CROSS CURRENCY FLUCTUATION

OBJECTIVES OF STUDY

To study the concept of cross currency. To know the reasons of fluctuation in cross currency. To study the impact of cross currency fluctuation on

Indian economy.

To study various instruments used for reducing cross currency fluctuation risks.

INTRODUCTION

There has been extreme movement and instability in international

currency markets, bringing about violent fluctuations in currency

relationships.

Rupee appreciation / depreciation affect import and export of the

country.

Trading cross currency is the solution for reducing risk in currency rate fluctuations.

We can minimize the risk of brutal variations in currency exchange

rates through financial instruments, such as financial hedges and operational hedges.

KEY TERMS

Cross Currency Cross Currency Transaction Cross currency Fluctuation

Foreign Exchange risk

RESEARCH METHODOLOGY
In this project, we have elaborated the concept cross

currency, cross currency fluctuation, reasons behind fluctuation

and its impact on Indian economy by using secondary data available on this subject. We have derived information from websites, journals, magazines and books. We have incorporated this information and our own opinion on this subject to

conclude on this project.

REASONS FOR CURRENCY FLUCTUATION

1. Unexpected economic data from a specific country

2. Political Factor.
3. Investors. 4. Economic Stability. 5. Liquidity. 6. Speculation.

IMPACT OF CURRENCY FLUCTUATION ON INDIAN ECONOMY

Activity of trade Period Time Period Amount Y-o-Y Growth (%)

Imports

April-October 2009-10

April-October 2009-10

US$210 billion

Imports

April-October 2010-11
April-October 2009-10 April-October 2010-11

April-October 2010-11
April-October 2009-10 April-October 2010-11

US$275 billion

30.95%

Exports

US$124 billion

Exports

US$180 billion

45.16%

BENEFITS OF RUPEE DEPRECIATION

To Companies

To Hospitality and Tourism

To IT Sector

Foreign Investors

INSTRUMENT FOR REDUCING RISK OF

CURRENCY FLUCTUATION

Classification in hedging literature Classification in financial statement examples

Financial hedges

Operational hedges

Derivative hedges Forward(future), options, swap

Natural hedges Foreign-currency debt Diversification across currency zones

CONCLUSION

Political or economical instability in various countries creates fluctuation in cross currencies. Rupee is depreciate or appreciate due to cross currency fluctuation. Rupee appreciation makes imports cheaper and exports more expensive and vice versa. Rupee depreciation is useful for the country , it boosts the export and increase business opportunities for travel & tourism and also for IT sector.

There is risk for investors who invest in cross currencies but instruments are available for reducing the risk such as financial hedging and operational hedging