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Assignment No.

1 March 16, 2011 Objective
Objective of this paper is to understand the reasons underlying the exchange rate movement of Indian Rupee in context to US dollar for the period Feb 23, 2011 to Mar 10, 2011. unrest could spread to other oil producing nations and choke supplies.

Feb 28 v/s Feb 25: Rs. appreciated by 10 paisa/USD Rupee appreciated as the dollar traded under heavy selling pressures against major currencies with dollar index sliding almost 2.40% from 78.87 to 76.94. The Swiss franc touched a fresh all-time high of 0.9234 and the euro rallied more than 300bps. In line, the Indian rupee strengthened above 1% to seven week high at 44.98 but failed to hold on to the gains due to rising crude oil prices.

Feb 24 v/s Feb 23: Rs. depreciated by 25 paisa/ USD The rupee fell the most on concern a surge in oil prices will boost import costs and widen the current-account deficit from a record. Crude on New York Mercantile Exchange touched USD 103.41 per barrel, the highest level since Sept-2008; amid concern Libya’s political crisis will disrupt supplies of the commodity from the Middle East. India almost imports 75% of the fuel it uses. The rupee also dropped on speculation losses in the stock market will prompt overseas investors to pull money out of local assets.

Date Feb 23, 2011 Feb 24, 2011

INR/ US Dollar 44.23 44.48 45.08 Sat Sun 44.98 44.88 44.99 45.05 44.68 Sat

Feb 25 v/s Feb 24: Rs. Depreciated by 60 paisa/USD Rupee fell for the second day in line with weak Indian and world equity markets, as the turmoil in Libya led to higher oil prices, triggering fresh concerns over inflation. Banks led the decline on worries increasing inflationary pressures made a case for a tighter monetary policy stance by the central bank. FII’s were mostly perturbed by corruption scandals and high inflation. Brent crude futures rose as Libya’s ongoing turmoil fuelled fears the 1 Global Financial Management

Feb 25, 2011 Feb 26, 2011 Feb 27, 2011 Feb 28, 2011 Mar 01,2011 Mar 02,2011 Mar 03,2011 Mar 04,2011 Mar 05,2011

Assignment No.1 March 16, 2011
Mar 06,2011 Mar 07,2011 Mar 08,2011 Mar 09,2011 Mar 10,2011 Sun 44.84 44.82 44.74 44.83 Mar 03 v/s Mar 02: Rs. depreciated by 6 paisa/USD The rupee was weaker as the choppy equity market dented sentiment with some oil-related dollar demand from refiners also adding to the downward pressure. Oil is India’s biggest import and the state run oil refiners are the largest buyer of the dollars in the domestic currency market. In the currency futures market, the most traded near-month dollar-rupee contract on the NSE were at 45.24 and on the United Stock Exchange at 45.23, with the total traded volume at a high dollar 8.51 billion, which explains the demand of dollar. Usual volume is around dollar 6 to dollar 7 billion.

Source: The exchange rate website &The Economic Times, Pune.

Mar 01 v/s Feb 28: Rs. appreciated by 10 paisa/USD Rupee appreciated as trading in most sectors in NSE & BSE have seen an uptick post-Budget session. Strong up moves was seen in the banking and auto space. As the frontline stocks in the banking space have already seen a sharp run-up. NIFTY has moved upwards and has gained over 290 points. Also, rupee appreciated in anticipation of large dollar inflows in coming days. This anticipation was fuelled due to talk of increased dollar flow swirled after the foreign institutional investor limit for corporate bond investment with residual maturity of over 5 years issued by infrastructure firm was raised in budget by an additional dollar 20 billion taking the limit to dollar 25 billion.

Mar 04 v/s Mar 03: Rs. appreciated by 37 paisa/USD The rupee has appreciated primarily because of the good upward movement in the stock market. The market witnessed the prefect case of short-covering in Indian equities. The broad based rally was seen as FII’s poured money in sectors like auto (as there was no reversal of excise duty in the Budget), agri-related and infra stocks. This led to the increase in the demand for Indian rupee against USD.

Mar 02 v/s Mar 01: Rs. depreciated by 11 paisa/USD Rupee depreciated primarily due to increasing uncertainty and speculation on oil prices which was majorly fuelled by the news of crisis in the middle east.

Mar 07 v/s Mar 04: Rs. depreciated by 16 paisa/USD The rupee dropped by 16 paisa because the market sentiment was hit by political worries on the domestic front and surging


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Assignment No.1 March 16, 2011
crude oil prices. US crude rose to a 30month high above dollar 106 as civil war brewed in Libya. Foreign funds have pulled out around dollar 2 billion from Indian equities from the start of the year to March 7 with main index declining more than 11% in 2011. As a result the 30shares BSE index declined by 1.43% or 263.78 points, to 18,222.67 points, with 25 of its component declining as on March 7, 2011. This withdrawal of funds by FII’s fueled the demand for dollar and depreciating Indian rupees. ruling Congress and DMK in a row over seat-sharing for the Tamil Nadu elections ending days of jitters over the stability of the UPA government.

Mar 10 v/s Mar 09: Rs. depreciated by 9 paisa/USD The rupee fell on speculation that crude oil prices near a 29-month high will increase import costs and wide a record currentaccount deficit. Increase in the speculative oil prices causes the expected inflation to increase which further triggers the increase in the interest rate. High interest rates cause stock markets to fall indicating the possibility of fund withdrawal by FIIs resulting in the depreciation of home currency. Though this depreciation is a temporary phase and is corrected in long run.

Mar 08 v/s Mar 07: Rs. appreciated by 2 paisa/USD The Indian rupee firmed on Mar 08 as it took comfort from a drop in oil prices, while ‘Dravida Munnetra Kazhagam’, (DMK), a key ally of the Congress-led UPA government, put off a move to quit the cabinet, helping the market win back some investors confidence. This improved the demand for rupees causing it to appreciate. The 30-shares BSE index ended up 1.19%, or 216.98 points, at 18,439.65 points.

Mar 09 v/s Mar 08: Rs. appreciated by 8 paisa/USD Demand for rupees went up primarily because BSE Sensex crawled up 0.2% higher in choppy trade on Mar 09, helped by small gains in world equities. Strengthening of rupee was the after effect of the deal struck between the 3 Global Financial Management