copy trends and issues relating to us dollar euro -

8/3/2019 Copy Trends and Issues Relating to US Dollar Euro -

1/24

Trends and issues relating to US

Dollar Euro, US Dollar Yuan and US

Dollar Rupee exchange rates


2/24

Indias Exchange Rate


3/24

Rupee gained Thursday, breaking an eight-session losing streak, after thecountry's central bank, Reserve Bank ofIndia (RBI), took several measuresto stem the fall of rupee against the greenback.

RBI on Wednesday relaxed rules on overseas borrowing by firms andraised the ceiling on interest rates for deposits by non-resident Indians.

The central bank also eased guidelines on currency-swap hedges bycompanies to help them cope with exchange-rate volatility. Buoyed by theRBI action, the corporate also sold some dollars.

In addition, there are speculations that RBI, which has more than $300billion in foreign exchange reserves, continued its sale dollars after therupee touched an all-time low of 52.73 to a dollar on Tuesday.

Investors recently have lost confidence in the currencies of emergingeconomies such as Indian Rupee as worsening debt crisis in Europe ishurting the sentiment. As a result, Rupee became the worst performingcurrency among major Asian peers and is expected to continue itsdownward spiral against U.S. dollar.


4/24

Amid rising oil import bill and external debt, the rupee-dollar exchange rate could well reachthe levels of 53.80 by January 2012 and 55.10 by March 2012 if the global economycontinues to be bleak like in recent months, according to industry body ASSOCHAM(Associated Chambers of Commerce and Industry of India).

If the Eurozone and the United States start showing signs of recovery and foreign funds startflowing back to India, the exchange rate will settle around the new normal level of 49.50, theagency said.

The rupee started tumbling after the downgrading of U.S. credit ranking and increasingthreat perception of Greece defaulting on sovereign debt. It slid against the dollar from44.40 in July to 45.50 in August, 47.60 in September, 49.30 in October and 52.70 this month.

Since India is structurally an import intensive country as reflected in high and persistentcurrent account deficits month after month, domestic costs will rise. The rupee depreciationwill particularly hit industrial sector and put higher pressure on costs as items like oil,imported coal, metals and minerals, imported intermediate products are getting affected.

A falling rupee has also impacted cost of borrowing for the corporate sector. Indiancompanies raised 29 billion dollars this calendar year through external commercialborrowings and foreign currency convertible bonds.

"If current valuations persist, they will end up paying five billion dollars more," said Rawat.

India's external debt is dominated by dollar to the extent of 54.2 per cent. The rupeedepreciation by 16.54 per cent between April and November is bound to increase interestpayments. Between June and November, the total external debt increase by Rs 21,860 crore.

Currently, Indian Rupee is trading at 52.24 against a dollar. Meanwhile, currencies of Brazil,South Africa, Mexico and Russia have taken a hammering amid the European crisis as well asa weak economy in the U.S.


5/24

The falling Bombay Stock Exchange (BSE) index is partially anindication that foreign institutional investors are selling out, puttingpressure on the rupee value, said the ASSOCHAM study.

Instead of intervention by the Reserve Bank of India and burdeningforeign exchange reserves, India should stagger oil imports demandand coordinate purchases so that there is no undue bundling ofimports at any time.

ASSOCHAM said the government can take initiatives whichencourage flow of foreign investments into the country. Recentsteps to consider allowing foreign direct investments (FDI) inpension fund or increase in investment limit in governmentsecurities and corporate bonds are in the right direction. AllowingFDI in multi-brand retail and civil aviation industry can also attractmany foreign investors.


6/24

Trend and Issue of Euro and dollar

History of Euro

January 1, 1999 has become remarkable event in the International financialmarket due to the adoption of a common currency by the eleven countries of theEuropean Union. However, Greece was the twelfth country to join the EuropeanUnion. Currently, the Euro signified by EUR, is the currency used in 16 members ofthe European Union which includes Cyprus and Malta that have been added to theeuro in Jan 2008

The Euro which was launched in the year 1999was put into circulation on January 1, 2002


7/24

Euro and its Evolution

The advent of the euro may turn out to be the mostimportant development in internationalmonetary arrangements since the emergence of

the dollar as the dominant currency shortly afterthe creation of the US central bank, the FederalReserve System, in 1913(Mundell,1999). The Eurorepresents an important change in the world

economy. At the moment of its inception, theEuro accounted for 19.4% of the world's GDP,compared with 19.6% for the United States


8/24

European Monetory Union

In keeping with the goal of achieving greater

monetary integration in Europe, the European

Monetary Union came into effect in 1992. The

launch of Euro has threatened the Americaneconomy in the economical and political ways.


9/24

Euro is used in the Following Countries

The countries in the European Union that use

the euro are Belgium, Germany, Greece,Spain,France, Ireland, Italy, Luxembourg, The

Netherlands, Austria, Portugal, Finland, and

Slovenia


10/24

Continued.....

The fear of America will prove to be a serious

rival to the Dollar and may turn into reality

based on the changing pattern of trade and

the global trust for the infant currency Euro.

However, the rivalry will be a long term battle

in terms of time and changing the economic

and political movement across the borders.


11/24

Euro Dollar Exchange Rate from 1999-

2004


12/24

Analysing the data from table 10 states that

the foreign exchange reserve in dollar has

steadily moved up from 1995 to 2000 that is

from 59% to 70% and one of the reason could

be its monopoly of achieving the major stake

in the international market. Since the Euro

was not put to circulation till the year 2000,the share of dollar was increasing in the

central bank reserves.


13/24

International Currency composition


14/24

International reserves in US Dollar are losingits ground from 1999 (70.9%) to 2006 (65.7%). Euro is on the rising trend from 1999 to 2006

as reflected in table 11. On a global basis, thedemand for international reserves depends ontwo related factors: one the monetary value ofinternational transactions and second the

disequilibrium that can arise in balance

of payments positions.


15/24

Bank notes in Circulation (in Bn)


16/24

Currency as a means of International

PaymentsEuro cash and coins - The value of euro banknotes andcoins in circulation overtook the value of US dollar cashtowards the end of 2006. This event confirms that theeuro continue to firmly establish itself as a major and

international currency. In December 2006, the totalvalue of eurobank notes and coins in circulationamounted to euro 591.9 billion which corresponds toUSD 782.1 billion according to the current exchangerate, compared to 754.8 billion worth of USD

banknotes and coins in circulation. Whereas circulationof Euro is 608.5billion by March 2007 as compared tothe Dollar which is 571 billion dollar.


17/24

Trend and Issue of Yuan and US Dollars

Upto 1993,China maintain a dual exchange rate Fixed rate used by government which was 5.77 Yuan

Market rate used for trading purpose(Export and import) whichwas 8.70 Yuan.

From 1994 onwards, China unified the exchange rate atinitial stage to 8.70 Yuan.

In 1997, it got appreciated by 4.8 % and rise to 8.28which was kept constant upto 2005.

China bought US assets in exchange of Yuan which limit the excessof supply of Yuan in China.

Under a floating exchange rate system, the relative demand for thetwo countries goods and assets would determine the exchangerate of the RMB to the dollar.


18/24

From 2005 to 2008 China currency had been

appreciated against dollar by 15.7%, and

exchange rate went from 8.11 to 6.83. This time was described as Managed float, China

government retarded its rate of appreciation, which

market had perceive.

Halted Appreciation , to facilitate the export and to

mitigate the effect of on US trade


19/24

Due to Global recession in 2008-

China product demand got reduced China exports fell by 15.9% which result in shutting

down many export oriented unit and many had lost

their jobs.

RMB was held at 6.83/dollar upto mid 2010.


20/24

Yuan Dollar Trend from 2001 to 2011


21/24

Trend after Mid 2010

RMB appreciated from 6.83 to 6.46 by 5.7% It was a problem for the US, as Chinese product

become costlier .

But there is a trade surplus in China , do u thisappreciate in RMB.

They have the 3.2 Trillion of Foreign Exchange reserve.


22/24

Effect of Foreign Exchange on China

and US.

If China currency gets undervalued..

Disadvantage Import China have to pay more price for the importing

the items. It causes US trade deficit which contributes in losses

jobs in US.

Advantages

It has favourable effect on export, and the productbecome cheaper and demand increased.

Also favourable for US consumer to have cheaperproducts, but could negatively impacted US local firm.


23/24

If China currency gets appreciated..

Advantages- China have to pay less money for imports

China is the highest purchaser of US treasury securities.

Appreciation in RMB enables china to accumulate largest

level of foreign exchange reserves. Deploy Large reserve to buy US securities which reduces

the US deficit and helps in reducing the interest rate in US.Help in increasing the liquidity in US.

China decency on exports gets reduced, many non-

exporting firm will establish to focus on domestic market Disadvantages-

Exports become costlier


24/24

THANK YOU

copy trends and issues relating to us dollar euro -

Documents