relationship between macro factors and bse bankex

7/21/2019 Relationship Between Macro Factors and Bse Bankex

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CHAPTER 1

INTRODUCTION

In this chapter, the researcher explained BSE, BSE Bankex and its features. Further

researcher discussed about objectives of study, scope of study which specify the research

methodoloy. !he researcher also explains the indices and history of BSE. !he researcher

also framed hypotheses of the study on the basis of the objective which have been hihlihted

in this chapter.

A. Profile of Industry

Bombay stock exchaneis an Indian stock exchane located in "umbai,"aharashtra,India.

Established in #$%& and is considered to be one of 'sia(s fastest stock exchanes, with a

speed of )** microseconds and one of India(s leadin exchane roups and the oldest stock

exchane in the South 'sia reion. Bombay Stock Exchane is the world+s #*th larest stock

marketby market capitaliationat -#.% trillion as of ) /anuary )*#&. "ore than &,***

companies are listed on BSE, makin it the world+s top exchane in terms of listed members.

1. Brief History of BSE

!he Bombay Stock Exchane is the oldest exchane in 'sia. It traces its history to #$&&,

when four 0ujarati and one 1arsi stockbroker would ather under banyan trees in front of

"umbai+s !own 2all. !he location of these meetins chaned many times as the number of

brokers constantly increased. !he roup eventually moved to 3alal Street in #$%4 and in

#$%& became an official oraniation known as 5!he 6ative Share 7 Stock Brokers

'ssociation5.

8n # 'uust #9&%, the BSE became the first stock exchane to be reconied by the Indian

0overnmentunder the Securities :ontracts ;eulation 'ct. In #9$*, the exchane moved to

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the 1hiroe /eejeebhoy !owersat 3alal Street, Fort area. In #9$uity derivatives followed in

)**# and )**), expandin the BSE+s tradin platform.

2istorically an open outcry floor tradin exchane, the Bombay Stock Exchane switched to

an electronic tradin system developed by :": ?td in #99&. It took the exchane only fifty

days to make this transition. !his automated,screen@based tradinplatform called BSE 8n@

line tradin AB8?! had a capacity of $ million orders per day. !he BSE has also introduced

the world+s first centralied exchane@based internet tradin system, BSECEBx.co.into

enable investors anywhere in the world to trade on the BSE platform.

1.1 183 to 18!"

In the year #$*+s Business on corporate stocks and Share in Bank and :otton presses

started in Bombay. 3urin the period of #$


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"ay #99) SEBI 'ct established A'n 'ct to protect, develop and reulate the securities

market. 8n )9 "ay #99) :apital Issues A:ontrol 'ct repealed. 8n #99) Securities

'ppellate !ribunal AS'! established. 8n #4 "arch #99& BSE 8n@?ine !radin AB8?!

system introduced.

1.3 1$$% To #

#9 'uust #99< First major SE6SE= revampG )) "arch #999:entral 3epository Services

?imitedA:3S? set up with other financial institutions.# /une #999 Interest rate

swapsAI;S H Forward ;ate 'reementsAF;' allowed. 8n #& /uly #999 :3S?

commences work. 8n ## 8ctober #999 SE6SE= closed above &***. 8n ## February )***

SE6SE= crosses uity 3erivatives introduced

1.& #1 To #"

# "arch )**# :orporatisation of Exchanes proposed by the nion 0ovt. 8n # February

)**# BSE Cebx ?aunched 8n# /une )**# Index 8ptions launched. 8n 4 /une )**# BSE

1S index introduced. 8n #& /une )**# C3" operations at commenced..8n ) /uly

)**# Jalue at risk model introduced for marin re>uirement calculation. 8n 9 /uly )**#

Stock options launched. 8n ## /uly )**# BSE !eck launched, India(s First free float index.

8n )& /uly )**# 3ollex * launched. 8n # 6ovember )**# Stock futures launched. 8n )9

6ovember )**# #**K book buildin allowed. 8n # 3ecember )**# 'll

securities clearinmove to !L& Atrade date L & days. 8n # February )**) !wo way

funibility for '3;H03;. 8n #& February )**) 6eotiated 3ealin System A63S

established. 8n # 'pril )**) !L settlement Introduced. 8n # /anuary )** India(s first

E!F on SE6SE= @ MS1I:E+ introduced. 8n #< /anuary )** ;etail tradin in 0 Sec. 8n #

'pril )** !L) settlement Introduced. 8n # /une )** Bankex launched. 8n# September

)** SE6SE= shifted to free@float methodoloy. 8n # 3ecember )** ! roup launched.

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8n ) /une )**4 SE6SE= closes over uity Sement. 8n )& 6ovember

)**9 BSE launches F'S!;'3EO @ a new market access platform on 4 3ecember )**9

BSE ?aunches BSE St'; "F P "utual Fund tradin platform. 8n % 3ecember )**9

launch of clearin and settlement of :orporate Bonds throuh Indian :learin :orporation

?td. 8n #4 3ecember )**9 "arathi website launched. 8n #$ 3ecember )**9 BSE+s new

derivatives rates to lower transaction costs for all. 8n 4 /anuary )*#* "arket time chaned

to 9.* a.m. @ .* p.m. 8n )* /anuary )*#* BSE 1S website launched. 8n )) 'pril )*#*

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6ew 3B" framework Q ;s.#* lakhs @ 9*K reduction in "embership 3eposit. 8n #) "ay

)*#* 3issemination of :orporate 'ction information via SCIF! platform. 8n ) /uly )*#*

8ptions on B8?!. 8n )# September )*#* First to introduce "obile@based !radin. 8n )9

September )*#* Introduction of Smart 8rder ;outin AS8;. 8n 4 8ctober )*#* E;E= @

SE6SE= Futures launch. 8n ## 8ctober )*#* ?aunch of Fastrade on Ceb AFoC @

Exchane hosted platform. 8n & 6ovember )*#* SE6SE= closes above )#,*** for the first

time. 8n #) 6ovember )*#* :ommencement of Jolatility Index. 8n )) 6ovember )*#*

?aunch of S?B. 8n #* 3ecember )*#* ?aunch of SI1. 8n )% 3ecember )*#*

:ommencement of Shariah Index

1." #11 To #1&

#% 6ovember )*## "aharashtra and nited Nindom Environment "inisters launched

:oncept 6ote for BSE :arbon Index. 8n * 3ecember )*##, picks up a stake in the proxy

advisory firm, Institutional Investor 'dvisory ServicesIndia ?imited AIi'S. 8n % /anuary

)*## BSE !rainin Institute ?td. with I068 launched India+s first ) year full@time "B'

proramme specialisin in Financial "arket. 8n #& /anuary )*## :o@location facility at

BSE @ tie up with 6etmaic.com. 8n )) February )*#) ?aunch of BSE@0;EE6E= to

promote investments in 0reen India. 8n # "arch )*#) ?aunch of BSE @ S"E Exchane

1latform. 8n * "arch )*#) BSE launched tradin in B;I:S"';! indices derivatives.

8n #9 February )*# @ SE6SE= becomes S71 SE6SE= as BSE ties up with Standard and

1oor+sto use the S71 brand for Sensex and other indices. 8n )$ 6ovember )*# ?aunch

of :urrency 3erivatives ABSE :3=. 8n )$ /anuary )*#4 ?aunch of Interest ;ate Futures

ABSE PI;F. 8n ## Feb )*#4 ?aunch of Institutional !radin 1latform on BSE S"E. 8n

)* "arch )*#4 BSE ?aunches 6ew 3ebt Sement. 8n *4 'pril )*#4 BSE S"E exceeds

S3 # billion market capitalisation. 8n *% 'pril )*#4 ?aunch of E>uity Sement on B8?!

1lus with "edian ;esponse !ime of )** ARs. 8n )% "ay )*#4 BSE felicitated at !he

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'sian Banker Summit )*#4. 8n )< September )*#4 BSE inks "o with B6D "ellon. 8n

)) 8ctober )*#4 BSE inks strateic partnership with DES B'6N. 8n )$ 6ovember )*#4

BSE listed cos market cap crosses landmark #** lakh crore. 8n #) 3ecember )*#4 "arket

:ap of BSE S"E listed companies crosses landmark #*,*** crore.

#. Indi'es

!he launch of SE6SE= in #9$< was later followed up in /anuary #9$9 by introduction of

BSE 6ational Index ABase #9$@$4 #**. It comprised #** stocks listed at five major

stock exchanes in India @ "umbai, :alcutta,3elhi,'hmadabadand"adras. !he BSE

6ational Index was renamed BSE@#** Index from #4 8ctober #99< and, since then, its

calculations take into consideration only the prices of stocks listed at BSE.

BSE launched the dollar@linked version of BSE@#** index on )) "ay )**


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3 BSE B(n)e*

Bombay Stock Exchane ?imited launched 5BSE B'6NE= Index5 on ) /une )**. !his

index consists of major 1ublic and 1rivate Sector Banks listed on BSE. !he BSE B'6NE=

Index is displayed online on the B8?! tradin terminals nationwide.

a Bankex tracks the performance of the leadin bankin sector stocks listed on the

BSEb Bankex is based on the free float methodoloy of index constructionc !he base date for Bankex is #st /anuary )**)d !he base value for Bankex is #*** points. BSE has calculated the historical index

values of Bankex since #st /anuary )**).e #4 stocks which represent 9* percent of the total market capitaliation of all bankin

sector stocks listed on BSE were included in the index.f !he index is disseminated on a real time basis throuh BSE online tradin AB8?!

terminals. Initially #) stocks were included in the BSE Bankex. !he stocks in the index were

'ndhra Bank Atotal market cap @ ;s #,))< crore and free float market cap ;s 49*.4*

crore, Bank of Baroda A;s ,*


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?td, Indusind Bank ?td 'xis, Notak "ahindra Bank ?td, 1unjab 6ational Bank,

State Bank of India, nion Bank of India, Des bank.

&. +ision

5Emere as the premier Indian stock exchane with best@in@class lobal practice in

technoloy, products innovation and customer service.5

". ,eo-r(/i'(l 0 fun'tion(l (re( of oer(tion

".1 Coror(te Offi'e

BSE ?imited is located on 1hiroe /eejeebhoy !owers, 3alal Street. "umbai@4****#,

1hones no 9#@))@))%)#H4,9#@))@


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Bo(rd of dire'tors

"r. S. ;amadorai 6on@ executive chairman

"r 'shish kumar chauhan "anain director 7 :E8

3r.Sanjiv "isra 1ublic interest 3irector

"r S.2. Napadia 1ublic interest 3irector

"r Sudhakar ;ao 1ublic interest 3irector"r .3hirendra Swarup 1ublic interest 3irector

3r. N.Nasturianan 1ublic interest 3irector

"r. !homas Bendixen Shareholder 3irector

T(6le No14 Present 7e(ders/i

B. O6e'ti9es of t/e study

#. !o examine the relationship amon selected macroeconomic variables and BSE Bankex.

). !o analye the impact of macroeconomic variables on BSE Bankex.

C. S'oe of t/e Study

1. !o review the previous literature#. !o collect data for the period )**9 to )*#4 of BSE Bankex.3. !o collect data for old prices, inflation and 031 for the period )**9 P )*#4 .!o

determine the relationship between selected variables.

D. Rese(r'/ :et/odolo-y

(; :et/odolo-y Used for D(t( Colle'tion

!he data was collected for the time period of #st/anuary )**9 to #st3ecember )*#4.

!he data was collected from the official website of BSE ACCC.BSEindia.:8".6; :et/odolo-y used for D(t( An(lysis

!he study was empirical in nature. ;E0;ESSI86 test was applied to check whether

there is relationship between macro factors and BSE Bankex. ;E0;ESSI86 is

applied in situations where the researcher wants to find out the statistically sinificant

relationship between the means of different factors and at the same time within

factors. 2ere, the multiple factor identified 031, inflation, old prices. 'nd the

researcher wants to find out whether there is sinificant relationship between macro

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factor and BSE Bankex . 2ence, the most appropriate test in such situation is

;E0;ESSI86.

E. Hyot/eses of t/e Study

2* !here is no sinificant relationship between BSE Bankex and macro factors.

2# !here is a sinificant relationship between BSE Bankex and macro factors.

!his chapter helped the researcher understandin the BSE, BSE B'6NE=. It also covered

objective of study which provided the path for the study and scope of study which revealed

the data to be collected and time duration of data. 't last, the methodoloy of the project and

hypotheses were also determined.

.

CHAPTER #

7ITERATURE RE+IE :(/((n S/i)/( ?#1&; In their study researcher examined the impact

of macroeconomics factor on BSE bankex. "acro economic climate here is comprised of

031 rowth rate,Inflation, 0old 1rices and Exchane rate. ;esearcher sed multiple

reression model which showed the reression co@efficient between the share prices and

various factors affectin the same. ;eression results indicated thatExchane rate, Inflation,

031 rowth rate affect bankin index positivelywhereas 0old prices had neative impact on

BSE Bankex but none of themhad sinificant impact on Bankex . ;esearcher used mainly

secondarydata for the period from )**) to)*#.

SIN,H POO@A ?#1&; !his paper examined the relationship between macroeconomic

variables and Indian stock market.!he 1earson(s correlation and multivariate stepwise

reression was applied to understand the impact of macroeconomic indicators on the

performance of stock market. 0raner(s causality test was applied for the dynamic causal

relationship amon the variables. !he explained variables in the study includes averae

monthly closin price of BSE #** and:6= #** while the explanatory variables were Index

of Industrial 1roduction AII1, Cholesale 1rice Index AC1I,"oney Supply A", Interest

;ates AI;, !rade 3eficit A!3, Forein Institutional Investment AFII, Exchane rate AE;,

:rude 8il 1rice A:1 and 0old 1rice A01. !he data used in the study was in the monthly

fre>uency and period of the studyincluded from /anuary )*## to 3ecember )*#). !he results

exhibited sinificant impact of macroeconomic variables on Indian stock market. Forein

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capital had sinificantly positive impact on stock market.!he 0raner causality test sinified

that there exists causal relationship from FII to stock market. 'part from this, there was no

any causal relationship amon the variables.!he neative impact exchane rates on stock

market appeared durin the period of study,Cith the strenthenin of dollar, Indian currency

depreciated in the international market. !he stock market declined due tothe decrease in the

value of rupee with respect to S dollar.

S(eed :u/(55(d S(id ?#1&; !his paper investiated the impact of bank@specific,

industry@specific, and macroeconomic variables on bank profitability before, durin, and after

the financial crisis of )**$. For this purpose, % N commercial banks were selected on the

basis of availability of re>uired information. !he empirical data for these banks were

collected for the period from )**< to )*#). !he reression and correlation analyses were

performed on the data and concluded that bank sie, capital ratio, loan, deposits, li>uidity,

and interest rate had positive impact on ;8' and ;8E while 031 and inflation rate had

neative impact.

i-(nd( E9(ns O9(56( ?#1&; !his study investiated the effect of macroeconomic factors

on bank profitability in Nenya with e>uity bank limited in focus. In view of the inconclusive

findins on the effect of macroeconomic factors on bank profitability amon researchers, the

study was to establish the effect of macroeconomic factors on bank profitability in Nenya

with E>uity bank in focus. !he study specifically souht to determine, establish and examine

effect of economic rowth Areal 031, inflation and exchane rate on bank profitability in

Nenya with E>uity bank in focus respectively usin annual data for the period of & years

spannin from )**$ to )*#). !he effect of macroeconomic factors on bank profitability in

Nenya with E>uity bank in focus was examined usin multiple reression analysis. !he

results showed that macroeconomic factors have insinificant effect on bank profitability in

Nenya with e>uity bank in focus. Specifically economic rowth Areal 031 and inflation had

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a positive insinificant effect whereas exchane rate had a neative insinificant effect at & K

level.

S'ott AI,HEISI Oien-6e> O9uefeyen EDORE @ulius ?#1&; In their study researcher

investiated the impact of economic openness Atrade and financial openness, and inflation on

commercial banks( profitability in 6ieria in the post@consolidation period A)**&@ )*#),

usin panel data reression. !he impact of the variables on commercial banks( profitability in

6ieria in the heat of the lobal financial crisis A)**%@)*#* were also investiated. !he

empirical analysis indicated that trade and financial openness impact positively on

commercial banks( profitability, thouh the impact of trade openness was statistically

insinificant. !his was attributed to the low volume of trade Aparticularly in non@oil

commodities between 6ieria and the rest of the world, and the low level of participation of

many of the localor indienous banks in trade finance and merchant. ;esearchers also found

that inflation and bank sie had insinificant impacts on bank(s profitability in the study

period. It further indicated that the impact of financialopenness and inflation on commercial

banks( profitability in the heat of the lobal financial crisis A)**%@)*#* was sinificantly

neative, while the impact of trade openness was insinificant. Based on these findins,

;esearchersconclude that economic openness could boost commercial banks profitability if

the banks were well positioned totake advantae of the benefits it offers.

Su66ur(y(n B(r(nid/(r(n> Dr. Srini9(s(n +(nit/( ?#1&; In their study researcher

explored the effects of macroeconomic variables on stock return of the :6= Bank index. !he

purpose of the study was to investiate the lon run interaction between economic variables

and :6= bank returns. !he key active economic variables namely exchane rate, interest rate

and inflation rate were considered for analysis. Interest rate and exchane rate were crucial

variables in the bankin industry and monetary policy. "onthly time series data were

collected for the study period from #st /an )**4 to #st 3ec )*#. !he statistical model used

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in this study namely '3F, ;eression, :ointeration test and 0raner causality test. !he

major findins from the analysis selected sample macroeconomic variables had ot

sinificant on bank stock returns, Bank stock returns had fixed lon run relationship with

selected macroeconomic variables, Exchane rate and Interest rate reflected positively on

bank stock ;eturns, there was no causal linkae between :6: Bankex and Interest rate,

:6= Bankex and Inflation, Bank stock exist unidirectional causal effects on the exchane

rate. !he study concluded that selected macroeconomic variables were lon runand causal

relationship with :6= Bankex.

Dr. u5(r R()es/ >:iss ,(ut(5 S(rit( ?#1&;

In their study researcher examined the impact of FII and other stock exchane volatility on

the BSE stock Exchane volatility. In this paper various factors were considered under scope

of the study which were BSE Sensex, FII AForein Institutional Investment, ;elationship

amon different forein stock exchane which were from the N, S' and /apan. For the

purpose of analyin the data a period of months Ai.e. from # 'pril )*#4 to * /une )*#4

had been taken into consideration. In order to analye the factors this study was based on the

Secondary data. !he appropriate statistical techni>ues as correlation model, multivariate

reression modeletc. had been used for analyin the data. !his study found out that there

was a close and direct relationship of the BSE Sensex with the F!SE and 6'S3'T Stock

Exchane as well as there was inverse relationship of the BSE,Sensex with the FII and

6ikkei.

i5enes @une9io Antonio Sil9(> 7i 7i ?#1&; In their study researcher examined the

relationship of bank specific and macroeconomic factors on bank profitability and stock

return in !hailand over the period of )**4@)*#. !he sample included ## commercial banks

listed in Stock exchane of !hailand. It is important to notice that reression result of asset

sie different between lare banks and medium and small banks. It means that there are

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economies of scale for small and medium banks and diseconomies of scale of lare banks.

:apital ade>uacy of lare banks also found to be neative and sinificant to ;8E. :apital

ade>uacy re>uirement limits the risk profile of investment of lare banks and thus affect on

its ability to reach their taret level of profitability. ?i>uidity of )# lare banks had positive

and sinificant relationship to bank profitability. It includes that lare banks had more

opportunities to invest in short term li>uid assets.

,/os/ Renu ?#13;!his paper examined the relationship between interest rate chane and

bankin stock returns in up market and down market situation. 3ata was collected from the

period of #st 'pril #99ually weihted portfolio returns and Bankex returns. "oreover

the results showed that the market returns explained a reater proportion of bank returns,

compared to interest rate chanes. Evidence of interest rate sensitivity was not stron since

the coefficients of interest rate chanes were not sinificant. 8verall, most of the impacted on

the individual bank, portfolio returns and Bankex returns was associated with the overall

market returns. Ceak relationship was found between Bank stock returns and interest rate

chanes in India.Cith respect to relationship between Bank stock returns and "arket returns

there exist a positive and sinificant relationship.!he impact of market returns on the

individual bank stock returns, e>ually weihted portfolio returns and Bankex returns was

hiher than the impact of interest rate chanes.

Ri( S(5in(> :e/(r Ayu6 ?#13; In their study researcher examined the impact of bank

specific indicators 'sset sie Aloarithm of total assets, :redit ;isk, !otal deposits to total

assets ratio and macroeconomic indicators interest rate, on the commercial banks(

profitability in 1akistan from )**< to )*#*. ;esearcher sed multiple reression model. !he

reression results accepted both hypotheses and showed that credit risk, interest rate

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Adiscount rate, total assets and !3 to !.' had sinificant impact on ;8E. :redit risk and

interest rate also had a sinificant influence on the ;8'.

Sy(fri?#1#; !his paper examined the factors that affected the profit ofcommercial banks in

Indonesia. !ype of data used is pollin data from commercial banks listed on the Indonesia

Stock Exchane beetween )**) and)*##. Bank profitability was measured by ;eturn on

'ssets A;8' as a function of banks specific determinants. 'nalysis techni>ue used was

poolin data reression model. !he empirical results showed that loan to toal assets, total

e>uity to total assets, loan loss provision to total loan had positive effect on profitability,

while inflation rate,

the sie of bank and cost@to@income ratio AB818 had neative effect on profitability.

Economic rowth and non interst income to totalassets had no effect on bank profitability.

u5(r A ?#1#;In this study researcher did a technical analysis for the same considerin

movment of stock and key indicators like beta, but what comes out at the end was that there

were still so many unnoticed factors :alculation 8f :apital 'ssets 1ricin "odal Acapm

which affected the share prices. From this study, we can conclude that the Indian economy is

standin on the stron foothold. !his can be attributed to lower interest rate, lower inflation

rate, hih forex reserves and favorable monetary and fiscal policy. !his study also hihlihted

the outlook for the bankin industry. !he passin of the securitiation bill had accelerated the

rowth for the bankin industry. Even the monetary policy had also been in favor of bankin

industry. ?owerin interest rates also affected the profitability of the banks. !he bankin

industry was now movin towards technoloy. 8verall, the outlook for the bankin industry

was also ood. From the last part of the study we can find that I:I:I bank, SBI, 23F: bank

and :orporation bank had stron fundamentals.

,/os/ Ariit > RoyS(5r(t > B(ndyo(d/y(y ,(ut(5> C/oud/uri ri(sind/u ?#11;

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In their study researchers tried to find out the relationship between BSE Sensex and some

other important economical factors and ot some interestin results related to this.

;esearchers had used statistical methods to do the analysis based on monthly basis database

of different economical factors. ;esearcher ot some relationships of those factors with BSE

Sensex. In their analysis researchers found that dollar price alon with Factor # i.e

UExternal ;eserve and Factor score )i.e UInflation induced variables were sinificantly

affectin BSE Sensex. In the context of Indian economy the appreciation of 3ollar brin in

more forein exchane reserve which acted as stimulant to foster rowth and in this process

the injection of capital flows affected Sensex. It is evident from the coefficient table that the

rise in the price of 3ollar has a positive impact on Sensex. ;esearcher sed multiple

reression model.!he sample included data of BSE Sensex, 8il prices, 0old price, :ash

;eserve ;atio, Food price inflation, :all money rate, 3ollar price, F 3 I, Forein 1ortfolio

Investment and Forein Exchane ;eserve AForex on monthly basis for the period from

/anM*% to "arM#*.

,ul Se/ris/> Irs/(d 2(i( > (5(n /(lid ?#11; In their study researchers investiated

the impact of bank@specific characteristics and macroeconomic indicators on bank(s

profitability in the 1akistan(sbanks for the )**&@)**9 periods.;esearcher sed multiple

reression model.Individual bank characteristicsAinternal and external factors considered as

determinants of bankprofitability in 1akistan. Banks with more e>uity capital, !otal 'ssets,

?oans, 3eposits and macro factors i.e., economic rowth, inflation and stock market

capitaliation were perceived to had more safety and such an advantae can be translated into

hiher profitability. For thispurpose, two hypotheses had been developed for analyin

bank(s profitability over specific determinants . It was hypothesied that states that

microeconomic factors have sinificant impact on profitability and states that external

factors of the banks havesinificant impact on the profitability. !he result shows that both

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hypotheses had accepted and had a sinificant impact onprofitability of the Bank(s in

1akistan.

C/i @in-> Trie D(9id oun- :(rtin ?#1;

It is expected that banks with sinificant forein business should be impacted by relative

chanes in the currency values of the forein countries where they do business. sin data

from /anuary #99% to "arch )**%, this study explored the relationship for the four major

'ustralian banks. :ontrary to expectations, no sinificant relationships between 'ustralian

bank stock returns and forein exchane rates were found, raisin >uestions as to the

efficiency of stock markets in reconisin banks( forein exchane exposures arisin from

their offshoreassets and business.

B. T/eoreti'(l des'rition

!heoretical description explain about macro factors such as old price dp, inflation and

other macro factors.1. ,old ri'es

8f all theprecious metals, oldis the most popular as an investment. Investors enerally buy

old as a way of diversifyin risk. !he old market is subject to speculationas are other

markets, especially throuh the use of futures contractsand derivatives. 0old price has shown

a lon term correlation with the price of crude oil.!his suests a reason why old is sold off

durin economic weakness.2('tors Affe'tin- T/e ,old Pri'e

(; Infl(tion

Inflation is rearded as the number one top factor affectin the price of old. Ce said

earlier that old didn(t have a practical business or personal use, but the one use it

does have is a retainer of value and wealth. !herefore it makes sense that in an

inflationary environment, where the value of paper currency is fallin in reards to

what other oods and services can be bouht with it, that people should want another

form of money Aold that 38ES retain its value.

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!he :1I A:onsumer 1rice Index is a measure trackin the price chane in a basket of

common household oods, and is intended to ive a ood feel of how much inflation

there is in an economy and impactin the averae urban civilian. !he :1I or cost of

livin index in most countries is tihtly controlled by overnments and miht not

include key spendin areas like food, enery, utilities, education and health P in the

attempt to curb concerns about inflation. !he 11I A1urchasin 1ower Index is a

similar tool but from a producer perspective. ;eardless of whether you look at the

total money supply, benchmarks like :1IH11I, or just subconsciously track prices

when shoppin or payin your bills P old is very likely to correlate directly in the

direction where eneral prices are headed and that also means down when there is

deflation.

6; Interest R(tes

Interest rates are another major indicator of where old prices are likely to o. 3urin

times of hih interest rates, capital is scarce and in hih demand and therefore a lare

premium is paid Ainterest to those willin to lend out their money. !his is a touh

competitive battle for old to win with its non@profit yieldin nature Aunless you(re in

the old leasin business, which private investors are not and therefore hiher

interest rates means lower old price Aneative correlation.

!he major economic data point to look out for is the federal funds rate released by the

F8": AFederal 8pen "arket :ommittee $ times per year in the nited States. !his

essentially sets a taret inter@bank lendin rate, which means that it either makes it

easier Acheaper or harder Amore expensive for banks to borrow money from each

other. 2iher interest rates would mean that if a bank were short on deposits to lend

out to people, it wouldn(t that easily be able to just borrow that necessary amount

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from another bank, and that would make increase the value of capital and

conse>uently the rates of return you et from that capital, and as mentioned earlier,

such an environment does not favour old.

'; US E'ono5y (nd t/e Doll(r

8ne of the major reasons why the S 3ollar became the favored reserve currency

around the world AV$&K of central bank reserves are in dollars is because durin a 4*

year stretch A#9#@#9%#, the dollar was the only form of paper money that was

backed by old. 1resident 6ixon closed this old@for@dollars window in #9%#, but by

then it was too late to do anythin about it. Everyone and everythin was already too

far invested in old P whether it(s the countries who had massive dollar reserves, or

oil which was priced in dollars, and other structural developments that would take

much pain to unravel. Besides the S was the world superpower, destined for

financial stability, so their paper was still as ood as old to many unsuspectin

stakeholders.

So basically the S dollar has taken the place of old and all its positive >ualities,

without there bein any form of old in the e>uation. !his naturally means that the S

dollar became a substitute for old, and a cheap one at that if you compare the

limitless paper the S overnment could conjure up vs the real limited availability of

old. But the reason old was valued in the first place was because of its rarity and

lack of counter@party risk, >ualities which paper money does not hold.

So in short, old will o up and down dependin on the apparent strenth of the S

economy and conse>uently the dollar P they are inversely correlated so when the

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dollar oes up the old price oes down. !here are several economic indicators to

watch out for that tells us of the strenth of the S dollar.

d; B(l(n'e of P(y5ents> B(l(n'e of Tr(de

!hese items look at the amount of money comin in and oin out of the country. If a

country produces lots of desirable oods, has ood investment prospects and sound

economy it(s trade balance is likely to be in surplus and its currency will be in hih

demand as holdin it provides lots of attractive possibilities. !he opposite would be a

deficit and a weakenin currency. 8ccasional deficits are acceptable, especially for a

developed country but sustainable periods of brinin in more value than shippin out

of the country will lead to currency devaluation. !his is what the nited States has

been dealin with in recent times A-&** billion trade deficit in )*#) and this not only

affects the dollar index aainst aainst other currencies, but affects the relative value

of old as well.

e; US De6t !he amount of money owed to other countries in the form of treasury bills

can affect the dollar, and conse>uently the old price in a number of ways. !here is

the impact it will have on the credibility of the dollar as a reserve currency worth

ownin P meanin if the S debt ets too bi and unmanaeable, then countries will

want to own it less in the risk of never seein that money aain. !he other impact of

debt is on inflation, and we(ve already talked about how that is a type of environment

that favors old. For example if all of 'merica(s creditors and purchasers of its debt

decide to cash in that money and decided to buy real oods and assets in the .S,

there will be an awful amount of dollars chasin few real physical items, and the

prices will shoot up.

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f; :inin- Suly of ,old

In contrast, supply contractions or new findins can also cause a chane in the price

of old. ;ecent old supply trends show that old is becomin harder and more

expensive to mine, which will have a upward pressure on the price as population

rowth and demand surpasses any new old supply.

-; De5(nd for ,old

's our old demand analysis showed, about 4&K of yearly old demand comes from

jewelry, 4&K from investment bullion, while #*K comes from industrial demand. If

for any reason one of these areas showed a reat sure in demand, then old prices

could rise followin the natural laws of supply and demand. Cith :hina and India

providin much of the fresh demand for old, the economic conditions of these

countries as well as any reulations, holidays, taxes that may be present should be

closely monitored.

#. Infl(tion

To put it simply, infation is the long term rise in the prices o goos an

ser!ices cause "y the e!aluation o currency# $hile there are

a!antages to infation %hich %ill iscuss later in this part, &rst ocus

on some o the negati!e aspects o infation#

Inflationary problems arise when we experience unexpected inflation which is not

ade>uately matched by a rise in people(s incomes. If incomes do not increase alon with

the prices of oods, everyone(s purchasin power has been effectively reduced, which can

in turn lead to a slowin or stanant economy. "oreover, excessive inflation can also

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wreak havoc on retirement savinsas it reduces the purchasin power of the money that

savers and investors have s>uirreled away.

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movement of each commodity individually. Based on this individual movement, the C1I

is determined throuh the averain principle. !he followin methods are used to

compute the C1I

7(seyres 2or5ul(

It is the weihted arithmetic mean based on the fixed value@based weihts for the base

period,

TenD(y Pri'e Inde*.

nder this method, Ysample pricesZ with hih intra@month fluctuations are selected and

surveyed every ten days throuh phone. tiliin the data retrieved by this procedure and

with the assumption that other non@surveyed Ysample pricesZ remain unchaned, a Yten@

day price indexZ is compiled and released.

C(l'ul(tion :et/od

"onthly price indexes are compiled by calculatin the simple arithmetic mean of three

ten@ day Ysample pricesZ in the month.

TenD(y Pri'e Inde*.

nder this method, Ysample pricesZ with hih intra@month fluctuations are selected and

surveyed every ten days throuh phone. tiliin the data retrieved by this procedure and

with the assumption that other non@surveyed Ysample pricesZ remain unchaned, a Yten@

day price indexZ is compiled and released. :alculation "ethod "onthly price indexes are

compiled by calculatin the simple arithmetic mean of three ten@day Ysample pricesZ in

the month.

#.# Consu5er Pri'e Inde* ?CPI;

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' consumer price index A:1I measures chanes in the price level of a market

basketof consumer oodsand servicespurchased by households.

!he :1I is a statistical estimate constructed usin the prices of a sample of representative

items whose prices are collected periodically. Sub@indexes and sub@sub@indexes are

computed for different cateories and sub@cateories of oods and services, bein

combined to produce the overall index with weihts reflectin their shares in the total of

the consumer expenditurescovered by the index. It is one of severalprice

indicescalculated by most national statistical aencies. !he annual percentae chane in a

:1I is used as a measure of inflation. ' :1I can be used to index Ai.e., adjust for the effect

of inflation the real value of waes, salaries, pensions, for reulatin prices and for

deflatin monetary manitudes to show chanes in real values. In most countries, the :1I

is, alon with the population censusand the S'6ational Income and 1roduct 'ccounts,

one of the most closely watched national economic statistics.

C(l'ul(tion

(; C(l'ul(tin- t/e CPI for ( sin-le ite5.

:urrent item price A- Abase year price G WA:urrent :1I H ABase year :1IX

or

Chere # is usually the comparison year and :1I#is usually an index of #**.

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'lternatively, the :1I can be performed

as . !he 5updated cost5 Ai.e. the price of

an item at a iven year, e.. the price of bread in )*#* is divided by the initial

year Athe price of bread in #9%*, then multiplied by one hundred.

6; C(l'ul(tin- t/e CPI for 5ultile ite5s

"any but not allprice indicesare weihted averaes usin weihts that sum to

# or #**.

Example !he prices of $&,*** items from )),*** stores, and &,*** rental units

are added toether and averaed. !hey are weihted this way 2ousin 4#.4K,

Food and Beverae #%.4K, !ransport #%.*K, "edical :are


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Chen the Federal ;eserve decides to put more money into circulation at a rate hiher

than the economy(s rowth rate, the value of money can fall because of the chanin

public perception of the value of the underlyin currency. 's a result, this devaluation

will force prices to rise due to the fact that each unit of currency is now worth less.

8ne way of lookin at the money supply effect on inflation is the same way collectors

value items. !he rarer a specific item is, the more valuable it must be. !he same loic

works for currency the less currency there is in the money supply, the more valuable

that currency will be.

Chen a overnment decides to print new currency, they essentially water down the

value of the money already in circulation. ' more macroeconomic way of lookin at

the neative effects of an increased money supply is that there will be more dollars

chasin the same amount of oods in an economy, which will inevitably lead to

increased demand and therefore hiher prices.

6; T/e N(tion(l De6t

2ih national debt in the .S. is a bad thin, but did you know that it can actually

drive inflation to hiher levels over time[ !he reason for this is that as a country(s

debt increases, the overnment has two options they can either raise taxes or print

more money to pay off the debt.

' rise in taxes will cause businesses to react by raisin their prices to offset the

increased corporate tax rate. 'lternatively, should the overnment choose the latter

option, printin more money will lead directly to an increase in the money supply,

which will in turn lead to the devaluation of the currency and increased prices .

'; De5(ndPull Effe't

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!he demand@pull effect states that as waes increase within an economic system

Aoften the case in a rowin economy with low unemployment, people will have

more money to spend on consumer oods. !his increase in li>uidity and demand for

consumer oods results in an increase in demand for products. 's a result of the

increased demand, companies will raise prices to the level the consumer will bear in

order to balance supply and demand. 'n example would be a hue increase in

consumer demand for a product or service that the public determines to be cheap. For

instance, when hourly waes increase, many people may determine to undertake

home improvement projects. !his increased demand for home improvement oods

and services will result in price increases by house@painters, electricians, and other

eneral contractors in order to offset the increased demand. !his will in turn drive up

prices across the board.

d; CostPus/ Effe't

'nother factor in drivin up prices of consumer oods and services is explained by an

economic theory known as the cost@push effect. Essentially, this theory states that

when companies are faced with increased input costs like raw oods and materials or

waes, they will preserve their profitability by passin this increased cost of

production onto the consumer in the form of hiher prices. ' simple example would

be an increase in milk prices, which would undoubtedly drive up the price of a

cappuccino at your local Starbucks since each cup of coffee is now more expensive

for Starbucks to make.

e; E*'/(n-e R(tes

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Inflation can be made worse by our increasin exposure to forein marketplaces. In

'merica, we function on a basis of the value of the dollar. 8n a day@to@day basis, we

as consumers may not care what the exchane rates between our forein trade

partners are, but in an increasinly lobal economy, exchane rates are one of the

most important factors in determinin our rate of inflation. Chen the exchane rate

suffers such that the .S. currency has become less valuable relative to forein

currency, this makes forein commodities and oods more expensive to 'merican

consumers while simultaneously makin .S. oods, services, and exports cheaper to

consumers overseas. !his exchane rate differential between our economy and that of

our trade partners can stimulate the sales and profitability of 'merican corporations

by increasin their profitability and competitiveness in overseas markets. But it also

has the simultaneous effect of makin imported oods Awhich make up the majority of

consumer products in 'merica, more expensive to consumers in the nited States.

3# 'ross (omestic )rouct *'()+

The monetary !alue o all the &nishe goos an ser!ices prouce

%ithin a countrys "orers in a speci&c time perio, though '() is

usually calculate on an annual "asis# -t inclues all o pri!ate an

pu"lic consumption, go!ernment outlays, in!estments an e.ports

less imports that occur %ithin a e&ne territory#

/C/ is eual to all pri!ate consumption, or consumer spening, in a

nations economy/G/ is the sum o go!ernment spening/I/ is the

sum o all the countrys "usinesses spening on capital/NX/ is the

nations total net e.ports, calculate as total e.ports minus total

imports# * .ports -mports+

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:et/od of Deter5inin- ,DP

(; T/e E*enditure Aro('/

!his method of determinin 031 adds up the market value of all domestic

expenditures made on final oods and services in a sinle year, includin

consumption expenditures, investment expenditures, overnment expenditures, and

net exports. 'dd all of the expenditures toether and you determine 031.

6; T/e Produ'tion Aro('/

!his method also called the 6et 1roduct or Jalue added method re>uires three staes

of analysis. First ross value of output from all sectors is estimated. !hen,

intermediate consumption such as cost of materials, supplies and services used in

production final output is derived. !hen ross output is reduced by intermediate

consumption to develop net production.

c T/e In'o5e Aro('/

!his method of determinin 031 is to add up all the income earned by households

and firms in the year. !he total expenditures on all of the final oods and services are

also income received as waes, profits, rents, and interest income. By addin toether

all of the waes, profits, rents, and interest income, you determine 031

!he three methods of measurin 031 should result in the same number, with some

possible difference caused by statistical and roundin differences. !he credibility of

data is always a sinificant concern in any form of research. 'n advantae of usin

the Expenditure "ethod is data interity. !he .S. Bureau of Economic 'nalysis

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considers the source data for expenditure components to be more reliable than for

either income or production components..

's such we will concentrate on the Expenditure 'pproach which is the most

commonly discussed method of representin 061 particularly in non@academic

examinations of economic activity.

031 as examined usin the Expenditure 'pproach is reported as the sum of four

components. !he formula for determinin 031 is : L I L 0 L A= @ " 031

: 1ersonal :onsumption Expenditures

I 0ross 1rivate Fixed Investment

0 0overnment Expenditures and Investment

= 6et Exports

" 6et Imports

Before movin forward in our discussion, it should be noted, the income approach is

atherin a rowin followin. !his is true particularly amon economic blos,

investment publications and cable news business prorams due to its concentration on

the importance of waes. 'n alternative method of calculatin 061 usin the Income

'pproach is Y;I1S'C.Z

!he mnemonic Y;I1S'CZ breaks down as follows 031 ; L I L 1 L S L ' L C

; rents

I interests

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1 profits

S' statistical adjustments Acorporate income taxes, dividends, undistributed

corporate profits

C waes

't this point, we could spend the next thousand words describin alternate means of

computin 061. Chile that miht be beneficial in its attempt to be exhaustive, for our

purposes what you need to remember is, in economics, there is rarely only one way to

develop and analye data

'dditionally, 031 is impacted by variables beyond economists( control such as the

economic health of our trade partners, monetary factors such as the value of the

dollar, restrictions in state and local overnments spendin to the subjective views by

consumers to business which influence their consumptionHinvestment choices.

&. Intern(tion(l tr(de

!he exchane of oods orservices alon international borders !his type of trade

allows for a reater competition and more competitivepricin in the market. !he

competition results in more affordableproductsfor the consumer. !he exchane of

oods also affects the economy of the world as dictated by supply and demand,

makin oods and services obtainable which may not otherwise be available to

consumers lobally.

2('tors Affe'tin- Intern(tion(l Tr(de

(; I5('t of Infl(tion

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If a country(s inflation rate increases relative to the countries with which it trades, its

current account will be expected to decrease, other thins bein e>ual. :onsumers and

corporations in that country will most likely purchases more oods overseas Adue to

hih local inflations, while the country(s exports to other countries will decline.

6; I5('t of N(tion(l In'o5e4

If a country(s income level Anational income increases by a hiher percentae than

those of other countries, its current account is expected to decrease, other thins bein

e>ual. 's the real income level Aadjusted for inflation rises, so does consumption of

oods. ' percentae of that increase in consumption will most likely reflect an

increased demand for forein oods.

'; I5('t of ,o9ern5ent Poli'ies4

' country(s overnment can have a major effect on its balance of trade due to its

policies on subsidiin exporters, restrictions on imports, or lack of enforcement on

piracy.

d; Su6sidies for E*orters4

Some overnments offer subsidies to their domestic firms, so that those firms can

produce products at a lower cost than their lobal competitors. !hus, the demand for

the exports produced by those firms is hiher as a result of subsidies.

"any firms in :hina commonly receive free loans or free land from the overnment.

!hese firms incur a lower cost of operations and are able to price their products lower

as a result, which enables them to capture a larer share of the lobal market.

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e; Restri'tions on I5orts4

If a country(s overnment imposes a tax on imported oods Aoften referred to as a

tariff, the prices of forein oods to consumers are effectively increased. !ariffs

imposed by the .S. overnment are on averae lower than those imposed by other

overnments. Some industries, however, are more hihly protected by tariffs than

others. 'merican apparel products and farm products have historically received more

protection aainst forein competition throuh hih tariffs on related imports.

In addition to tariffs, a overnment can reduce its country(s imports by enforcin a

>uota, or a maximum limit that can be imported. Tuotas have been commonly applied

to a variety of oods imported by the nited States and other countries.

f; 7(') of Restri'tions on Pir('y4

In some cases, a overnment can affect international trade flows by its lack of

restrictions on piracy. In :hina, piracy is very common individuals Acalled pirates

manufacture :3s and 3J3s that look almost exactly like the oriinal product

produced in the nited States and other countries. !hey sell the :3s and 3J3s on

the street at a price that is lower than the oriinal product. !hey even sell the :3s and

3J3s to retail stores. It has been estimated that .S. producers of film, music, and

software lose -) billion in sales per year due to piracy in :hina.

's a result of piracy, :hina(s demand for imports is lower. 1iracy is one reason why

the nited States has a lare balance@of@trade deficit with :hina. 2owever, even if

piracy were eliminated, the .S. trade deficit with :hina would still be lare.

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-; I5('t of E*'/(n-e R(tes4

Each country(s currency is valued in terms of other currencies throuh the use of

exchane rates, so that currencies can be exchaned to facilitate international

transactions.

". Une5loy5ent

nemployment occurs when people are without work and actively seekin

work. !he unemployment rateis a measure of the prevalence of unemployment and it

is calculated as a percentae by dividin the number of unemployed individuals by all

individuals currently in the labor force. 3urin periods of recession, an economy

usually experiences a relatively hih unemployment rate.'ccordin to International

?abour 8raniationreport, more than )** million people lobally or


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"+ rictional nemployment

Frictional unemployment occurs because of the normal turnover in the labor market

and the time it takes for workers to find new jobs. !hrouhout the course of the year

in the labor market, some workers chane jobs. Chen they do, it takes time to match

up potential employees with new employers. Even if there are enouh workers to

satisfy every job

8penin, it takes time for workers to learn about these new job opportunities, and for

them to be considered, interviewed and hired.

Chen :indy raduates from collee, she beins lookin for work. ?et+s say it takes

her four months to land a new job. 3urin this time, she is frictionally unemployed.

c+ tructural nemployment

?et+s talk about structural unemployment occurs because of an absence of demand for

a certain type of worker. !his typically happens when there are mismatches between

the skills employers want and the skills workers have. "ajor advances in technoloy,

as well as findin lower costs of labor overseas, lead to this type of unemployment.

%. E*'/(n-e r(te

;ateat which one currencymay be converted into another. !he exchane rateis used

when simply convertin one currency to another Asuch as for the purposes of travel to

another country, or for enain in speculation or tradin in the forein exchane

market.!here are a wide variety of factorswhich influence the exchane rate, such as

interest rates,inflation, and the state of politics and the economyin each country, also

called rate of exchane or forein exchane rate or currency exchane rate.

Deter5in(nts of E*'/(n-e r(te 4(; Differnti(l in Infl(tion

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's a eneral rule, a country with a consistently lower inflation rate exhibits a risin

currency value, as its purchasin power increases relative to other currencies. 3urin

the last half of the twentieth century, the countries with low inflation included /apan,

0ermany and Switerland, while the .S. and :anada achieved low inflation only

later. !hose countries with hiher inflation typically see depreciation in their currency

in relation to the currencies of their tradin partners. !his is also usually accompanied

by hiher interest rates

b Differenti(ls in Interest R(tes

Interest rates, inflation and exchane rates are all hihly correlated. By manipulatin

interest rates, central banksexert influence over both inflation and exchane rates, and

chanin interest rates impact inflation and currency values. 2iher interest rates

offer lenders in an economy a hiher return relative to other countries. !herefore,

hiher interest rates attract forein capital and cause the exchane rate to rise. !he

impact of hiher interest rates is mitiated, however, if inflation in the country is

much hiher than in others, or if additional factors serve to drive the currency down.

!he opposite relationship exists for decreasin interest rates @ that is, lower interest

rates tend to decrease exchane rates.

c CurrentA''ount Defi'its

!he current accountis the balance of trade between a country and its tradin partners,

reflectin all payments between countries for oods, services, interest and dividends.

' deficitin the current account shows the country is spendin more on forein trade

than it is earnin, and that it is borrowin capital from forein sources to make up the

deficit. In other words, the country re>uires more forein currency than it receives

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throuh sales of exports, and it supplies more of its own currency than foreiners

demand for its products. !he excess demand for forein currency lowers the country+s

exchane rate until domestic oods and services are cheap enouh for foreiners, and

forein assets are too expensive to enerate sales for domestic interests.

d Ter5s of Tr(de

' ratio comparin export prices to import prices, the terms of trade is related to

current accounts and thebalance of payments. If the price of a country+s exports rises

by a reater rate than that of its imports, its terms of trade have favorably improved.

Increasin terms of trade shows reater demand for the country+s exports. !his, in

turn, results in risin revenues from exports, which provides increased demand for the

country+s currency Aand an increase in the currency+s value. If the price of exports

rises by a smaller rate than that of its imports, the currency+s value will decrease in

relation to its tradin partners.

e Politi'(l St(6ility (nd E'ono5i' Perfor5(n'e

Forein investors inevitably seek out stable countries with stron economic

performance in which to invest their capital. ' country with such positive attributes

will draw investment funds away from other countries perceived to have more

political and economic risk. 1olitical turmoil, for example, can cause a loss of

confidence in a currency and a movement of capital to the currencies of more stable

countries.

!. Interest r(te

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'n interest rate is the rate at which interest is paid by borrowers Adebtors for the use

of money that they borrow from lenders Acreditors. Specifically, the interest rate is a

percentae of principal paid a certain number of times per period for all periods

durin the total term of the loan or credit. Interest rates are normally expressed as a

percentae of the principal for a period of one year, sometimes they are expressed for

different periods like for a month or a day. 3ifferent interest rates exist parallelly for

the same or comparable time periods, dependin on the default probability of the

borrower, the residual term, the payback currency, and many more determinants of a

loan or credit. For example, a company borrows capital from a bank to buy new assets

for its business, and in return the lender receives rihts on the new assets as collateral

and interest at a predetermined interest rate for deferrin the use of funds and instead

lendin it to the borrower. ' commercial bank can usually borrow at much lower

interest rates from the central bank than the rate at which companies can borrow from

the commercial bank.

Interest@rate tarets are a vital tool of monetary policyand are taken into account

when dealin with variables like investment, inflation, and unemployment. !he

central banksof countries enerally tend to reduce interest rates when they wish to

increase investment and consumption in the country+s economy. 2owever, a low

interest rate as a macro@economic policy can be riskyand may lead to the creation of

an economic bubble, in which lare amounts of investments are poured into the real@

estate market and stock market. In developed economies, interest@rate adjustments are

thus made to keep inflation within a taret rane for the health of economic activities

or cap the interest rate concurrently with economic rowth to safeuard economic

momentum.

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Re(sons for interest r(te '/(n-es 4

(; Politi'(l s/ortter5 -(in ?owerin interest rates can ive the economy a short@run

boost. nder normal conditions, most economists think a cut in interest rates will only

ive a short term ain in economic activity that will soon be offset by inflation. !he

>uick boost can influence elections. "ost economists advocate independent central

banks to limit the influence of politics on interest rates.

6; Deferred 'onsu5tion Chen money is loaned the lender delays spendin the money

on consumptionoods. Since accordin to time preferencetheory people prefer oods

now to oods later, in a free market there will be a positive interest rate.'; Infl(tion(ry e*e't(tions "ost economies enerally exhibit inflation, meanin a

iven amount of money buys fewer oods in the future than it will now. !he borrower

needs to compensate the lender for this.d; Altern(ti9e in9est5ents !he lender has a choice between usin his money in

different investments. If he chooses one, he foroes the returns from all the others.

3ifferent investments effectively compete for funds.e; Ris)s of in9est5ent !here is always a risk that the borrower will o bankrupt,

abscond, die, or otherwise defaulton the loan. !his means that a lender enerally

chares arisk premiumto ensure that, across his investments, he is compensated for

those that fail.f; 7iuidity referen'e 1eople prefer to have their resources available in a form that

can immediately be exchaned, rather than a form that takes time to realie.-; T(*es Because some of the ains from interest may be subject to taxes, the lender

may insist on a hiher rate to make up for this loss./; B(n)s Banks can tend to chane the interest rate to either slow down or speed up

economy rowth. !his involves either raisin interest rates to slow the economy

down, or lowerin interest rates to promote economic rowth

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i; E'ono5y Interest rates can fluctuate accordin to the status of the economy. It will

enerally be found that if the economy is stron then the interest rates will be hih, if

the economy is weak the interest rates will be low.

!his chapter helped the researcher in understand the previous literature and helped in

understandin the meanin of old prices, inflation and 031. It also covered the various

factors which affect old prices and inflation. In this chapter method of determinin 031

were also included which helped the researcher.

CHAPTER3

DATA PRESENTATION AND ANA7SIS

!his chapter is divided into two parts i.e. the data presentation and the data analysis. !he data

presentation part deals with the presentation of data throuh Bar chart. In data analysis part,

the data is analye throuh correlation and reression analysis.

A. D(t( Present(tion

In this section, each parameter of macro factors and BSE bankex has been taken separately 7

discussed in detail.

41


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1. ,old R(te

2009 2010 2011 2012 2013 20140

5000

10000

15000

20000

25000

30000

35000

14500

18500

26400

31799

28422 27996

Gold Prices

'ol )rices

:;uested variables entered.

:odel Su55(ry"odel ; ; S>uare 'djusted ; S>uare Std. Error of the

Estimate

# .%$&a .uares 3f "ean S>uare F Si.

#;eression 4%


47/52

have %$.&K influences on the bse bankex . In this case the value of r) is .


48/52

!his chapter includes the findins of the study drawn on the basis of data presented and

analyed in earlier chapter, the limitations of the study and the suestions and scope for

further study.

A. 2indin-s of t/e Study

!he main findins of the study were

(; ,old ri'es ? G .%


49/52

a !he study only considered old prices, Inflation Ameasured in terms of C1I ,031

and BSE Bankex other macro factors were not considered for the present study.

b !he study was based on secondary data no primary data had been used for the

present study.

c !he study was only confined to a limited period of six years data i.e. from )**9 to

)*#4.

C. Su--estions (nd S'oe for 2urt/er Study

a It is hoped that the findins of the study would be of interest to future researchers.

b Further, the scope of the study can be widened by usin the more macro factors.

!he chapter explained the findins and limitation of study and the researcher found that there

was a positive impact of macro factors on bse bankex. In the last suestion and future scope

of study was detailed.

CHAPTER"

49


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RECO::ENDATIONS

!his chapter talks about the recommendations made by the researcher based on the analysis

of the data and the findins of the data.

#. ;ecommendations of the Study

a 8ther macro factors should include for the study, macrofactors like exchane rate,

unemployment rateand consumer price index.

b Investor has to look other macro factors too.

2ence, this chapter explained the various recommendations made by the researcher.

BIB7IO,RAPHFRE2ERENCES

50


51/52

1. 'I02EDISI 8ienbe Scott and E38;E /ulius 8vuefeyen A)*#4 YEffects of

economic openness and Inflation on commercial Banks profitability 1anel data

evidence from 6ieria, post Bankin sector consolidation..Z European Journal of

Business and Management,Jol.%, 6o.*, )*#4 ,pp. $%@9%.

2. 'nkit katrodia A )*#) , Y;esearch paper on bankex.Z Indian journal of research.,

Jol.1,pp uity Bank limited.Z Journal of Economics

and Sustaina$le%eelopment,Jol.", 6o.#, )*#4, pp 4< @&


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#*. "uhammad Sajid SaeedA )*#4, YBank related, industry Prelated and macroeconomic

factors affectin Bank profitability ' case of the nited Nindom.Z *esearch

Journal of (inance and"ccounting, Jol.", 6o.#, )*#4, pp. 4) @ &*

11. 188/' SI602 A)*#4, Y'n Emprical relationship between selected Indian stock

market indices and macroeconomic indicators.Z International Journal of *esearch in

BusinessManagement,Jol. #, Issue 9, Sep )*#4, $#@9)#). ;enu 0hoshA)*#, Y;elationship between interest rate chanes and Bankin stock

market returns in up@market an d down market situation.Z "sian Journal of

Multidisciplinar! Studies, Jolume1, Issue , )*#, pp. #)$ @#4

relationship between macro factors and bse bankex

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