A

Master Level Project Report

On
Measuring the Volatility of Foreign Exchange Market in
India
Submitted
In the partial fulfillment of the Degree of
Master of Business Administration
Semester-4
Prepared By:Kaushik Gangajaliya (11SOMBA21059)
Chandni Thakker (11SOMBA21052)
Under the Guidance of:Dr. Chetna Parmar
(Associate Professor),
School of Management
Submitted To:
School of Management,
RK.University,
Rajkot.

DECLARATION

We hereby declare that project titled Measuring the Volatility of Foreign Exchange Market
in India. It is an original piece of research work carried out by us under the guidance and
supervision of Dr. Chetna Parmar. The Information has been collected from genuine and
authentic sources. The work has been submitted in the partial fulfillment of the requirement
of MBA to our college.

Signature:

Name of the Students

Kaushik Gangajaliya
Chandni Thakker

Date:
Place: Rajkot

PREFACE

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As a part of our course curriculum of MBA, We are assigned some practical studies as well
as the theoretical knowledge in the related areas for completing the project. We are preparing
comprehensive report on Measuring the Volatility of Foreign Exchange Market in India So
far as decision of the industry is concerned; we have chosen the financial industry. In our
project we are making use of secondary data for that purpose.
This project really enhances our knowledge about the Forex Market as a whole. This project
will also give us firm understanding of market behaviour and help to know which currency is
more volatile and in which one should invest in. We have gained lot knowledge from this
project. And we believe this will help us in near future.

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ACKNOWLEDGEMENT
As a part of the MBA curriculum at R.K University, the Grand Project Report Program
enables the students to enhance their skills, expand their craniums by applying various
theories, concepts and laws to real life scenario which would further prepare them to face in
the near future.
Grand Project Report is the part of curriculum of R.K. University which helps in overall
development of the student and gives him or her platform to understand the corporate
environment as well as to implement the theoretical knowledge.
I would like to thank my faculty guide Dr. Chetna Parmar (associate Professor) for his
valuable guidance and support during my research period.
I would also like to thanks Dr. Raashid Saiyed, Director of school of management at R.K
University for giving me the opportunity to work in this research and carry the colleges
name forward.

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Table of Content
Serial No.
1

Particulars
Introduction

Page No.
7

Industry

11

Regulatory Authorities/Laws

14

Need of the Study

17

Review of Literature

18

Research Gap

21

Research Design and Methodology

22

Objectives of Study

23

Hypothesis

24

Period of Study

24

Sample Design

25

Type of Research

26

Data Collection Method

Tools and Techniques for Data

Analysis

Limitations of Study

Future scope of study

27
27
28
28

Analysis and Interpretation

30

Conclusion

44

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CHAPTER 1

Introduction to the Foreign Exchange Market

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The foreign exchange market is the biggest financial market in the world. In forex market
everyday transactions is near about 3.98 trillion dollars. The major aim of introducing the
foreign exchange market is to facilitate international trade by enabling businesses to perform
transactions outside their local currency. The market operates round the clock from Monday
through Friday.
In the foreign exchange market a trader can purchase international currencies by paying
different currency. This type of foreign exchange market started to develop in the 1970s,
which was about thirty years after foreign exchange was introduced. Some important features
about the FX market include the following:
1. It has a very large number of daily participants. This makes its liquidity one of the
highest in the world.
2. Participants come from several countries in the world.
3. The market is open from 22:00 GMT on Sunday to 20:00 GMT on Friday.
4. Exchange rates are affected by a number of factors.

Market Size and Liquidity

Liquidity in the forex market is the highest among other financial markets in the world. The
market comprises central banks, currency speculators, organizations, governments, retail
investors and international investors. Over the years, the size of the FX market has been
constantly increasing. In 2010, The Triennial Survey by the Bank of International Settlements
reported that the average daily transaction in the US for the month of April was $3.98 trillion.
This was much greater than the $1.7 trillion recorded in 1998.

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Market Participant
There are three types of participants in the foreign exchange market. These are: central
banks, global funds, retail clients (or individual retailers) and corporations. The commercial
and investment banks belong to the group known as interbank market. This level
constitutes about seventy five percent of the total volume available each day.

Determinants of FX rates
For countries operating on the floating exchange rate regime, the exchange rates of their
currencies can be determined by the following theories:
1. International Parity Conditions: These include theories such as relative purchasing
power parity, interest rate parity, domestic fisher effect and international fisher effect.
Although these theories work to actually determine FX rates, they can also falter
because they are formed on assumptions that are not always true.
2. Balance of payment model: This is concerned with the exchange of goods and
services without considering the effect of the flow of money between and among
nations.
It is not possible to predict FX rates within long time frames with these theories. The best
that can be done with these is predicting future prices that can occur within a few days. FX
rates cannot be judged on a single factor but rather by combining several factors in
economics, politics and market psychology.

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Meaning of 'Derivative'
A security whose price is dependent upon or derived from one or more underlying assets. The
derivative itself is merely a contract between two or more parties. Its value is determined by
fluctuations in the underlying asset. The most common underlying assets include stocks,
bonds, commodities, currencies, interest rates and market indexes. Most derivatives are
characterized by high leverage.

Meaning of Currency Derivative

Futures Contract is a standardized exchange traded contract to buy or sell a certain
underlying instrument at a certain date in the future at a specified price. The underlying
instrument in Currency future is a foreign exchange rate. The price of a future contract is
expressed in terms of INR per unit of other currency e.g. US Dollars. Currency future
contracts allow investors to hedge against foreign exchange risk. Currently Currency Futures
are available on four currency pairs viz. US Dollars (USD-INR), Euro (EUR-INR), Great
Britain Pound (GBP-INR) and Japanese Yen (JPY-INR).

Benefits of Currency Derivative

Currency Derivatives are very efficient risk management instruments and you can derive the
below benefits:
1. Hedging: You can protect your foreign exchange exposure in business and hedge
potential losses by taking appropriate positions in the same. For e.g. If you are an
importer, and have USD payments to make at a future date, you can hedge your
foreign exchange exposure by buying USDINR and fixing your pay out rate today.
You would hedge if you were of the view that USDINR was going to depreciate.
Similarly it would give hedging opportunities to Exporters to hedge their future
receivables,
2. Speculation: You can speculate on the short term movement of the markets by using
Currency Futures. For e.g. If you expect oil prices to rise and impact India's import
bill, you would buy USDINR in expectation that the INR would depreciate.
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Alternatively if you believed that strong exports from the IT sector, combined with
strong FII flows will translate to INR appreciation you would sell USDINR.
3. Arbitrage: You can make profits by taking advantage of the exchange rates of the
currency in different markets and different exchanges.
4.

Leverage: You can trade in the currency derivatives by just paying a % value called
the margin amount instead of the full traded value.

Financial Instruments
Financial instruments in the Forex market include spot, forward and swap.
Spot

A spot transaction lasts for two days except when currencies such as the US dollar, Canadian
dollar, Euro, Turkish Lira and Russian ruble are traded. In these cases, transactions are
completed on the next business day. Normally, there is no interest involved in this transaction
since it is just a direct exchange.
Forward

Forward transaction is an effective way of reducing risks in the Forex market. With this,
traders do not exchange money until when an agreed exchange rate between currencies is
actualized. This may happen in one day, several months or years.
Swap

In swap, two traders agree to make a transaction that will be reversed in the future. Since this
is not a standard operation, there is no exchange created for this.

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HISTORY OF FOREIGN EXCHANGE MARKET

Ancient

Forex first occurred in ancient times. Money-changing people, people helping others to
change money and also taking a commission or charging a fee were living in the times of the
Talmudic writings (Biblical times). These people (sometimes called "kollybists") used citystalls, at feast times the temples Court of the Gentiles instead. The money-changer was also
in more recent ancient times silver-smiths and, or, gold-smiths.
Medieval and later

During the fifteenth century the Medici families were required to open banks at foreign
locations in order to exchange currencies to act for textile merchants. During the 17 th (or 18th)
century Amsterdam maintained an active forex market. During 1704 foreign exchange took
place between agents acting in the interests of the nations of England and Holland.
Early modern

During 1880 J.M. do Esprito Santo de Silva (Banco Esprito e Comercial de Lisboa) applied
for and was given permission to begin to engage in a foreign exchange trading business. 1880
is considered by one source to be the beginning of modern foreign exchange, significant for
the fact of the beginning of the gold standard during the year.
Modern to post-modern

Before WWII
At the time of the closing of the year 1913, nearly half of the world's forexes were being
performed using sterling. In 1902 there were altogether two London foreign exchange
brokers. In the earliest years of the twentieth century trade was most active in Paris, New
York and Berlin, while Britain remained largely uninvolved in trade until 1914.
After WWII

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After WWII the Bretton Woods Accord was signed allowing currencies to fluctuate within a
range of 1% to the currencies par. In Japan the law was changed during 1954 by the Foreign
Exchange Bank Law, so, the Bank of Tokyo was to become because of this the centre of
foreign exchange by September of that year.
After 1973
In fact 1973 marks the point to which nation-state, banking trade and controlled foreign
exchange ended and complete floating, relatively free conditions of a market characteristic of
the situation in contemporary times began (according to one source), although another states
the first time a currency pair were given as an option for U.S.A. traders to purchase was
during 1982, with additional currencies available by the next year.
On 1 January 1981 the Bank of China allowed certain domestic "enterprises" to participate in
foreign exchange trading. Sometime during the months of 1981 the South Korean
government ended forex controls and allowed free trade to occur for the first time. During
1988 the countries government accepted the IMF quota for international trade.
According to the Bank for International Settlements, as of April 2010, average daily turnover
in global foreign exchange markets is estimated at $3.98 trillion, a growth of approximately
20% over the $3.21 trillion daily volume as of April 2007. Some firms specializing on
foreign exchange market had put the average daily turnover in excess of US$4 trillion.
The $3.98 trillion break-down is as follows:
Particulars

Amount In $

Spot transations

1.490 trillion

Outright forwards

$475 billion

Foreign exchange swaps

1.765 trillion

Currency swaps

43 billion

Options and other products

207 billion

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HISTORY OF FOREIGN EXCHANGE MARKET WITH

REFRENCE TO INDIAN CAPITAL MARKET
The forex trading history of India dates back to 1978, when reserve bank of India took a step
towards allowing the banks to undertake intra-day trading in foreign exchange. It is during
the period of 1975-1992 when reserve bank of India, officially determined the exchange rate
of rupee according to the weighted basket of currencies with the significant business partners
of India. But it needs to be mentioned that there are too many restrictions on these banks
during this period for trading in the forex market.

The introduction of the open market policy in the year 1991 and implementation of the new
economic policy by the govt. of India brought a comprehensive change in the Forex market
of India. It is during the month of July 1991, that the rupee undergone a twofold downward
adjustment and this was in line with inflation differential to ensure competitiveness in
exports. Then as per the recommendation of a high level committee set up to review the
balance of payment position, the liberalized exchange rate management system or the lerms
was introduced in 1992. The method of dual exchange rate mechanism that was part of the
terms also came into effect 1993. It is during this time that uniform exchange rate came into
effect and that started demand and supply controlled exchange rate regime in Indian.

It was the report and recommendations of the expert group on foreign exchange, formed to
judge the forex market in India that actually helped to widen the forex trading practices in the
country. As per the recommendations of the expert committee, reserve bank of India and the
government took so many significant steps that ultimately gave freedom to the banks in many
ways. Apart from the banks corporate bodies were also given certain relaxation that also
played an instrumental role in spread of forex trading in India.

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It is during the year 2008 that Indian forex market has seen a great advancement that took the
Indian forex trading at par with the global forex markets. it is the introduction of future
derivative segment in forex trading through the national stock exchange (NSE) and MCX
stock exchange (MCX-SX). this step not only increased the Indian forex market volume too
many folds also gave the individual and retail investor a chance to trade at the forex market,
that was till this time remained a forte of the banks and large corporate.

Indian forex market got yet another boost recently when the SEBI and Reserve bank of India
permitted the trade of derivative contract at the leading stock exchanges NSE and MCX for
three new currency pairs. In its recent circulars reserve bank of India accepting the proposal
of SEBI, permitted the trade of INR-GBP (Indian rupee and Great Britain pound), INR-EUR
(Indian rupee and Euro) and INR-YEN (Indian rupee and Japanese yen). This was in addition
with the existing pair of currencies that is US$ and INR. From inclusion of these three
currency pairs in the Indian forex circuit the Indian forex scene is expected to boost even
further as these are some of the most widely traded currency pairs in the world.

REGULATORY AUTORITIES
The role of financial regulatory bodies or agencies is to control the financial markets by
making the regulations and to see that are followed by the financial companies. These
regulations are meant to have proper processes for smooth running and to avoid the scams
and unethical practices to protect the investors. These regulatory agencies are country or
economic zone dependent and could be governmental or independent. To protect the
investments it is important to check whether the regulatory status of the broker in your
country.

International organizations:
EU Commission
Ernst & Young (E&Y)
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Financial Markets Association (ACI)

KPMG

Regulatory Authorities of major countries

Country
India

Regulatory
Securities And Exchange Board Of India SEBI
Reserve Bank Of India RBI
Australian Securities and Investment Commission (ASIC)

Australia

International Financial Services Commission (IFSC)

British Columbia Securities Commission (BCSC)
Canadian Investor Protection Fund (CIPF)

Canada

Financial Transactions and Reports Analysis Center of

Canada (FINTRAC)
Investment Industry Regulatory Organization of Canada
(IIROC)
Ontario Securities Commission (OSC)
Dubai Multi Commodities Centre (DMCC)
Dubai Gold & Commodities Exchange (DGCX)

Dubai, UAE

Dubai Financial Services Authority (DFSA)

Emirates Securities and Commodities Authority (SCA)
Commodities and Futures Trading Commission (CFTC)
Financial Industry Regulatory Authority (FINRA)
National Futures Association (NFA)

United States

New York Stock Exchange (NYSE)

Office of the Comptroller of the Currency (OCC)
US Securities and Exchanges Commission (U.S. SEC)
Chicago Board of Trade (CBOT)
Securities Investor Protection Corporation (SIPC)

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Russia

FFMS in Russia (FCFR)

France

Autorite des marches financiers (AMF)

CHAPTER 2

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NEED OF THE STUDY

Till date there has not been any perfect model to predict the volatility present in the
Forex market because of the interdependent factors increasing the complexity of the Forex
market. There is immense need to manage the risk effectively and efficiently. Going through
the vast literature on this topic, we found
1. To measure the volatility of various currencies like GBP-INR, JPY-INR, USD-INR,
EURO-INR.
2. The need to identify which Currency is more volatile.

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REVIEW OF LITERATURE
1. Bekaert (1995) analyzes the time variation in conditional means and variances of
monthly and quarterly excess dollar returns on Eurocurrency investments. All results
are based on a vector auto regression with weekly sampled data on exchange rate
changes and forward premiums of three currencies. Both past exchange rate changes
and forward premiums predict future forward market returns. Moreover, past forward
premium volatilities predict the volatility of exchange rates.
2. Bertram (2006) says that the second order properties of financial data, such as
volatility and correlation, have been the focus many recent studies investigating the
presence of long-memory, power-law tails, non-stationary and scaling behavior in
financial data. It is becoming increasingly apparent from these studies that time
dependence and non-stationary are major features of financial data.
3. Johnson (2002) introduced a model to explore the connection between realized
trends and changes in volatility. Foreign exchange returns exhibit the surprising and
consistent property that volatility increases when trends continue and decreases when
they reverse. Equivalently, the volatility spot covariance, and hence finite-horizon
skewness, behaves like a lagged momentum indicator.
4. Vergni and Vulpiani (1999) have shown the presence of long term anomalies
like the structure functions and a generalization of the usual correlation analysis in the
foreign exchange market. They say that the available information strongly depends on
the kind of investment the speculator has in mind.
5. Zumbach (2002) introduces a new family of processes that include the long
memory (power law) in the volatility correlation. This is achieved by measuring the
historical volatility on a set of increasing time horizons and by computing the
resulting effective volatility by a sum with power law weights.

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6. Hodrick (1992, 1993) deduced that the vector auto regressive approach as several
advantages over the by-now standard method of using overlapping high-frequency
data on monthly or quarterly variable estimates of the conditional variance of monthly
and quarterly forward-market returns. It is well known that the forward rate is not an
unbiased predictor of the future spot rate. One implication of the vast literature on the
subject is that returns from investing in the forward market are predictable by the
forward premium as shown in the research work of Bekaert.
7. Solano (2004) says that modeling the unconditional distribution of returns on
exchange rate and measuring its tails area are issues in the finance literature that have
been studied extensively by parametric and non-parametric estimation procedures.
However, a conflict of robustness is derived from them because the time series
involved in this process are usually fat tailed and highly peaked around the center.
8. Figlewaski (1981) argued that speculation in the derivatives market is transmitted
to the underlying spot markets. The speculation produces a net loss with some
speculators gaining (and others loosing), thereby destabilize the market. Uninformed
speculative traders increase price volatility by interjecting noise to a market with
limited liquidity. The inflow and existence of the speculators in the derivatives market
produces destabilization forces, which creates undesirable bubbles.
9. Clifton (1985) found a strong positive correlation between futures trading and
exchange rate volatility measured by the spread between the daily high and low
exchange rates for Deutsche marks, Swiss franc, Canadian dollars, and Japanese yen.
Grammatikos and Saunders (1986) investigated British pound, Canadian dollar,
Japanese yen, Swiss franc and Deutsche mark foreign currency futures traded on the
International Monetary Market over the period of 1978-1983 and found that there
exists a bidirectional causal relationship between volume and price variability in
futures market transactions.
10. Kumar and Seppi (1992) and Jarrow (1992) studied the impact of currency
derivatives on spot market volatility and found that speculative trading executed by

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big players in the derivatives market increases the volatility in the spot exchange rate.
Hence, currency futures trading increases the spot market volatility.

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RESEARCH GAP
Most of the research paper includes the research done on volatility between the currency pair
INR and USD for the Indian foreign exchange market. There are very less number of
research done on other currencies like Euro, British Pound, Yen, etc with the Indian rupee.
This signifies that the most common currency used to measure volatility with INR is US
Dollars.
Our Research would include the measure of volatility with 4 currencies:1.
2.
3.
4.

INR- USD
INR- EURO
INR-GBP
INR- JPY

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CHAPTER 3

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RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the research problem. It may be
understood as a science of studying how research is done scientifically. It is necessary for the
researcher to know not only the research methods/techniques but also methodology.
Researchers not only need to know how to develop certain indices or tests, how to calculate
the mean, the mode, the median or the standard deviation or chi square, how to apply
particular research techniques, but they also need to know which of these methods or
techniques are relevant or not, and what they mean and indicate and why. Researchers also
need to understand the assumptions underlying various techniques and they need to know the
criteria by which they can decide that certain techniques and procedures will be applicable to
certain problems.
Hence, when we talk of research methodology we not only talk about research methods but
also consider the logic behind the methods we use in context of our research study and
explain why we are using a particular method or technique and why we are not using others
so that research results are capable of being evaluated either by the researcher himself or by
others.

A. Objective of the study

To find out the volatility of four major currencies i.e.US Dollar, EURO, Britain
Pound and Japanese Yen that traded mostly in world and has allowed trading in
Indian Forex market

To measure the volatility distribution in these four currencies in Indian FOREX

market.

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B. Hypothesis of this study

Hypothesis is being tested for 5 percent of significance level.

1. Ho: There is not significance difference on volatility of selected currency in Forex
market.
2. Ha: There is significance difference on volatility of selected currency in Forex
market.

Sub parameter of the Hypothesis:1.

2.
3.
4.

USD-INR (Bid, Ask, Mid)

JPY-INR (Bid, Ask, Mid)
EURO-INR (Bid, Ask, Mid)
GBP-INR (Bid, Ask, Mid)

C. Period of the Study

This will define how much time we will take to complete this research work which is
related to volatility in Indian Forex market.

Here we have estimated that it will take 45 days to carry out research work along with
academic term.

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D. Sample Design
Sample Universe
The sampling universe is the total number of items/events from which you can select
or sample for statistical analysis and description. There are almost 182 different
currencies in the world.
Common Currencies traded in the FX Market.
Currency Name

Symbol

US Dollar

USD

Pound

GBP

Swiss Franc

CHF

Japanese Yen

JPY

Canadian Dollar

CAD

Euro

EUR

Australian Dollar

AUD

New Zealand Dollar

NZD

Sample Unit
Sample Unit are the constituents of the elements i.e. the number of currencies
in our research. In our research we have taken 4 currencies to measure
volatility with Indian rupees. The 4 currencies in our research includes:1.
2.
3.
4.

USD- US Dollars
EUR- EURO
GBP- German British Pound
JPY- Japanese Yen

Sample Period
Sample Period means the time taken of the sample in the research for
measuring the volatility. Here, in our research we have taken the secondary
data of past two years of the volatility. The 2 years i.e. 24 months include:- 1st January 2011 to 31st December 2011 (12 months)
- 1st January 2012 to 31st December 2012 (12 months)
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E. Type of Research
We have used secondary data in our project so we have followed historical method of
collecting the information. There are 2 types of research:
1. Qualitative research
Qualitative research is a method of inquiry employed in many different
academic disciplines, traditionally in the social sciences, but also in market research
and further contexts. Qualitative researchers aim to gather an in-depth understanding
of human behavior and the reasons that govern such behavior. The qualitative method
investigates the why and how of decision making, not just what, where, when. Hence,
smaller but focused samples are more often needed than large samples.
2. Quantitative research
Quantitative research refers to the systematic empirical investigation of social
phenomena via statistical, mathematical or computational techniques. The objective
of quantitative research is to develop and employ mathematical models, theories
and/or hypotheses pertaining to phenomena. The process of measurement is central to
quantitative research because it provides the fundamental connection between
empirical observation and mathematical expression of quantitative relationships.
Our project includes the quantitative research because we have taken historical data
and carried out research based on the statistical data and other mathematical
information.

F. Data Collection
There are two sources of data i.e.
1. Primary data
2. Secondary data
Primary data collection uses surveys, experiments or direct observations.
Secondary data

collection may be conducted by collecting information from a

diverse source of documents or electronically stored information.

Here we have used Secondary data, like currency rates and all other
information are collected through referring websites and different research paper.
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G. Tools and Techniques for Data Analysis

Here we find the Skewness and Kurtosis with the help of descriptive statistics tool, of
the given currencies to find volatility with the help of some tools like standard deviation and
the variance of the market.

Here we will use JARQUE - BERA TEST. The Jarque-Bera test is used to check
hypothesis about the fact that a given sample .x^ is a sample of normal random variable with
unknown mean and dispersion. As a rule, this test is applied before using methods of
parametric statistics which require distribution normality.

H. Limitation of the Study

Exchange rate currencies chosen for the above study is based not on the importance
of the currency but on the volumes traded in the foreign exchange market in whole
world. And are mainly allowed in India.

Sometimes it happens that the finding of volatility may not help the investor to take
decision for choosing best investment plan

I. Future scope of the study

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This research will help to know the impact of the behavior of Foreign Exchange rate
Indian forex market.

It will help to find out which currency is having more volatility in Indian forex
market.

It will also help to know whether Indian forex market is much stable or not.

This research will help the Investor to decide in which currency to invest on the basis
of the volatility of the particular currency.

The investor expecting high return will invest in highly volatile currency and investor
wanting less risk will invest with low volatile currency.

CHAPTER 4
Page | 28

Page | 29

Analysis and Interpretation

Descriptive Statistics
Descriptive statistics are used to describe the basic features of the data in a study. They
provide simple summaries about the sample and the measures. Together with simple graphics
analysis, they form the basis of virtually every quantitative analysis of data.
Descriptive Statistics are used to present quantitative descriptions in a manageable form. In a
research study we may have lots of measures. Or we may measure a large number of people
on any measure. Descriptive statistics help us to simply large amounts of data in a sensible
way.
Volatility is a measure of how far the current prices of an asset deviate from its average past
prices. Here we measure volatility in Forex market for USD, EURO and YEN by measuring
the mean and the variance in logarithm of change in their daily exchange rate. The greater the
deviation, the greater is the volatility. Volatility can indicate the strength or conviction behind
the price move.
Skewness quantifies how symmetrical the distribution is. A distribution that is symmetrical
has a skewness of 0. If the skewness is positive, that means the right tail is 'heavier' than the
left tail. If the skewness is negative, then the left tail of the distribution is dominant.
Kurtosis quantifies whether the shape of the data distribution matches the Gaussian
distribution. A Gaussian distribution has a kurtosis of 0. A flatter distribution has a negative
kurtosis, and a more peaked distribution has a positive kurtosis. It is sometimes referred to as
the "volatility of volatility."
JARQUE - BERA - The Jarque-Bera test is used to check hypothesis about the fact that a
given sample x^ is a sample of normal random variable with unknown mean and dispersion.
As a rule, this test is applied before using methods of parametric statistics which require
distribution normality. This test is based on the fact that skewness and kurtosis of normal
distribution equal zero. Therefore, the absolute value of these parameters could be a measure
of deviation of the distribution from normal. Using the sample Jarque-Bera statistic is
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calculated: (There n is a size of sample), then p-value is computed using a table of

distribution quantiles.

CROSS RATES OF USD/INR

End Date

USD/INR BID

USD/INR ASK

USD/INR MID

12/31/2012
11/30/2012
10/31/2012
9/30/2012
8/31/2012
7/31/2012
6/30/2012
5/31/2012
4/30/2012
3/31/2012
2/29/2012
1/31/2012
12/31/2011
11/30/2011
10/31/2011
9/30/2011
8/31/2011
7/31/2011
6/30/2011
5/31/2011
4/30/2011
3/31/2011
2/28/2011
1/31/2011

54.5574
54.6891
52.8582
54.2308
55.3555
55.1853
55.8476
54.4692
52.1835
50.6989
49.4113
51.909
53.0675
50.7983
49.5209
47.6179
45.2809
44.556
45.1789
44.882
44.6238
45.3763
45.5144
45.6407

54.7223
54.8492
53.0416
54.4129
55.5268
55.4268
56.2372
54.8616
52.6278
51.1297
49.7803
52.3554
53.4738
51.1129
49.9493
48.0485
45.6663
44.9391
45.5486
45.2983
44.9972
45.7102
45.8936
46.0777

54.6399
54.7691
52.9499
54.3219
55.4412
55.306
56.0424
54.6654
52.4056
50.9143
49.5958
52.1322
53.2707
50.9556
49.7351
47.8332
45.4736
44.7475
45.3638
45.0901
44.8105
45.5433
45.704
45.8592

Page | 31

60
50
40
30

USD/INR BID

20

USD/INR Ask

10

USD/INR MID

Rate

Axis Title

USD/INR ANALYSIS
Particulars
Mean
Standard Error
Standard Deviation
Sample Variance
Kurtosis
Skewness
Sum
Count

Bid Rates

Ask Rates

Mid Rates

50.1438
0.8448
4.1389
17.1310
-1.6462
-0.1322
1203.4534
24

50.4869
0.8343
4.0874
16.7073
-1.6403
-0.1478
1211.6871
24

50.3154
0.8395
4.1129
16.9167
-1.6436
-0.1402
1207.5703
24

JB TEST (Calculated value)

Bid

21.65754

Page | 32

Ask

21.62065

Mid

21.64225

BID
50.14

ASK

Average

39
44.55

50.487

50.3154

Period Low

6
55.84

44.9391

44.7475

76

56.2372

56.0424

Period

Period High

MID

Analysis and Interpretation:

Skewness and kurtosis values for monthly in USD/INR exchange return suggest that it far
from the normal distribution which ideally should be 0 in case of normal distribution. So
researcher found that there is high volatility and volatility also affected funds flow in
international market.
The above table shows difference on average, low and high of Bid, Ask and Mid rates on
USD/INR. Here table also indicated that Bid had same difference (Low and High) but more
difference realized on Ask and Mid. Currency market was continuous fluctuating as per
demand and supply of that particular currency.
The value of Jarque Bera = 21.65 is clearly greater than the critical value of 5.99 for 95% for
a =.05 for 2 degrees of freedom obtained from Chi Square Distribution Table. This means
that (.he null hypothesis that the there is no significance difference on volatility of USD/INR
is normally distributed for the time period between 2011 to 2012 is rejected for the given
confidence interval of 95% and we accept the alternate hypothesis that the returns of
USD/INR have significance difference on volatility of USD/INR.

Page | 33

CROSS RATES OF GBP/INR

End Date

GBP/INR BID

GBP/INR ASK

12/31/2012

87.9721

88.26

11/30/2012

87.3088

87.5801

10/31/2012

84.9799

85.2911

9/30/2012

87.2486

87.5594

8/31/2012

86.939

87.2243

7/31/2012

86.0822

86.4788

6/30/2012

86.7943

87.424

5/31/2012

86.8622

87.5108

4/30/2012

83.4875

84.2248

3/31/2012

80.2152

80.9182

2/29/2012

78.0526

78.6579

1/31/2012

80.4665

81.1859

12/31/2011

82.7636

83.4216

11/30/2011

80.3799

80.9005

10/31/2011

78.0035

78.7053

9/30/2011

75.3122

76.0147

8/31/2011

74.116

74.7737

7/31/2011

71.9209

72.5623

6/30/2011

73.3178

73.9387

5/31/2011

73.4054

74.1115

4/30/2011

72.9435

73.5774

3/31/2011

73.3336

73.893

2/28/2011

73.3482

73.9809

1/31/2011

71.9096

72.6218

Page | 34

100
90
80
70
60
GBP/INR BID

50
Axis Title

40
GBP/INR ASK

30
20

GBP/INR MID

10
0

Axis Title

GBP/INR ANALYSIS
Particulars

Bid Rates

Ask Rates

Mid Rates

Mean
Standard Error
Standard Deviation
Sample Variance
Kurtosis
Skewness
Sum
Count

79.8817
1.2145
5.9501
35.4046
-1.6775
0.0098
1917.1631
24

50.4869
0.8343
4.0874
16.7073
-1.6403
-0.1478
1211.6871
24

50.3154
0.8395
4.1129
16.9167
-1.6436
-0.14028
1207.5703
24

JB TEST (Calculated value)

Bid

21.87921
Page | 35

Ask

21.62065

Mid

21.64225

BID
79.88

ASK

MID

Average

18
71.90

80.4507

80.1662

Period Low

96
87.97

72.5623

72.2416

21

88.26

88.116

Period

Period High

Analysis and Interpretation:

Skewness and kurtosis values for monthly in GBP/INR exchange return suggest that it is far
from the normal distribution which ideally should be 0 in case of normal distribution. So
researcher found that there is high volatility and volatility also affected funds flow in
international market.
The above table shows difference on average, low and high of Bid, Ask and Mid rates on
GBP/INR. Here table also indicated that Bid had same difference (Low and High) but more
difference realized on Ask and Mid.
The value of Jarque Bera = 21.87 is clearly greater than the critical value of 5.99 for 95% for
a = .05 for 2 degrees of freedom obtained from Chi Square Distribution Table. This means
that (.he null hypothesis that the there is no significance difference on volatility of GBP/INR
is normally distributed for the time period between 2011 to 2012 is rejected for the given
confidence interval of 95% and we accept the alternate hypothesis that the returns of
GBP/INR have significance difference on volatility of GBP/INR.

Page | 36

CROSS RATES OF EURO/INR

End Date

EUR/INR BID

EUR/INR ASK

EUR/INR MID

12/31/2012

71.501

71.7296

71.6153

11/30/2012

70.1525

70.37

70.2612

10/31/2012

68.5494

68.7995

68.6744

9/30/2012

69.6926

69.9394

69.816

8/31/2012

68.551

68.7752

68.6631

7/31/2012

67.9225

68.2372

68.0798

6/30/2012

69.9972

70.5086

70.2529

5/31/2012

69.9146

70.4396

70.1771

4/30/2012

68.718

69.3276

69.0228

3/31/2012

66.9831

67.57

67.2766

2/29/2012

65.3215

65.8295

65.5755

1/31/2012

66.9152

67.5137

67.2145

12/31/2011

69.9451

70.5009

70.223

11/30/2011

68.998

69.4442

69.2211

10/31/2011

67.8428

68.4517

68.1473

9/30/2011

65.6981

66.3109

66.0045

8/31/2011

64.9458

65.522

65.2339

7/31/2011

63.7411

64.3087

64.0249

6/30/2011

64.974

65.5222

65.2481

5/31/2011

64.3583

64.974

64.6662

4/30/2011

64.4152

64.9726

64.6939

3/31/2011

63.5298

64.0134

63.7716

2/28/2011

62.1063

62.6408

62.3736

1/31/2011

60.9479

61.5512

61.2496

Page | 37

72
70
68
66
64
Axis Title

EUR/INR BID

62
EUR/INR ASK

60
58

EUR/INR MID

56
54

Axis Title

EURO/INR ANALYSIS
Particulars

Bid

Ask

Mid

Mean
Standard Error
Standard Deviation
Sample Variance
Kurtosis
Skewness
Sum
Count

66.9050
0.5811
2.8470
8.1059
-0.8051
-0.3712
1605.721
24

67.3855
0.5654
2.7700
7.6733
-0.7696
-0.4041
1617.2525
24

67.1452
0.5731
2.8079
7.8843
-0.7878
-0.3885
1611.4869
24

JB TEST (Calculated value)

Bid

15.03033

Page | 38

Ask

14.86317

Mid

14.95185

Period

BID
66.905

ASK
67.3855

MID
67.1453

Average
Period Low

1
60.947

61.5512

61.2496

Period High

9
71.501

71.7296

71.6153

Analysis and
Interpretation:
Skewness and kurtosis values for monthly in EUR/INR exchange return suggest that it is far
from the normal distribution which ideally should be 0 in case of normal distribution. So
researcher found that there is high volatility and volatility also affected funds flow in
international market.
The above table shows difference on average, low and high of Bid, Ask and Mid rates on
EUR/INR. Here table also indicated that Bid had same difference (Low and High) but more
difference realized on Ask and Mid. Currency market was continuous fluctuating as per
demand and supply of that particular currency.

The value of Jarque Bera = 15.03 is clearly greater than the critical value of 5.99 for 95% for
a = .05 for 2 degrees of freedom obtained from Chi Square Distribution Table. This means
that (.he null hypothesis that the there is no significance difference on volatility of EUR/INR
is normally distributed for the time period between 2011 to 2012 is rejected for the given
confidence interval of 95% and we accept the alternate hypothesis that the returns of
EUR/INR have significance difference on volatility of EUR/INR.

Page | 39

1. CROSS RATES OF JPY/INR

End Date

JPY/INR BID

JPY/INR ASK

JPY/INR MID

12/31/2012
11/30/2012
10/31/2012
9/30/2012
8/31/2012
7/31/2012
6/30/2012
5/31/2012
4/30/2012
3/31/2012
2/29/2012
1/31/2012
12/31/2011
11/30/2011
10/31/2011
9/30/2011
8/31/2011
7/31/2011
6/30/2011
5/31/2011
4/30/2011
3/31/2011
2/28/2011
1/31/2011

0.6524
0.6763
0.6697
0.6934
0.7035
0.698
0.7047
0.6829
0.6408
0.615
0.6305
0.6744
0.6816
0.6552
0.6462
0.6196
0.5874
0.5608
0.5615
0.5533
0.5357
0.5558
0.5509
0.553

0.6545
0.6784
0.6722
0.6959
0.7058
0.7012
0.7099
0.6882
0.6466
0.6204
0.6355
0.6805
0.6871
0.6596
0.6521
0.6255
0.5928
0.5659
0.5663
0.5587
0.5405
0.5602
0.5557
0.5586

0.6534
0.6773
0.6709
0.6946
0.7046
0.6996
0.7073
0.6855
0.6437
0.6177
0.633
0.6774
0.6843
0.6574
0.6491
0.6226
0.5901
0.5634
0.5639
0.556
0.5381
0.558
0.5533
0.5558

Page | 40

0.8
0.7
0.6
0.5
0.4
JPY/INR BID % CHANGE

Axis Title
0.3

JPY/INR ASK % CHANGE

JPY/INR MID

0.2
0.1
0

Axis Title

JPY/INR
Particulars

Bid

Ask

Mid

Mean
Standard Error
Standard Deviation
Sample Variance
Kurtosis
Skewness
Sum
Count

0.6292
0.0117
0.0576
0.0033
-1.4525
-0.3141
15.1026
24

0.6338
0.0116
0.0571
0.0033
-1.4420
-0.3267
15.2121
24

0.6315
0.0117
0.0573
0.0033
-1.4469
-0.3208
15.157
24

JB TEST (Calculated value)

Bid

20.22027

Ask

20.15916

Page | 41

Mid

20.18694

Period

BID
0.6293

ASK
0.6338

MID
0.6316

Average
Period Low
Period High

0.5357
0.7047

0.5405
0.7099

0.5381
0.7073

Analysis and Interpretation:

Skewness and kurtosis values for monthly in JPY/INR exchange return suggest that it is far
from the normal distribution which ideally should be 0 in case of normal distribution. So
researcher found that there is high volatility and volatility also affected funds flow in
international market.
The above table shows difference on average, low and high of Bid, Ask and Mid rates on
JPY/INR. Here table also indicated that Bid had same difference (Low and High) but more
difference realized on Ask and Mid. Currency market was continuous fluctuating as per
demand and supply of that particular currency
The value of Jarque Bera = 20.22 is clearly greater than the critical value of 5.99 for 95% for
a = .05 for 2 degrees of freedom obtained from Chi Square Distribution Table. This means
that (.he null hypothesis that the there is no significance difference on volatility of JPY/INR
is normally distributed for the time period between 2011 to 2012 is rejected for the given
confidence interval of 95% and we accept the alternate hypothesis that the returns of
USD/INR have significance difference on volatility of JPY/INR.

Page | 42

CHAPTER 5

Conclusion

Page | 43

Here in our Research we can conclude that our primary hypothesis i.e. there is no
significance difference on volatility of selected currency in Forex market, is rejected and our
alternate Hypothesis i.e. There is significance difference on volatility of selected currency in
Forex market, is accepted. Means we can say that all Four Currency having significant
volatility.
We have observed more volatility in EUR/INR pair as it Kurtosis value is higher than other
three pairs. For all the four currencies under this study, we find generally an increasing trend
in volatility.

Page | 44

BIBLIOGRAPHY

Website: www.ibfx.com
http://www.ibfx.com/Trade/The-Foreign-Exchange-Market
Page | 45

en.wikipedia.org
http://en.wikipedia.org/wiki/Foreign_exchange_market
www.forexabode.com
http://www.forexabode.com/forex-regulatory-bodies
www.sharetipsinfo.com
http://www.sharetipsinfo.com/global-forex-market-india.html
www.invesopedia.com
en.wikipedia.org
www.oanda.com
http://www.oanda.com/currency/historical-rates/

Research Paper:1. RBI Working paper Series WPS (DEPR): 1/2011

Title:- An Empirical Analysis of the Relationship Between Currency Futures And
Exchange Rates Volatility In India
By-Somnath Sharma
2. Research Journal of Finance and Accounting.
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol 2, No 9/10, 2011
Title: - Measuring the Volatility of Foreign Exchange Market in India
By:- Neeti Khullar
Upasna Joshi Sethi

Books:Research Methodology-Methods and Techniques

-Second Edition
-By C. R. Kothari

Page | 46