a barter economy where individuals exchange goods. The obvious disadvantages of such a system encouraged establishment of more generally accepted and understand means of goods exchange long time ago in history - to set a common scale of value. In different places everything from teeth to jewelry has served this purpose but later metals, and especially gold and silver, were introduced as an accepted means of payment, and also a reliable form of value storage. Originally, coins were basically minted from the metal, but stable political systems introduced a paper form of IOUs (I owe you) which gained wide acceptance during the middle Ages. Such paper IOUs became the basis of our modern currencies. Before First World War most central banks supported currencies with gold. Even though banknotes always could be exchanged for gold, in reality this did not happen that often, developing an understanding that full reserves are not really needed. Sometimes huge supply of banknotes without gold support led to giant inflation and hence political instability. To protect national interests foreign exchange controls were introduced to demand more responsibility from market players. Closer to the end of World War II, the Bretton Woods agreement was signed as the initiative of the USA in July 1944. The Bretton Woods Conference rejected John Maynard Keynes suggestion for a new world reserve currency in favor of a system built on the US dollar. Other international institutions such as the IMF, the World Bank and GATT (General Agreement on Tariffs and Trade) were created in the same period as the emerging victors of WW2 searched for a way to avoid the destabilizing monetary crises which led to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that partly reinstated the gold standard, fixing the US dollar at USD35/oz and fixing the other main currencies to the dollar - and was intended to be permanent. The Bretton Woods system came under increasing pressure as national economies moved in different directions during the sixties. A number of realignments kept the system alive for a long time, but eventually Bretton Woods collapsed in the early seventies following president Nixon's suspension of the gold convertibility in August 1971. The dollar was no longer suitable as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits. The following decades have seen foreign exchange trading develop into the largest global market by far. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.


But the idea of fixed exchange rates has by no means died. The EEC (European Economic Community) introduced a new system of fixed exchange rates in 1979, the European Monetary System. This attempt to fix exchange rates met with near extinction in 1992-93, when pent-up economic pressures forced devaluations of a number of weak European currencies. Nevertheless, the quest for currency stability has continued in Europe with the renewed attempt to not only fix currencies but actually replace many of them with the Euro in 2001. The lack of sustainability in fixed foreign exchange rates gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates, in particular in South America, looking very vulnerable. But while commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have found a new playground. The size of foreign exchange markets now dwarfs any other investment market by a large factor. It is estimated that more than USD 3,000 billion is traded every day, far more than the world's stock and bond markets combined. Forex (Foreign Exchange) is the international financial market used for trade of world currencies. It has been working since 70s of the 20th century - from the moment when the biggest world nations decided to switch from fixed exchange rates to floating ones. Daily volume of Forex trade exceeds 4 trillion United States dollars, and this number is always growing .Main currency for Forex operations is the United States dollar (USD). Unlike stock exchanges, Forex market doesn't have any fixed schedule or operating hours it's open 24 hours per day, 5 days per week from Monday to Friday, since buy/sell orders are performed by world banks any time during the day or night (some banks even work on Saturdays and Sundays). Just like any other exchange, Forex market is driven by supply and demand of a particular tool. For instance, there are buyers and sellers for "Euro vs US dollar". Exchange rates at Forex are changing constantly, and fluctuations may happen many times per second - this market is very liquid.


4.1. Market Size and liquidity

The foreign exchange market is the most liquid financial market in the world. Traders include large banks, central banks, institutional investors, currency speculators, corporations, governments, other financial institutions, and retail investors. The average daily turnover in the global foreign exchange and related markets is continuously growing. According to the 2010 Triennial Central Bank Survey, coordinated by the Bank for International Settlements, average daily turnover was US$3.98 trillion in April 2010 (vs $1.7 trillion in 1998). Of this $3.98 trillion, $1.5 trillion was spot foreign exchange transactions and $2.5 trillion was traded in outright forwards, FX swaps and other currency derivatives. Trading in the UK accounted for 36.7% of the total, making UK by far the most important global center for foreign exchange trading. In second and third places, respectively, trading in the USA accounted for 17.9%, and Japan accounted for 6.2%. Turnover of exchange-traded foreign exchange futures and options have grown rapidly in recent years, reaching $166 billion in 2010 (double the turnover recorded in April 2007). Exchange-traded currency derivatives represent 4% of OTC foreign exchange turnover. FX futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Most developed countries permit the trading of FX derivative products (like currency futures and options on currency futures) on their exchanges. All these developed countries already have fully convertible capital accounts. A number of emerging countries do not permit FX derivative products on their exchanges in view of controls on the capital accounts. The use of foreign exchange derivatives is growing in many emerging economies. Countries such as Korea, South Africa, and India have established currency futures exchanges, despite having some controls on the capital account. Foreign exchange trading increased by 20% between 2007 and 2010 and has more than doubled since 2004. The increase in turnover is due to a number of factors: the growing importance of foreign exchange as an asset class, the increased trading activity of highfrequency traders, and the emergence of retail investors as an important market segment. The growth of electronic execution methods and the diverse selection of execution venues have lowered transaction costs, increased market liquidity, and attracted greater participation from many customer types. In particular, electronic trading via online portals has made it easier for retail traders to trade in the foreign exchange market. By 2010, retail trading is estimated to account for up to 10% of spot FX turnover, or $150 billion per day.


Top 10 currency traders % of overall volume, May 2011 Rank 1 2 3 4 5 6 7 8 9 10 Name Deutsche Bank Barclays Capital UBS AG Citi JPMorgan HSBC Royal Bank of Scotland Credit Suisse Goldman Sachs Morgan Stanley Market share 15.64% 10.75% 10.59% 8.88% 6.43% 6.26% 6.20% 4.80% 4.13% 3.64%

(Table 2) Because foreign exchange is an OTC (over-the-counter) market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading center is the UK, primarily London, which according to The City UK estimates has increased its share of global turnover in traditional transactions from 34.6% in April 2007 to 36.7% in April 2010. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. For instance, when the IMF calculates the value of its SDRs every day, they use the London market prices at noon that day.


4.2. Market participants

Unlike a stock market, the foreign exchange market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest commercial banks and securities dealers. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and not known to players outside the inner circle. The difference between the bid and ask prices widens (for example from 0-1 pip to 1-2 pips for a currencies such as the EUR) as you go down the levels of access. This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the foreign exchange market are determined by the size of the "line" (the amount of money with which they are trading). The top-tier interbank market accounts for 53% of all transactions. From there, smaller banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail FX market makers. According to Galati and Melvin, Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s. (2004) In addition, he notes, Hedge funds have grown markedly over the 20012004 period in terms of both number and overall size. Central banks also participate in the foreign exchange market to align currencies to their economic needs. a. Banks The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. Many large banks may trade billions of dollars, daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, which are trading desks for the bank's own account. Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for large fees. Today, however, much of this business has moved on to more efficient electronic systems. The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago. b. Commercial companies An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the longterm direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.


c. Central banks National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading. d. Forex Fixing Forex fixing is the daily monetary exchange rate fixed by the national bank of each country. The idea is that central banks use the fixing time and exchange rate to evaluate behavior of their currency. Fixing exchange rates reflects the real value of equilibrium in the forex market. Banks, dealers and online foreign exchange traders use fixing rates as a trend indicator. The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 199293 ERM collapse, and in more recent times in Southeast Asia. e. Hedge funds as speculators About 70% to 90% of the foreign exchange transactions are speculative. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency. Hedge funds have gained a reputation for aggressive currency speculation since 1996. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor. f. Investment management firms Investment management firms (who typically manage large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager bearing an international equity portfolio needs to purchase and sell several pairs of foreign currencies to pay for foreign securities purchases. Some investment management firms also have more speculative specialist currency overlay operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. Whilst the number of this type of


specialist firms is quite small, many have a large value of Assets Under Management (AUM), and hence can generate large trades. g. Retail foreign exchange traders Individual Retail speculative traders constitute a growing segment of this market with the advent of retail forex platforms, both in size and importance. Currently, they participate indirectly through brokers or banks. Retail brokers, while largely controlled and regulated in the USA by the CFTC and NFA have in the past been subjected to periodic foreign exchange scams. To deal with the issue, the NFA and CFTC began (as of 2009) imposing stricter requirements, particularly in relation to the amount of Net Capitalization required of its members. As a result many of the smaller and perhaps questionable brokers are now gone or have moved to countries outside the US. A number of the forex brokers operate from the UK under FSA regulations where forex trading using margin is part of the wider over-the-counter derivatives trading industry that includes CFDs and financial spread betting. There are two main types of retail FX brokers offering the opportunity for speculative currency trading: brokers and dealers or market makers. Brokers serve as an agent of the customer in the broader FX market, by seeking the best price in the market for a retail order and dealing on behalf of the retail customer. They charge a commission or mark-up in addition to the price obtained in the market. Dealers or market makers, by contrast, typically act as principal in the transaction versus the retail customer, and quote a price they are willing to deal at. h. Non-bank foreign exchange companies Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companies. These are also known as foreign exchange brokers but are distinct in that they do not offer speculative trading but rather currency exchange with payments (i.e., there is usually a physical delivery of currency to a bank account). It is estimated that in the UK, 14% of currency transfers/payments are made via Foreign Exchange Companies. These companies' selling point is usually that they will offer better exchange rates or cheaper payments than the customer's bank. These companies differ from Money Transfer/Remittance Companies in that they generally offer higher-value services. i. Money transfer/remittance companies and bureau de changes Money transfer companies/remittance companies perform high-volume low-value transfers generally by economic migrants back to their home country. In 2007, the Aite Group estimated that there were $369 billion of remittances (an increase of 8% on the previous year). The four largest markets (India, China, Mexico and the Philippines) receive $95 billion. The largest and best known provider is Western Union with 345,000 agents globally followed by UAE Exchange


Bureau de change or currency transfer companies provide low value foreign exchange services for travelers. These are typically located at airports and stations or at tourist locations and allow physical notes to be exchanged from one currency to another. They access the foreign exchange markets via banks or non bank foreign exchange companies. Most traded currencies (May 2011) (Table 3) Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Currency United dollar Euro Japanese yen Pound sterling Australian dollar Swiss franc Canadian dollar Hong Kong dollar Swedish krona New dollar Zealand States ISO 4217 code (Symbol) USD ($) EUR () JPY () GBP () AUD ($) CHF (Fr) CAD ($) HKD ($) SEK (kr) NZD ($) KRW SGD ($) NOK (kr) MXN ($) INR % daily share 84.9% 39.1% 19.0% 12.9% 7.6% 6.4% 5.3% 2.4% 2.2% 1.6% 1.5% 1.4% 1.3% 1.3% 0.9% 12.2% 200%

South Korean won Singapore dollar Norwegian krone Mexican peso Indian rupee Other Currencies Total


4.3. Trading characteristics

There is no unified or centrally cleared market for the majority of FX trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currencies instruments are traded. This implies that there is not a single exchange rate but rather a number of different rates (prices), depending on what bank or market maker is trading, and where it is. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs instantaneously. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. A joint venture of the Chicago Mercantile Exchange and Reuters, called Fx market space opened in 2007 and aspired but failed to the role of a central market clearing mechanism. The main trading center is London, but New York, Tokyo, Hong Kong and Singapore are all important centers as well. Banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session, excluding weekends. Fluctuations in exchange rates are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in gross domestic product (GDP) growth, inflation (purchasing power parity theory), interest rates (interest rate parity, Domestic Fisher effect, International Fisher effect), budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates; so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow. Currencies are traded against one another. Each currency pair thus constitutes an individual trading product and is traditionally noted XXXYYY or XXX/YYY, where XXX and YYY are the ISO 4217 international three-letter code of the currencies involved. The first currency (XXX) is the base currency that is quoted relative to the second currency (YYY), called the counter currency (or quote currency). For instance, the quotation EURUSD (EUR/USD) 1.5465 is the price of the euro expressed in US dollars, meaning 1 euro = 1.5465 dollars. The market convention is to quote most exchange rates against the USD with the US dollar as the base currency (e.g. USDJPY, USDCAD, USDCHF). The exceptions are the British pound (GBP), Australian dollar (AUD), the New Zealand dollar (NZD) and the euro (EUR) where the USD is the counter currency (e.g. GBPUSD, AUDUSD, NZDUSD, EURUSD). The factors affecting XXX will affect both XXXYYY and XXXZZZ. This causes positive currency correlation between XXXYYY and XXXZZZ. On the spot market, according to the 2010 Triennial Survey, the most heavily traded bilateral currency pairs were:


: 28% : 14% : 9%

and the US currency was involved in 84.9% of transactions, followed by the euro (39.1%), the yen (19.0%), and sterling (12.9%). Volume percentages for all individual currencies should add up to 200%, as each transaction involves two currencies. Trading in the euro has grown considerably since the currency's creation in January 1999, and how long the foreign exchange market will remain dollar-centered is open to debate. Until recently, trading the euro versus a non-European currency ZZZ would have usually involved two trades: EURUSD and USDZZZ. The exception to this is EURJPY, which is an established traded currency pair in the interbank spot market. As the dollar's value has eroded during 2008, interest in using the euro as reference currency for prices in commodities (such as oil), as well as a larger component of foreign reserves by banks, has increased dramatically. Transactions in the currencies of commodity-producing countries, such as AUD, NZD, CAD, have also increased.

4.4. Determinants of FX rates

The following theories explain the fluctuations in FX rates in a floating exchange rate regime (In a fixed exchange rate regime, FX rates are decided by its government): I. International parity conditions: Relative Purchasing Power Parity, interest rate parity, Domestic Fisher effect, International Fisher effect. Though to some extent the above theories provide logical explanation for the fluctuations in exchange rates, yet these theories falter as they are based on challengeable assumptions [e.g., free flow of goods, services and capital] which seldom hold true in the real world. Balance of payments model: This model, however, focuses largely on tradable goods and services, ignoring the increasing role of global capital flows. It failed to provide any explanation for continuous appreciation of dollar during 1980s and most part of 1990s in face of soaring US current account deficit. Asset market model: views currencies as an important asset class for constructing investment portfolios. Assets prices are influenced mostly by peoples willingness to hold the existing quantities of assets, which in turn depends on their expectations on the future worth of these assets. The asset market model of exchange rate determination states that the exchange rate between two currencies represents the price that just balances the relative supplies of, and demand for, assets denominated in those currencies.



None of the models developed so far succeed to explain FX rates levels and volatility in the longer time frames. For shorter time frames (less than a few days) algorithms can be devised to predict prices. It is understood from the above models that many macroeconomic factors affect the exchange rates and in the end currency prices are a result of dual forces of demand


and supply. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange. Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: economic factors, political conditions and market psychology. a. Economic factors These include: (a) economic policy, disseminated by government agencies and central banks, (b) economic conditions, generally revealed through economic reports, and other economic indicators. Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates). Government budget deficits or surpluses: The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency. Balance of trade levels and trends: The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency. Inflation levels and trends: Typically a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency. However, a currency may sometimes strengthen when inflation rises because of expectations that the central bank will raise short-term interest rates to combat rising inflation. Economic growth and health: Reports such as GDP, employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be. Productivity of an economy: Increasing productivity in an economy should positively influence the value of its currency. Its effects are more prominent if the increase is in the traded sector. b. Political conditions Internal, regional, and international political conditions and events can have a profound effect on currency markets.


All exchange rates are susceptible to political instability and anticipations about the new ruling party. Political upheaval and instability can have a negative impact on a nation's economy. For example, destabilization of coalition governments in Pakistan and Thailand can negatively affect the value of their currencies. Similarly, in a country experiencing financial difficulties, the rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive/negative interest in a neighboring country and, in the process, affect its currency. c. Market psychology Market psychology and trader perceptions influence the foreign exchange market in a variety of ways: Flights to quality: Unsettling international events can lead to a "flight to quality," a type of capital flight whereby investors move their assets to a perceived "safe haven." There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts. The U.S. dollar, Swiss franc and gold have been traditional safe havens during times of political or economic uncertainty. Long-term trends: Currency markets often move in visible long-term trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends. "Buy the rumor, sell the fact": This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought". To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices. Economic numbers: While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.


4.5. Financial instruments

A. Spot A spot transaction is a two-day delivery transaction (except in the case of trades between the US Dollar, Canadian Dollar, Turkish Lira, EURO and Russian Ruble, which settle the next business day), as opposed to the futures contracts, which are usually three months. This trade represents a direct exchange between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. B. Forward One way to deal with the foreign exchange risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be one day, a few days, months or years. Usually the date is decided by both parties. Then the forward contract is negotiated and agreed upon by both parties. C. Swap The most common type of forward transaction is the FX swap. In an FX swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange. D. Future Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts. E. Option A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world.

4.6. Speculation
Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, economists including Milton Friedman have argued that speculators ultimately are a stabilizing influence on the market and perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do. Other economists such as Joseph Stiglitz

consider this argument to be based more on politics and a free market philosophy than on economics. Large hedge funds and other well capitalized "position traders" are the main professional speculators. According to some economists, individual traders could act as "noise traders" and have a more destabilizing role than larger and better informed actors. Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not; according to this view, it is simply gambling that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 500% per annum, and later to devalue the krona. Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators. Gregory J. Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit. In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and foreign exchange speculators made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling, followed by an eventual, larger, collapse. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from them for having caused the unsustainable economic conditions.


4.7. Foreign exchange reserves

Foreign exchange reserves (also called Forex reserves or FX reserves) in a strict sense are only the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, SDRs and IMF reserve positions. This broader figure is more readily available, but it is more accurately termed official international reserves or international reserves. These are assets of the central bank held in different reserve currencies, mostly the US dollar, and to a lesser extent the euro, the UK pound, and the Japanese yen, and used to back its liabilities, e.g. the local currency issued, and the various bank reserves deposited with the central bank, by the government or financial institutions. History Official international reserves, the means of official international payments, formerly consisted only of gold, and occasionally silver. But under the Bretton Woods system, the US dollar functioned as a reserve currency, so it too became part of a nation's official international reserve assets. From 1944-1968, the US dollar was convertible into gold through the Federal Reserve System, but after 1968 only central banks could convert dollars into gold from official gold reserves, and after 1973 no individual or institution could convert US dollars into gold from official gold reserves. Since 1973, no major currencies have been convertible into gold from official gold reserves. Individuals and institutions must now buy gold in private markets, just like other commodities. Even though US dollars and other currencies are no longer convertible into gold from official gold reserves, they still can function as official international reserves. Purpose In a flexible exchange rate system, official international reserve assets allow a central bank to purchase the domestic currency, which is considered a liability for the central bank (since it prints the money or fiat currency as IOUs). This action can stabilize the value of the domestic currency. Central banks throughout the world have sometimes cooperated in buying and selling official international reserves to attempt to influence exchange rates. Changes in reserves The quantity of foreign exchange reserves can change as a central bank implements monetary policy. A central bank that implements a fixed exchange rate policy may face a situation where supply and demand would tend to push the value of the currency lower or higher (an increase in demand for the currency would tend to push its value higher, and a decrease lower). In a flexible exchange rate regime, these operations occur automatically, with the

central bank clearing any excess demand or supply by purchasing or selling the foreign currency. Mixed exchange rate regimes ('dirty floats', target bands or similar variations) may require the use of foreign exchange operations (sterilized or unsterilized) to maintain the targeted exchange rate within the prescribed limits . Foreign exchange operations that are unsterilized will cause an expansion or contraction in the amount of domestic currency in circulation, and hence directly affect monetary policy and inflation: An exchange rate target cannot be independent of an inflation target. Countries that do not target a specific exchange rate are said to have a floating exchange rate, and allow the market to set the exchange rate; for countries with floating exchange rates, other instruments of monetary policy are generally preferred and they may limit the type and amount of foreign exchange interventions. Even those central banks that strictly limit foreign exchange interventions, however, often recognize that currency markets can be volatile and may intervene to counter disruptive short-term movements. To maintain the same exchange rate if there is increased demand, the central bank can issue more of the domestic currency and purchase the foreign currency, which will increase the sum of foreign reserves. In this case, the currency's value is being held down; since (if there is no sterilization) the domestic money supply is increasing (money is being 'printed'), this may provoke domestic inflation (the value of the domestic currency falls relative to the value of goods and services). Since the amount of foreign reserves available to defend a weak currency (a currency in low demand) is limited, a foreign exchange crisis or devaluation could be the end result. For a currency in very high and rising demand, foreign exchange reserves can theoretically be continuously accumulated, although eventually the increased domestic money supply will result in inflation and reduce the demand for the domestic currency (as its value relative to goods and services falls). In practice, some central banks, through open market operations aimed at preventing their currency from appreciating, can at the same time build substantial reserves. In practice, few central banks or currency regimes operate on such a simplistic level, and numerous other factors (domestic demand, production and productivity, imports and exports, relative prices of goods and services, etc) will affect the eventual outcome. As certain impacts (such as inflation) can take many months or even years to become evident, changes in foreign reserves and currency values in the short term may be quite large as different markets react to imperfect data. Costs, benefits, and criticisms Large reserves of foreign currency allow a government to manipulate exchange rates usually to stabilize the foreign exchange rates to provide a more favorable economic


environment. In theory the manipulation of foreign currency exchange rates can provide the stability that a gold standard provides, but in practice this has not been the case. Also, the greater a country's foreign reserves, the better position it is in to defend itself from speculative attacks on the domestic currency. There are costs in maintaining large currency reserves. Fluctuations in exchange markets result in gains and losses in the purchasing power of reserves. Even in the absence of a currency crisis, fluctuations can result in huge losses. For example, China holds huge U.S. dollar-denominated assets, but if the U.S. dollar weakens on the exchange markets, the decline results in a relative loss of wealth for China. In addition to fluctuations in exchange rates, the purchasing power of fiat money decreases constantly due to devaluation through inflation. Therefore, a central bank must continually increase the amount of its reserves to maintain the same power to manipulate exchange rates. Reserves of foreign currency provide a small return in interest. However, this may be less than the reduction in purchasing power of that currency over the same period of time due to inflation, effectively resulting in a negative return known as the "quasi-fiscal cost". In addition, large currency reserves could have been invested in higher yielding assets. Excess reserves Foreign exchange reserves are important indicators of ability to repay foreign debt and for currency defense, and are used to determine credit ratings of nations, however, other government funds that are counted as liquid assets that can be applied to liabilities in times of crisis include stabilization funds, otherwise known as sovereign wealth funds. If those were included, Norway, Singapore and Persian Gulf States would rank higher on these lists, and UAE's $1.3 trillion Abu Dhabi Investment Authority would be second after China. Apart from high foreign exchange reserves, Singapore also has significant government and sovereign wealth funds including Temasek Holdings, valued in excess of $145 billion and GIC, valued in excess of $330 billion. India is also planning to create its own investment firm from its foreign exchange reserves. On May 2011, an estimated that Asia has $3.5 trillion of foreign reserves or is around twothirds of the world's reserves and a stark contrast to the indebtedness in many developed Western economies.


The following is a list of the top 20 largest countries by foreign exchange reserves: (table 4) Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Country People's Republic of China Japan Russia Saudi Arabia Republic of China (Taiwan) Brazil India South Korea Switzerland Hong Kong Singapore Germany Thailand France Italy Algeria United States Mexico United Kingdom Malaysia Billion USD (end of month) $ 3045 (Mar 2011) $ 1140 (May 2011) $ 525 (Apr 2011) $ 466 (Mar 2011) $ 400 (Apr 2011) $ 333 (May 2011) $ 310 (Ma y 2011) $ 307 (Apr 2011) $ 280 (Mar 2011) $ 277 (Apr 2011) $ 243 (Apr 2011) $ 221 (Mar 2011) $ 190 (Apr 2011) $ 173 (Mar 2011) $ 164 (Mar 2011) $ 155 (Dec 2010) $ 143 (Apr 2011) $ 128 (Mar 2011) $ 119 (Apr 2011) $ 114 (Mar 2011)


The following is a list of inter-governmental free-trade associations and supranational organizations. (Table 5) Rank 1 2 3 Country European Economic Area European Union Eurozone Billion USD (end of month) $ 1 416 (Feb 2011) $ 1 356 (Feb 2011) $ 798 (Feb 2011)

These few holders account for more than 60% of total world foreign currency reserves. The adequacy of the foreign exchange reserves is more often expressed not as an absolute level, but as a percentage of short-term foreign debt, money supply, or average monthly imports.


Chapter 5. Economy of India

Social democratic policies governed India's economy from 1947 to 1991. The economy was characterized by extensive regulation, protectionism, public, pervasive corruption and slow growth. Since 1991, continuing economic liberalization has moved the country towards market. A revival of economic reforms and better economic policy in first decade of the 21st century accelerated India's economic growth rate. In recent years, Indian cities have continued to liberalize business regulations. By 2008, India had established itself as the world's second-fastest growing major economy. However, as a result of the financial crisis of 20072010, coupled with a poor monsoon, India's gross domestic product (GDP) growth rate significantly slowed to 6.7% in 200809, but subsequently recovered to 7.4% in 200910, while the fiscal deficit rose from 5.9% to a high 6.5% during the same period. Indias current account deficit surged to 4.1% of GDP during Q2 FY11 against 3.2% the previous quarter. The unemployment rate for 20092010, according to the state Labor Bureau, was 9.4% nationwide, rising to 10.1% in rural areas, where two-thirds of the 1.2 billion populations live. India's large service industry accounts for 57.2% of the country's GDP while the industrial and agricultural sectors contribute 28.6% and 14.6% respectively. Agriculture is the predominant occupation in India, accounting for about 52% of employment. The service sector makes up a further 34%, and industrial sector around 14%. However, statistics from a 2009-10 government survey, which used a smaller sample size than earlier surveys, suggested that the share of agriculture in employment had dropped to 45.5%. Major industries include telecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, information technologyenabled services and pharmaceuticals. The labor totals 500 million workers. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep, goats, poultry and fish. In 2009-2010, India's top five trading partners are United Arab Emirates, China, United States, Saudi Arabia and Germany. Previously a closed economy, India's trade and business sector has grown fast. India currently accounts for 1.5% of world trade as of 2007 according to the World Trade Statistics of the WTO in 2006, which valued India's total merchandise trade (counting exports and imports) at $294 billion and India's services trade at $143 billion. Thus, India's global economic engagement in 2006 covering both merchandise and services trade was of the order of $437 billion, up by a record 72% from a level of $253 billion in 2004. India's total trade in goods and services has reached a share of 43% of GDP in 200506, up from 16% in 199091. India's total merchandise trade (counting exports and imports) stands at $ 606.7 billion and is currently the 11th largest in the world.

5.1. Post-liberalization period (since 1991) In the late 1970s, the government led by Morarji Desai eased restrictions on capacity expansion for incumbent companies, removed price controls, reduced corporate taxes and promoted the creation of small scale industries in large numbers. He also raised the income tax levels at one point to a maximum of 97.5%, a record in the world for non-communist economies. However, the subsequent government policy of Fabian socialism hampered the benefits of the economy, leading to high fiscal deficits and a worsening current account. The collapse of the Soviet Union, which was India's major trading partner, and the Gulf War, which caused a spike in oil prices, resulted in a major balance-of-payments crisis for India, which found itself facing the prospect of defaulting on its loans. India asked for a $1.8 billion bailout loan from the International Monetary Fund (IMF), which in return demanded reforms. In response, Prime Minister Narasimha Rao, along with his finance minister Manmohan Singh, initiated the economic liberalization of 1991. The reforms did away with the Licence Raj, reduced tariffs and interest rates and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors. Since then, the overall thrust of liberalization has remained the same, although no government has tried to take on powerful lobbies such as trade unions and farmers, on contentious issues such as reforming labour laws and reducing agricultural subsidies. By the turn of the 20th century, India had progressed towards a free-market economy, with a substantial reduction in state control of the economy and increased financial liberalization. This has been accompanied by increases in life expectancy, literacy rates and food security, although the beneficiaries have largely been urban residents. While the credit rating of India was hit by its nuclear weapons tests in 1998, it has since been raised to investment level in 2003 by S&P and Moody's. In 2003, Goldman Sachs predicted that India's GDP in current prices would overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035, making it the third largest economy of the world, behind the US and China. India is often seen by most economists as a rising economic superpower and is believed to play a major role in the global economy in the 21st century.


5.2. Sectors
Industry and services Industry accounts for 28% of the GDP and employ 14% of the total workforce. In absolute terms, India is 12th in the world in terms of nominal factory output. The Indian industrial sector underwent significant changes as a result of the economic reforms of 1991, which removed import restrictions, brought in foreign competition, led to privatization of certain public sector industries, liberalized the FDI regime, improved infrastructure and led to an expansion in the production of fast moving consumer goods. Post-liberalization, the Indian private sector was faced with increasing domestic as well as foreign competition, including the threat of cheaper Chinese imports. It has since handled the change by squeezing costs, revamping management, and relying on cheap labor and new technology. However, this has also reduced employment generation even by smaller manufacturers who earlier relied on relatively labor-intensive processes. Textile manufacturing is the second largest source of employment after agriculture and accounts for 20% of manufacturing output, providing employment to over 20 million people. Ludhiana produces 90% of woollens in India and is known as the Manchester of India. Tirupur has gained universal recognition as the leading source of hosiery, knitted garments, casual wear and sportswear. India is 13th in services output. The services sector provides employment to 23% of the work force and is growing quickly, with a growth rate of 7.5% in 19912000, up from 4.5% in 195180. It has the largest share in the GDP, accounting for 55% in 2007, up from 15% in 1950. Information technology and business process outsourcing are among the fastest growing sectors, having a cumulative growth rate of revenue 33.6% between 199798 and 200203 and contributing to 25% of the country's total exports in 200708. The growth in the IT sector is attributed to increased specialization, and an availability of a large pool of low cost, highly skilled, educated and fluent English-speaking workers, on the supply side, matched on the demand side by increased demand from foreign consumers interested in India's service exports, or those looking to outsource their operations. The share of the Indian IT industry in the country's GDP increased from 4.8 % in 200506 to 7% in 2008. In 2009, seven Indian firms were listed among the top 15 technology outsourcing companies in the world. Mining forms an important segment of the Indian economy, with the country producing 79 different minerals (excluding fuel and atomic resources) in 200910, including iron ore, manganese, mica,bauxite, chromite, limestone, asbestos, fluorite, gypsum, ochre, phosph oric and silica sand Organized retail supermarkets accounts for 24% of the market as of 2008. Regulations prevent most foreign investment in retailing. Moreover, over thirty regulations such as "signboard licenses" and "anti-hoarding measures" may have to be complied before a store can open doors. There are taxes for moving goods from state to state, and even within states. Tourism in India is relatively undeveloped, but growing at double digits. Some hospitals woo medical tourism.

32 33

Agriculture Farmers work outside a rice field in Andhra Pradesh. India is the second largest producer of rice in the world after China, and Andhra Pradesh is the second largest rice producing state in India with West Bengal being the largest. India ranks second worldwide in farm output. Agriculture and allied sectors like forestry, logging and fishing accounted for 15.7% of the GDP in 200910, employed 52.1% of the total workforce, and despite a steady decline of its share in the GDP, is still the largest economic sector and a significant piece of the overall socio-economic development of India. Yields per unit area of all crops have grown since 1950, due to the special emphasis placed on agriculture in the five-year plans and steady improvements in irrigation, technology, application of modern agricultural practices and provision of agricultural credit and subsidies since the Green Revolution in India. However, international comparisons reveal the average yield in India is generally 30% to 50% of the highest average yield in the world. India receives an average annual rainfall of 1,208 millimeters (47.6 in) and a total annual precipitation of 4000 billion cubic meters, with the total utilizable water resources, including surface and groundwater, amounting to 1123 billion cubic meters. 546,820 square kilometers (211,130 sq mi) of the land area, or about 39% of the total cultivated area, is irrigated. India's inland water resources including rivers, canals, ponds and lakes and marine resources comprising the east and west coasts of the Indian ocean and other gulfs and bays provide employment to nearly six million people in the fisheries sector. In 2008, India had the world's third largest fishing industry. India is the largest producer in the world of milk, jute and pulses, and also has the world's second largest cattle population with 175 million animals in 2008. It is the second largest producer of rice, wheat, sugarcane, cotton and groundnuts, as well as the second largest fruit and vegetable producer, accounting for 10.9% and 8.6% of the world fruit and vegetable production respectively. India is also the second largest producer and the largest consumer of silk in the world, producing 77,000 million tons in 2005.

Banking and finance The Indian money market is classified into the organized sector, comprising private, public and foreign owned commercial banks and cooperative banks, together known as scheduled banks, and the unorganized sector, which includes individual or family owned indigenous bankers or money lenders and non-banking financial companies. The unorganized sector and microcredit are still preferred over traditional banks in rural and sub-urban areas, especially for non-productive purposes, like ceremonies and short duration loans. Prime Minister Indira Gandhi nationalized 14 banks in 1969, followed by six others in 1980, and made it mandatory for banks to provide 40% of their net credit to priority sectors like agriculture, small-scale industry, retail trade, small businesses, etc. to ensure that the banks


fulfill their social and developmental goals. Since then, the number of bank branches has increased from 8,260 in 1969 to 72,170 in 2007 and the population covered by a branch decreased from 63,800 to 15,000 during the same period. The total bank deposits increased from 5,910 crore (US$1.32 billion) in 197071 to 3,830,922 crore (US$854.3 billion) in 200809. Despite an increase of rural branches, from 1,860 or 22% of the total number of branches in 1969 to 30,590 or 42% in 2007, only 32,270 out of 500,000 villages are covered by a scheduled bank. India's gross domestic saving in 200607 as a percentage of GDP stood at a high 32.7%. More than half of personal savings are invested in physical assets such as land, houses, cattle, and gold. The public sector banks hold over 75% of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively. Since liberalization, the government has approved significant banking reforms. While some of these relate to nationalized banks, like encouraging mergers, reducing government interference and increasing profitability and competitiveness, other reforms have opened up the banking and insurance sectors to private and foreign players.

Energy and power As of 2010, India imported about 70% of its crude oil requirements. Shown here is an ONGC platform at Mumbai High in the Arabian Sea, one of the few sites of domestic production. India's oil reserves meet 25% of the country's domestic oil demand. As of 2009, India's total proven oil reserves stood at 775 million metric tons while gas reserves stood at 1074 billion cubic meters. Oil and natural gas fields are located offshore at Mumbai High, Krishna Godavari Basin and the Cauvery Delta, and onshore mainly in the states of Assam, Gujarat and Rajasthan. India is the fourth largest consumer of oil in the world and imported $82.1 billion worth of oil in the first three quarters of 2010, which had an adverse effect on its current account deficit. The petroleum industry in India mostly consists of public sector companies such as Oil and Natural Gas Corporation (ONGC), Hindustan Petroleum Corporation Limited (HPCL) and Indian Oil Corporation Limited (IOCL). There are some major private Indian companies in the oil sector such as Reliance Industries Limited (RIL) which operates the world's largest oil refining complex. India has the world's fifth largest wind power industry, with an installed wind power capacity of 9,587 MW. Shown here is a wind farm in Muppandal, Tamil Nadu. As of 2010, India had an installed power generation capacity of 164,835 megawatts (MW), of which thermal power contributed 64.6%, hydroelectricity 24.7%, other sources of renewable energy 7.7%, and nuclear power 2.9%. India meets most of its domestic energy demand through its 106 billion tons of coal reserves. India is also rich in certain renewable sources of energy with significant future potential such as solar, wind and biofuels (jatropha, sugarcane).


India's huge thorium reserves about 25% of world's reserves are expected to fuel the country's ambitious nuclear energy program in the long-run. India's dwindling uranium reserves stagnated the growth of nuclear energy in the country for many years. However, the Indo-US nuclear deal has paved the way for India to import uranium from other countries.

5.3. External trade and investment

Global trade relations A map showing the global distribution of Indian exports in 2006 as a percentage of the top market (USA - $20,902,500,000). Until the liberalization of 1991, India was largely and intentionally isolated from the world markets, to protect its economy and to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes and quantitative restrictions, while foreign direct investment (FDI) was restricted by upper-limit equity participation, restrictions on technology transfer, export obligations and government approvals; these approvals were needed for nearly 60% of new FDI in the industrial sector. The restrictions ensured that FDI averaged only around $200 million annually between 1985 and 1991; a large percentage of the capital flows consisted of foreign aid, commercial borrowing and deposits of non-resident Indians. India's exports were stagnant for the first 15 years after independence, due to general neglect of trade policy by the government of that period. Imports in the same period, due to industrialization being nascent, consisted predominantly of machinery, raw materials and consumer goods. Since liberalization, the value of India's international trade has increased sharply, with the contribution of total trade in goods and services to the GDP rising from 16% in 199091 to 43% in 200506. India's major trading partners are the European Union, China, the United States and the United Arab Emirates. In 200607, major export commodities included engineering goods, petroleum products, chemicals and pharmaceuticals, gems and jewellery, textiles and garments, agricultural products, iron ore and other minerals. Major import commodities included crude oil and related products, machinery, electronic goods, gold and silver. In November 2010, exports increased 22.3% year-on-year to 85,063 crore (US$18.97 billion), while imports were up 7.5% at 125,133 crore (US$27.9 billion). Trade deficit for the same month dropped from 46,865 crore (US$10.45 billion) in 2009 to 40,070 crore (US$8.94 billion) in 2010. India is a founding-member of General Agreement on Tariffs and Trade (GATT) since 1947 and its successor, the WTO. While participating actively in its general council meetings, India has been crucial in voicing the concerns of the developing world. For instance, India has continued its opposition to the inclusion of such matters as labor and environment issues and other non-tariff barriers to trade into the WTO policies.

Balance of payments Cumulative Current Account Balance 19802008 based on IMF data Since independence, India's balance of payments on its current account has been negative. Since economic liberalization in the 1990s, precipitated by a balance of payment crisis, India's exports rose consistently, covering 80.3% of its imports in 200203, up from 66.2% in 199091. However, the global economic slump followed by a general deceleration in world trade saw the exports as a percentage of imports drop to 61.4% in 2008 09. India's growing oil import bill is seen as the main driver behind the large current account deficit, which rose to $118.7 billion, or 9.7% of GDP, in 200809. Between January and October 2010, India imported $82.1 billion worth of crude oil. Due to the global late-2000s recession, both Indian exports and imports declined by 29.2% and 39.2% respectively in June 2009. The steep decline was because countries hit hardest by the global recession, such as United States and members of the European Union, account for more than 60% of Indian exports. However, since the decline in imports was much sharper compared to the decline in exports, India's trade deficit reduced to 25,250 crore (US$5.63 billion). As of June 2011, exports and imports have both registered impressive growth with monthly exports reaching $25.9 billion for the month of May 2011 and monthly imports reaching $40.9 billion for the same month. This represents a year on year growth of 56.9% for exports and 54.1% for imports. India's reliance on external assistance and concessional debt has decreased since liberalization of the economy, and the debt service ratio decreased from 35.3% in 199091 to 4.4% in 200809. In India, External Commercial Borrowings (ECBs), or commercial loans from non-resident lenders, are being permitted by the Government for providing an additional source of funds to Indian corporate. The Ministry of Finance monitors and regulates them through ECB policy guidelines issued by the Reserve Bank of India under the Foreign Exchange Management Act of 1999. India's foreign exchange reserves have steadily risen from $5.8 billion in March 1991 to $283.5 billion in December 2009. Foreign direct investment As the fourth-largest economy in the world in PPP terms, India is a preferred destination for FDI; India has strengths in telecommunication, information technology and other significant areas such as auto components, chemicals, apparels, pharmaceuticals, and jeweler. Despite a surge in foreign investments, rigid FDI policies were a significant hindrance. However, due to positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned itself as one of the front-runners of the rapidly growing Asia-Pacific region. India has a large pool of skilled managerial and technical expertise. The size of the middle-class population stands at 300 million and represents a growing consumer market.


Share of top five investing countries in FDI inflows. (20002010) (table 6) Rank Country Inflows (million USD) 50,164 11,275 8,914 6,158 4,968 Inflows (%)

1 2 3 4 5

Mauritius Singapore USA UK Netherlands

42.00 9.00 7.00 5.00 4.00

During 200010, the country attracted $178 billion as FDI. The inordinately high investment from Mauritius is due to routing of international funds through the country given significant tax advantages; double taxation is avoided due to a tax treaty between India and Mauritius, and Mauritius is a capital gains tax haven, effectively creating a zero-taxation FDI channel. India's recently liberalized FDI policy (2005) allows up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalized FDI regime. In March 2005, the government amended the rules to allow 100% FDI in the construction sector, including builtup infrastructure and construction development projects comprising housing, commercial premises, hospitals, educational institutions, recreational facilities, and city- and regionallevel infrastructure. Despite a number of changes in the FDI policy to remove caps in most sectors, there still remains an unfinished agenda of permitting greater FDI in politically sensitive areas such as insurance and retailing. The total FDI equity inflow into India in 200809 stood at 122,919 crore (US$27.41 billion), a growth of 25% in rupee terms over the previous period.


5.4. Indian currency exchange

MCX-SX MCX Stock Exchange Ltd (MCX-SX), Indias new stock exchange, appositely reflects how the worlds most evolved and hi-tech new-generation exchanges should look like in future. With cutting-edge technology, world-class services and cost optimization, MCX-SX has altered the face of the Indian financial markets. Within a year of its launch, MCX-SX has proved its mettle as the thought leader and innovator of the industry by introducing innovative services and pioneering market development initiatives. Recognized by the market regulator Securities and Exchange Board of India, MCX-SX currently has more than 600 members and trading terminals in 486 cities and towns across India. Through deployment of state-of-the-art technology and global best practices for regulatory compliance and investor protection, MCX-SX enables importers, exporters, investors, corporations and banks to hedge their currency risks with greater transparency and safety. Furthermore, it guarantees settlement of all transactions, through its clearing corporation (MCX-SX Clearing Corporation Ltd), which enhances safety by eliminating the counterparty risk. MCX-SX believes in Systematic development of markets through Information, Innovation, Education and Research. Its constant Endeavour, therefore, has been to ensure that its nationwide electronic trading platform is used by market participants more extensively and effectively. MCX-SX is the first stock exchange in India to launch pioneering market development initiatives and join hands with Indias reputed industry & trade bodies and educational institutions to conduct awareness and financial literacy programmes for financial literacy and financial inclusion. MCX-SXs currency derivatives segment offers an India-wide electronic platform for trading in currency futures under the regulatory control of Securities and Exchange Board of India (SEBI) and Reserve Bank of India (RBI). MCX Stock Exchange (MCX-SX), India's new stock exchange, was launched on October 7, 2008, under the regulatory framework of Securities & Exchange Board of India (SEBI). The exchange received approval from SEBI and Reserve Bank of India (RBI) to launch a nationwide electronic platform for trading in currency derivatives. Currently MCX-SX offers currency futures contracts in US Dollar-Indian Rupee (USDINR), Euro-Indian Rupee (EURINR), Pound Sterling-Indian Rupee (GBPINR) and Japanese Yen-Indian Rupee (JPYINR). Clearing and Settlement is conducted through the MCX-SX Clearing Corporation Ltd (MCX-SX CCL).


Within a year of its launch, MCX-SX has achieved a stupendous growth in average daily turnover and open interest. The average daily turnover increased from Rs 355.66 crore during in the first month of its operations (Oct 7, 2008 till Nov 6, 2008) to Rs 14617.24 crore for the month of January 2010. MCX-SX witnesses participation from over 480 cities and towns across India and has a strong member base of over 600. Among hosts of benefits this state-of-the-art transparent national trading platform offers to a wide range of financial market participants -- hedgers (i.e. exporters, importers, corporate and banks), investors and arbitrageurs -- price discovery and price risk management are of foremost importance. True to its philosophy of "Systematic development of markets through Information, Innovation, Education and Research", MCX-SX endeavors to ensure continuous innovation and to introduce products that conform to the needs of diverse market participants. The stock exchange is committed to continuously expand its menu of offerings by introducing trading in new asset classes under the extant regulatory framework. To begin with, MCX-SX will introduce trades in Equity, Debt, Interest Rates, Index and Exchange Traded Funds, subject to regulatory clearances.

1) Benefits of MCX-SX A wide range of financial market participants -- hedgers (i.e. exporters, importers, corporate and banks), investors and arbitrageurs are benefitted by price discovery and price risk management on the transparent trading platform of MCX-SX. Hedgers: MCX-SX provides a high-liquidity platform for hedging against the effects of unfavorable fluctuations in foreign exchange rates. Banks, importers, exporters and corporate can hedge on MCX-SX. Investors: All those interested in taking a view on appreciation (or depreciation) of exchange rates in the long and short term, can participate in the MCX-SX currency futures. For example, if one expects depreciation of Indian rupee against US dollar, then he can hold on long (buy) position in the USD/INR contract for returns. Contrarily, he can sell the contract if he sees appreciation of the Indian rupee. Similar, long or short positions can be taken in EURINR, GBPINR and JPYINR if investors see any fluctuation in the Indian currency against other currencies like Euro, Sterling Pound and Japanese Yen

Arbitrageurs: Arbitrageurs get the opportunity of trading in currency futures by simultaneous purchase and sale in two different markets, taking advantage of price differential between the markets. 2) How it works Presently, all futures contracts on MCX-SX are cash settled. There are no physical contracts. All trade on MCX-SX takes place on its nationwide electronic trading platform that can be accessed from dedicated terminals at locations of the members of the exchange. All participants on the MCX-SX trading platform have to participate only through trading members of the Exchange. o Participants have to open a trading account and deposit stipulated cash/collaterals with the trading member. MCX-SX stands in as the counterparty for each transaction; so participants need not worry about default. o In the event of a default, MCX-SX will step in and fulfil the obligations of the defaulting party, and then proceed to recover dues and penalties from them. Those who entered either by buying (long) or selling (short) a futures contract can close their contract obligations by squaring-off their positions at any time during the life of that contract by taking opposite position in the same contract. o A long (buy) position holder has to short (sell) the contract to square off his/her position or vice versa. o Participants will be relieved of their contract obligations to the extent they square off their positions. All contracts that remain open at expiry are settled in Indian rupees in cash at the reference rate specified by RBI.

41 4

3) Shareholders (table 7)
Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Name of Shareholder Allahabad Bank Andhra Bank Axis Bank Bank of Baroda Bank of India Corporation Bank Financial Technologies (India) Ltd. HDFC Bank IFCI Limited IL & FS Financial Services Ltd. Indian Bank Indian Overseas Bank MCX Stock Exchange ESOP Trust Multi Commodity Exchange of India Ltd. Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank State Bank of Indore Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank Total % holding 4.60 4.60 1.84 4.60 4.60 4.60 5.00 2.21 13.23 5.00 4.60 4.60 1.00 5.00 4.60 0.92 9.20 1.84 2.30 0.46 11.50 1.84 1.84 100.00


4) Products MCX-SX started live operations on October 7, 2008 by launching monthly contracts in the USDINR currency pair under the regulatory framework of Securities and Exchange Board of India (SEBI), and Reserve Bank of India (RBI). Consequently, the stock exchange expanded its currency derivatives offerings to Euro-Indian Rupee (EURINR), Pound Sterling-Indian Rupee (GBPINR) and Japanese Yen-Indian Rupee (JPYINR). Each of these currency contracts on MCX-SX has a life of 12 months from the month in which it is launched.


Contract Specifications for USD INR

USDINR FUTCUR 1 (1 unit denotes 1000 USD) USD Rs. per USD

(table 8)

Instrument Type Unit of trading Underlying Quotation/Price Quote Tick size Trading hours Contract cycle trading

0.25 paise or INR 0.0025 Monday to Friday ,9:00 a.m. to 5:00 p.m. 12 month trading cycle.

Last trading day Final day settlement

Two working days prior to the last business day of the expiry month at 12 noon. Last working day (excluding Saturdays) of the The last working day will be the same as that for Interbank Settlements in Mumbai. Theoretical price on the 1st day of the contract. On all other days, DSP of the contract. Tenure upto 6 months +/-3 % of base price Tenure greater than 6 months +/- 5% of base price Trading Members Banks expiry month.

Base price Price range operating

Position limits


Higher of 6% of total open Higher of 15% of the total open Higher of 15% of the total open interest or USD 10 million interest or USD 50 million interest or USD 100 million Minimum margin Extreme margin initial 1.75% on first day & 1% thereafter.


1% of MTM value of gross open position.

Calendar spreads

Rs. 400/- for a spread of 1 month, Rs. 500/- for a spread of 2 months, Rs. 800/- for a spread of 3 months & Rs. 1000/- for a spread of 4 months or more Daily settlement : T + 1 , Final settlement : T + 2 Cash settled in Indian Rupes

Settlement Mode of settlement


Daily settlement price (DSP) Final settlement price (FSP)

DSP shall be calculated on the basis of the last half an hour weighted average price of such contract or such other price as may be decided by the relevant authority from time to time. RBI reference rate


Contract Specifications for Euro-INR

EURINR FUTCUR 1 (1 unit denotes 1000 EURO) EURO Rs. per EUR 0.25 paise or INR 0.0025 Monday to Friday, 9:00 a.m. to 5:00 p.m. 12 month trading cycle. RBI Reference Rate on the date of expiry Two working days prior to the last business day of the expiry month at 12 noon.

(table 9)

Instrument Type Unit of trading Underlying Quotation/Price Quote Tick size Trading hours Contract trading cycle Settlement price Last trading day Final settlement day

Last working day (excluding Saturdays) of the expiry The last working day will be the same as that for Interbank Settlements in Mumbai.


Base price Price operating range

Theoretical price on the 1st day of the contract. On all other days, DSP of the contract

Tenure upto 6 months +/-3 % of base price

Tenure greater than 6 months +/- 5% of base price Trading Members Banks

Position limits


Higher of 6% of total open Higher of 15% of the total open Higher of 15% of the total open interest or EUR 5 million interest or EUR 25 million interest or EUR 50 million Minimum initial margin 2.8% on First day & 2% thereafter

Extreme loss margin Calendar spreads

0.3% of MTM value of gross open positions. Rs.700/- for a spread of 1 month, 1000/- for a spread of 2 months, Rs.1500/- for a spread of 3 months or more Daily settlement : T + 1 , Final settlement : T + 2 Cash settled in Indian Rupees

Settlement Mode of settlement


Daily settlement price (DSP)

DSP shall be calculated on the basis of the last half an hour weighted average price of such contract or such other price as may be decided by the relevant authority from time to time.

Final settlement price (FSP)

RBI reference rate


Contract Specifications for Pound Sterling-INR

GBPINR FUTCUR 1 (1 unit denotes 1000 POUND STERLING) POUND STERLING Rs. per GBP 0.25 paise or INR 0.0025 Monday to Friday. 9:00 a.m. to 5:00 p.m. 12 month trading cycle.

(table 10)

Instrument Type Unit of trading Underlying Quotation/Price Quote Tick size Trading hours Contract trading cycle Settlement price

Exchange rate published by the Reserve Bank in its Press Release captioned RBI Reference Rate for US$ and Euro. Two working days prior to the last business day of the expiry month at 12 noon. Last working day (excluding Saturdays) of the expiry The last working day will be the same as that for Interbank Settlements in Mumbai. month.

Last trading day Final settlement day

Base price Price operating range

Theoretical price on the 1st day of the contract. On all other days, DSP of the contract

Tenure upto 6 months +/-3 % of base price

Tenure greater than 6 months +/- 5% of base price Trading Members Banks

Position limits


Higher of 6% of total open Higher of 15% of the total open Higher of 15% of the total open interest or GBP 5 million interest or GBP 25 million interest or GBP 50 million Minimum initial margin Extreme loss margin Calendar spreads 3.2% on first day & 2% thereafter 0.5% of MTM value of gross open positions. Rs.1500/- for a spread of 1 month, 1800/- for a spread of 2 months, Rs.2000/- for a spread of 3 months or more Daily settlement : T + 1 , Final settlement : T + 2 Cash settled in Indian Rupees price DSP shall be calculated on the basis of the last half an hour weighted average price of such contract or such other price as may be decided by the relevant authority from time to time.

Settlement Mode of settlement Daily settlement (DSP)


Final settlement (FSP)


Exchange rate published by the Reserve Bank in its Press Release captioned RBI Reference Rate for US$ and Euro.


Contract Specifications for Japanese Yen-INR

JPYINR FUTCUR 1 (1 unit denotes 100000 YEN) JPY Rs per 100 YEN 0.25 paise or INR 0.0025 Monday to Friday, 9:00 a.m. to 5:00 p.m. 12 month trading cycle.

(table 11)

Instrument Type Unit of trading Underlying Quotation/Price Quote Tick size Trading hours Contract trading cycle

Settlement price

Exchange rate published by the Reserve Bank in its Press Release captioned RBI Reference Rate for US$ and Euro. Two working days prior to the last business day of the expiry month at 12 noon. Last working day (excluding Saturdays) of the The last working day will be the same as that for Interbank Settlements in Mumbai. expiry month.

Last trading day Final settlement day

Base price

Theoretical price on the 1st day of the contract. On all other days, DSP of the contract

Price operating range

Tenure upto 6 months +/-3 % of base price

Tenure greater than 6 months +/- 5% of base price Trading Members Banks

Position limits


Higher of 6% of total open Higher of 15% of the total open Higher of 15% of the total open interest or JPY 200 million interest or JPY 1000 million interest or JPY 2000 million Minimum initial margin Extreme loss margin 4.50% on first day & 2.30% thereafter 0.7% of MTM value of gross open positions.

Calendar spreads

Rs. 600 for a spread of 1 month; Rs 1000 for a spread of 2 months and Rs 1500 for a spread of 3 months or more Daily settlement : T + 1 , Final settlement : T + 2 Cash settled in Indian Rupees price DSP shall be calculated on the basis of the last half an hour weighted average price of such contract or such other price as may be decided by the relevant authority from time to time.

Settlement Mode of settlement Daily settlement (DSP)


Final settlement (FSP)


Exchange rate published by the Reserve Bank in its Press Release captioned RBI Reference Rate for US$ and Euro.

5.5. Foreign Exchange Department of RBI

With the introduction of the Foreign Exchange Management Act 1999, (FEMA) with effect from June 1, 2000, the objective of the Foreign Exchange Department has shifted from conservation of foreign exchange to "facilitating external trade and payment and promoting the orderly development and maintenance of foreign exchange market in India". The new Act has brought about structural changes in the exchange control administration. Regulations have been framed for dealing with various types of transactions. These regulations are transparent and have eliminated case-by-case approvals. All current account transactions are free from restrictions except 8 transactions prohibited by the Government of India. 11 transactions which require prior permission of the Government of India and 16 transactions on which indicative limits are fixed by the Government and release of foreign exchange beyond those limits requires permission from the Reserve Bank. All Regional Offices of the Department have in turn been authorized to release exchange for such transactions. For capital account transactions, the Reserve Bank regulations provide for general permissions/automatic routes for investments in India by non-residents, investments overseas by residents and borrowings abroad, etc. The Department ensures timely realization of export proceeds and reviews, on a continuous basis, the existing rules in the light of suggestions received from various trade bodies and exporters' fera. The Department collects data relating to forex transactions from authorized dealers on a daily basis for exchange rate management and on a fortnightly basis for monthly quick estimates of balance of payments and quarterly balance of payments compilation. The Department lays down policy guidelines for risk management relating to forex transactions in banks. The Department is also entrusted with the responsibility of licensing banks/money changers to deal in foreign exchange and inspecting them. There is a "Standing Consultative Committee on Exchange Control" consisting of representatives from various trade bodies and authorized dealers which meets twice a year and makes recommendations for policy formulation. With a view of further improving facilities available to NRIs and removing irritants, the Department is also engaged, on an ongoing basis, in reviewing and simplifying the procedures and rules.


5.6. FEMA Rules & Policies

The Foreign Exchange Management Act, 1999 (FEMA) came into force with effect from June 1, 2000. With the introduction of the new Act in place of FERA, certain structural changes were brought in. The Act consolidates and amends the law relating to foreign exchange to facilitate external trade and payments, and to promote the orderly development and maintenance of foreign exchange in India. From the NRI perspective, FEMA broadly covers all matters related to foreign exchange, investment avenues for NRIs such as immovable property, bank deposits, government bonds, investment in shares, units and other securities, and foreign direct investment in India. FEMA vests with the Reserve Bank of India, the sole authority to grant general or special permission for all foreign exchange related activities mentioned above. Section 2 - The Act here provides clarity on several definitions and terms used in the context of foreign exchange. Starting with the identification of the Non-resident Indian and Persons of Indian origin, it defines "foreign exchange" and "foreign security" in sections 2(n) and 2(o) respectively of the Act. It describes at length the foreign exchange facilities and where one can buy foreign exchange in India. FEMA defines an authorized dealer, and addresses the permissible exchange allowed for a business trip, for studies and medical treatment abroad, forex for foreign travel, the use of an international credit card, and remittance facility Section 3 prohibits dealings in foreign exchange except through an authorized person. Similarly, without the prior approval of the RBI, no person can make any payment to any person resident outside India in any manner other than that prescribed by it. The Act restricts non-authorized persons from entering into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire any asset outside India. Section 4 restrains any person resident in India from acquiring, holding, owning, possessing or transferring any foreign exchange, foreign security or any immovable property situated outside India except as specifically provided in the Act. Section 6 deals with capital account transactions. This section allows a person to draw or sell foreign exchange from or to an authorized person for a capital account transaction. RBI in consultation with the Central Government has issued various regulations on capital account transactions in terms of sub-sect ion (2) and (3) of section 6. Section 7 covers the export of goods and services. All exporters are required to furnish to the RBI or any other authority, a declaration regarding full export value. Section 8 puts the responsibility of repatriation on the people resident in India who has any amount of foreign exchange due or accrued in their favor to get the same realized and repatriated to India within the specific period and in the manner specified by the RBI. The duties and liabilities of the Authorized Dealers have been dealt with in Sections 10, 11 and 12, while Sections 13 to 15 cover penalties and enforcement of the orders of the Adjudicating Authority as well as the power to compound contraventions under the Act.


Chapter 6. Impact of Currency market in Indian economy

6.1. GDP & GNP The Gross Domestic Product (GDP) in India expanded 7.8 percent in the first quarter of 2011 over the same quarter, previous year. From 2004 until 2010, India's average quarterly GDP Growth was 8.40 percent reaching an historical high of 10.10 percent in September of 2006 and a record low of 5.50 percent in December of 2004. India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Services are the major source of economic growth, accounting for more than half of India's output with less than one third of its labor force. The economy has posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage points. India's economy rose 7.8 percent in the three months ended March 31 from a year earlier, after a revised 8.3 percent gain in the previous quarter, the Central Statistical Office said in a statement in New Delhi on May 31. Thats the slowest pace in five quarters. Manufacturing rose 5.5 percent in the three months through March from a year earlier, compared with a 6 percent gain in the previous quarter. Finance and insurance services grew 9 percent after a 10.8 percent jump in the previous quarter. Farm output rose 7.5 percent while mining advanced 1.7 percent, according to the report. The sectors which registered significant growth rates are agriculture, forestry and fishing at 7.5 percent, electricity, gas and water supply at 7.8 percent, construction at 8.2 percent, trade, hotels, transport and communication at 9.3 percent, and financing, insurance, real estate and business services at 9.0 percent.
(Table 12) Particulars Gross Domestic Product (%) Gross National Product (GNP) (%) Net National Product (NNP) (%) Index of Industrial Production (IIP) (%) Wholesale Prices Index (WPI)(%) Consumer Price Index (CPI)(%) Balance Of Payment (BOP) Inflation 7.48 Nov -1.10 8.58 Oct Dec 2010 10.4 Sep 10.8 Oct 6.4 -0.9 11.3 July Dec 2010 4.4 Sep Dec 2010 Latest 7.8 Chg - last quarter Estimated / Last Last Update May 2011


Monetary Policy Rates: India

Particulars Cash Reserve Ratio (CRR) (%) Bank Rate (%) Statutory Liquidity Ratio (SLR) (%) Repo Rate (%) Reverse Repo Rate (%) Latest 6.0 6.0 24.0 6.5 5.5 Chg - last quarter 0.25 0.25 Last Qtr 6.0 6.0 24.0 6.25 5.25

(table 13)
Last Update Jan 2011 Jan 2011 Jan 2011 Jan 2011 Jan 2011

Lending & Deposit Rates: India

Particulars Base Rate (%) Savings Bank Rate (%) Deposit Rate (%) Latest 7.60-8.50 3.5 7.0-8.0 Chg - last quarter 0.10-0.50 1.0-0.50 Last Qtr 7.50-8.00 3.5 6.00-7.50

(table 14)
Last Update Jan 2011 Jan 2011 Jan 2011


6.2. Exports & Imports in FY'11

India's exports surged by 37.5 per cent for the financial year ended March 31, 2011 to touch $245.9 billion shooting well past the $200-billion target set for the year. Commerce and industry minister Anand Sharma while releasing the trade figures said, "Exports have indeed exceeded our expectations. This is the highest annual percentage growth ever. Imports for the same period stood at $350.3 billion and the good news is that the trade deficit figure has come down to $104.4 billion, While there has been an improvement in the demand for Indian goods in the US and in EU, my hunch is that export growth also came from new markets, particularly from Latin America, Since export growth had fallen in 2009-10, the export expansion looks high due to the comparison with these low base figures. However, even if this base effect was not there the export growth would have been around 30 per cent, Engineering goods, which comprise high-value added goods, formed the largest component of the country's exports surpassing the $60-billion mark to register a growth of 84.76 per cent over the previous year. Petroleum product exports were valued at $ 42.45 billion, registering a growth of 50.58 per cent, reflecting the increased refining capacity in the country. The gems & jewellery sector, which provides large-scale employment to people, recorded an export growth of 15.34 per cent to touch $33.54 billion. The UAE emerged as the largest export market for Indian gems and jewellery with 47 per cent of the shipments followed by Hong Kong with 22 per cent and the US in the third spot with 11 per cent. At present, India exports 95 per cent of the world's diamonds. The Indian drugs and pharmaceuticals sector, which is fast gaining a global footprint, saw total exports to the tune of $10.32 billion, 15.08 per cent higher than the previous year. Readymade garment exports crossed $11.1 billion showing a growth of 4.23 per cent. Cotton yarn fabrics saw exports of $5.66 billion registering a growth of 42.87 per cent. Exports of carpets, jute and leather goods which are labor intensive industries, also recorded high growth. Agricultural exports and allied sectors, including tea, coffee, tobacco, spices, cashew, oil meals, fruits and vegetables and marine products crossed $12.92 billion. However, iron exports went down by 25per cent to $4.5 billion as the government had clamped down on illegal mining. Based on the current performance, it will achieve the target of $450 billion for exports in 2013-14 set in the draft strategy paper." However, imports figures may be revised upwards leading to the trade gap increasing to $110-115 billion. The good show by exports has lessened worries on the current account deficit, is likely to be at $25-35 billion. Exports for March rose by a robust 43.9 per cent to $29.1 billion compared to the growth in the same month in the previous financial year. Imports in March totaled $34.7 billion, up 17.3 per cent year-on-year.

Chapter 7 Interpretation of questioner

7.1 Demographic questions Gender Gender Male Female No. of respondent 38 12 (table 15) No. of respondent in % 76 24

ma e

fema e



(Chart 1) Interpretation: Form the above depicted chart we can interpret that male gender are more interested in currency market than the female. The percentage of male gender is 76% which cover large market. Only 24% of women invest in currency market that is a positive sign that the women are also taking interest in the currency market. This shows the increasing education level of female & awareness of this money market in female.


Age (years) Age (years): 20 30 30 40 40 50 50 & Above

(table 16)

No. of respondent No. of respondent in %

8 21 6 5

20 52 15 13

2 -3

3 -4

4 -5

5 & Above

13% 15%

2 %


(Chart 2) Interpretation: The chart reflects age vise division of currency investor; we can see that the number of people having between 30 to 40 years is more interested in currency market. The awareness of currency market is more in this age group & risk taking aptitude is more than other age group, any broking firm can target this age group and can get benefits, at second age between 40 to 50 years are invest more in currency market.


Education Qualification: Education Qualification H.S.C Graduate Post Graduate Other

(table 17)

No. of respondent No. of respondent in %

5 27 16 2

10 54 32 4



Post Graduate


4% 32%

1 %


(Chart 3) Interpretation: The above graph shows the education level of investor. There is 54% of the respondent were graduate & 32% of the respondents were post graduate. The graduates are more interested to invest in currency market. Majority of the investor in currency market are graduates. The majority investors are graduate & taking much interest in currency market these education criteria investors can be targeted to get benefit to attract by broking firm.


Occupation: Occupation Business Self employment Service Student House Wife Other

(table 18)

No. of respondent No. of respondent in %

22 1 13 2 3

44 21 26 4 6


% 6% 44% susiness Se f em o ment Service Student 2 % House Wife Other


(Chart 4) Interpretation: The 44% of the investors were having business & on second the 26% of investors are having service. The awareness of currency market. The majority of the business men were having business of import & export. The main object of their investment in currency was hedging.


Annual Income (Rs): Annual Income (Rs): 2, 00,000 2, 00,000- 3, 50,000 3, 50001- 5, 00,000 5, 00,001

(table 19)

No. of respondent No. of respondent in % 4 19 20 7 8 38 40 14

Annua ncome Rss)

3 5

3 5

1 5



38% 4 %

(Chart 5) Interpretation: The income criteria of the investors were 40% of the investor are having income of between 350000 to 500000 Rs. And on second position 38% of investors were having income between 2lakhs to 3.5lakhs. the income of the investor in the main influencing factor of inflow for the currency market. The income between 3.5 to 5 lakhs is more investing in currency market and is having business.


1. What are investment avenues which you are presently investing?

5 5 45 4 35 3 25 2 15 1 5 14 1 8 1 1 1 41


(Chart 6) Interpretation: The graph reflects the investment avenues of the respondent. This all respondents are investing in currency and also invest in several avenues. The 41 respondents are investing in equity. On second 14 respondents are investing in commodity. The ipo, mutual fund, insurance, sip, & bonds are not so popular to invest in. the much number of equity investors also use to invest in currency market. The awareness of currency market is very less in India but as a view of future its a developing market.


(table 20) 2. In Which currency do you prefer to invest? Currency No. of respondent No. of respondent in %


20 15 11 3 1

40 30 22 6 2



GsP 2%



6% 22% 4 %

3 %

(Chart 7)

Interpretation The survey I have carried out in which 40% of the respondent are invest in USD. There is more trading volume in USD. The EURO is on second position to be traded. The 30% of the respondent prefer to invest in EURO. 22% of the respondent prefers to invest in GBP. The more respondent prefer to invest in USD. The volume USD in currency market is higher than the other currencies.


(table 21) 3. What is the primary objective of your investment in currency? Objectives No. of respondent No. of respondent in %

Hedging Volatility Speculation Arbitrage

23 17 8 2

46 34 16 4


Vo ati it

S ecu ation



4% 46%


(Chart 8) Interpretation The table reflects that there are 46% of the respondents are investing in currency for their hedging purpose. Main and primary object to invest in currency is hedging and on second stage speculation is also a one object to invest in currency market. The investor of currency was having business of import & export. They get benefit from the currency by hedging. The broking firm can target the importer or exporter for new customers.


(table 22) 4. What is the time duration you invest in currency? Time period No. of respondent No. of respondent in %

Intraday Less than 1 months 1-2 months 2-3 months More than 3 months

5 26 14 3 2

10 52 28 6 4


Less than 1 months

1 2 months

2 3 months

more than 3 months

6% 28%


1 %


(Chart 9) Interpretation The time period for holding currency by the investor is less than 1 month, the 52% of the respondent hold investment for less than 1 month and the 20% of respondent were hold for 1 to 2 months in currency. There are only 4% of respondent do intraday trading in currency market.


5. What factors do you determine at the time of investing in currency? (table 23) Factors to determine No. of respondent No. of respondent in % Economy Political Industrial Export-Import Infrastructure Other
1 12 3 2 5

40 10 20 24 6 0


Po itica


Ex ort m ort % 6%




4 %

2 %

1 %

(Chart 10)

Interpretation As pre the survey 40% of the respondent determines economic factors before investing in currency and 24% of the respondent determine the export & import position of the country before investing in currency market. The 20% of the respondent were determine industrial factors before investing. The main factors affect the currency rates are economic factors and the export-imports of the country.

6. How many percentage of money do you invest in currency from your income?
(table 24)

No. of respondent No. of respondent in % 10 % 11 % - 20 % 21 %- 30 % 31 %

11 25 9 5

22 50 18 10

1 %

11 % 2 %

21 % 3 %

31 %

1 % 18%


5 %

(Chart 11) Interpretation: The criteria for investing money from the income are 50% of respondent invest 11 to 20% of money and the second position is 22% of respondent invest less than 10% of money from income in currency market. The %age of investing in currency is around 11 to 20% majorly.


7. Which currency do you most rely on? USD EURO GBP YEN OTHER 18 16 11 5 0

(table 25)

No. of respondent No. of respondent in % 36 32 22 10 0



GsP %



1 % 22% 36%


(Chart 12) Interpretation Form the above mention graph we can analyze the greater market share is covered by USD for future investment there are grater no. of investor to invest in USD, the 36% of the respondent are relay on the USD and on second stage 32% of respondent are relay on EURO. 22 % of the respondent thinks that GBP will rise in future. But as per my opinion the chances of USD & EURO are higher in future.


8. Type of return you expect in currency market? 1 2 3 Scale No. of respondent No. of respondent in % 2 6 16

(table 26)

4 22

5 4




ver aw




ver high






(Chart 13) Interpretation: In the survey I have used liker scale, a 5 point scale to measure the return from the currency market. As per the respondents response 32% of respondent were neutral and 44% of respondent think currency market gains high return. But 4% of respondent think they gain very good return in currency market. The rates of the currency dont vary much in a day. Currency market is future market. The investor can earn a handsome profit from this investment with long term investment.


9. How much riskier is Currency Market? 1 2 Low No. of respondent No. of respondent in % 20 16

(table 27)

3 10

4 3

5 1




ver ow ow nutra 2% 6% 2 % 4 % high ver high


(Chart 14) Interpretation: The risk in currency market is very low only because of the currency rates were not so volatile. As per the respondents statement there are 20% of respondent were neutral & 40 % of respondent think that currency market is less risky in nature but the 6% of respondent were answered that currency market is high risky. As far as my opinion the currency rates were less volatile & the similarly less speculate. Currency market is a good option to invest rather than investing in equity or commodity.


10. Which service of broker you give highest weight age? Particulars Rank 1 Research & Advisory Based Call Less Margin Low Brokerage Good Trading Software 20 12 18 3 2 18 10 20 4 3 8 24 10 12

(table 28)

4 4 14 2 31

25 2 2 15 1 5 8 4 18 12

24 18 14 1 1 4 2 18


Research & Advisor sased Ca

Less Margin Series1 Series2

Low srokerage Series3 Series4

Good Trading Software

(Chart 15) Interpretation: Here I have used rank order to measure the customers preference towards service provided from the broker. There are several type of investors and their preference also varies. The 20 respondent rated Research & Advisory call on the first rank. On second rank 20 respondent prefer the low brokerage. The fewer margin is on third position 24 respondent rank it & on forth good trading software is preferred. The person who does online trading are prefer a good trading software. And the most preferable service is advisory calls & low brokerage. To attract new clients broker can attract with low brokerage slab & research & advisory call.


Chapter 8. Conclusion
The survey I have carried out on Impact of currency market in India. The conclusion of the survey is as follows. The awareness of the forex market in India is very low in compare to other financial instruments. Only fewer people know about the currency trading. As the gender wise male investors are more investing than women investors. But the education level is as well a positive sign of women also taking interest in forex market. The equity and commodity investors are as well investing in currency. In India USD, EURO, GBP, and JPY are the currencies been traded most. USD and EURO are the most preferred currency in response from the respondents. there is high volume in this two currency pair in India. USD is on first position to trade in India, as per the data of MCX-SX the volume of USD/INR of June contract 3588917 in lots as on 3rd June 2011. The EURO is on second to be traded in India. The data of MCX-SX volume in EURO/INR is 156556 in lots, as on 3rd June 2011. GBP and JPY are been traded in India on 3rd and 4th position respectively. The volume in GBP/INR was 58255 in lots and volume in JPY/INR was 23628 in lots as on 3rd June 2011 respectively. In future 36% & 32% of respondent are relay on USD & EURO respectively. But in future as per the report of Bank Of Japan Change in the total quantity of domestic currency in circulation and current account deposits held at BOJ, It's positively correlated with interest rates-early in the economic cycle an increasing supply of money leads to additional spending and investment, and later in the cycle expanding money supply leads to inflation. This release would be affect the JPY rate. The earning in currency market is low in comparison of Equity or Commodity market. The volatility in currency rates is very less. It doesnt volatile as equity or commodity market. The risk is also very less in the currency market. The main or primary object of investing in currency market by investor is hedging. More number of respondents is connected in the business of Import-Export. They use to hedge the currency market for future payment and earn the deference. The impact of currency market in Indian economy can be measure from the Gross Domestic product and Gross national product. The GDP of current year if 7.8%. It is a positive in compare to last financial year; the second factor is foreign reserve. As on may 2011 India is having $ 3010 billion of foreign reserve as per the IMF data. Export of the country is as well increased as exports surged by 37.5 per cent for the financial year ended March 31, 2011 to touch $245.9 billion shooting well past the $200-billion target set for the year. Currency market in India is having a wide scope for development in future.


Chapter 9 Annexure
9.1 Questioner
Dear Sir/Madam. I am student of M.B.A at Ganpat University, undergoing Summer Internship Program at Religare Securities Limited, Ahmadabad. Undergoing a Project report on Impact of Currency Market in Indian economy. So give your opinion for the same, the information will not be disclosed and will be used for project purpose. [Note- please tick() to your selected option]

Name Gender: Age (years): [ ] Male [ ] 20 30 [ ] 40 50 Education Qualification: [ ] H.S.C [ ] Post Graduate Occupation: [ ] Business [ ] Student Annual Income (Rs): [ ] 2, 00,000 [ ] 2, 00,000- 3, 50,000 [ ] Graduate [ ] Other [ ] Self employment [ ] House Wife [ ] Service [ ]Other [ ] Female [ ] 30 40 [ ] 50 & Above

[ ] 3, 50001- 5, 00,000 [ ] 5, 00,001 1. What are investment avenues which you are presently investing? [ ] Equity [ ] Currency [ ] Commodity [ ] IPO [ ] SIP 2. [ ] Mutual Fund [ ] Bonds [ ] GBP [ ] Insurance [ ] Other [ ] JPY

In Which currency do you prefer to invest? [ ] USD [ ] EURO [ ] Other


What is the primary objective of your investment in currency? [ ] Hedging [ ] Volatility [ ] Speculation [ ] Arbitrage [ ] Other What is the time duration you invest in currency? [ ] Intraday [ ] Less than 1 months [ ] 1-2 months [ ] 2-3 months [ ] more than 3 months




What factors do you determine at the time of investing in currency? [ ] Economy [ ] Export-Import [ ] Industrial [ ] Infrastructure [ ] Political [ ] Other


How many percentage of money do you invest in currency from your income? [ ] 10 % [ ] 21 %- 30 % [ ] 11 % - 20 % [ ] 31 %


Which currency do you most rely on? [ ] USD [ ] JPY [ ] EURO [ ] Other [ ] GBP

8. Type of return you expect in currency market? Low 1 2 3 4 5 High

9. How much riskier is Currency Market? Low 1 2 3 4 5 High

10. Which service of broker you give highest weight age? (Rate among 1 to 4) Particulars Research & Advisory Based Call Less Margin Low Brokerage Good Trading Software Rank

11. Any suggestions for Religare Securities Limited./Improvement in service (feedback)


Chapter 10. Bibliography rrency.pdf %20Risk%20in%20Asian%20Emerging%20Markets.pdf

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