A study on impact of rupee devaluation in

indian stock market with reference to BSE

SENSEX
Introduction :Established in 1875,BSE Ltd.(formerly know as Bombay stock
exchange Ltd). IS Asias first stock exchangeand one of india s leading
exchange groups. Over the past 137 years. BSE has facilitated the
growth of the indian corporate sector by providing it an efficient capital
rising platform.popularly known as BSE.the bourse was established as
The Native Share&Stock brokers association in 1875.
BSEis corporatized and demutualised entity. With abroad share holder
base which includes two leading global exchange . deutsche bourse and
singapore exchange as a strategic partners. BSE provide efficient and
transparent
for
trading
in
equity,
debt
instruments,derivatives,mutualfunds. It also as a platform for trading in
equities of small and medium enterprises. More than 7000 companies
are listed on BSE making it worlds No. 1 exchange in terms of listed
members.
BSE also provides a host of other services to capital market paticipant
including risk management,clearing,settlement,market data services and
educatio . it has a global reserch with customer around the world and
nation wide presence.BSE system and process are designed to safe
guard market integrity,drive the growth of the indian capital market and
stimulate innovation and competition across all market segments.BSE is
the first exchange in india and second in the world to obtain an ISO
9001:2000 certification . it is also the first exchange in the country and
second in the world to receive information security management system

standard BS 7799-2-2002 certification for its on- line trading system

(BOLT). It operates one of the most respected capital market educational
institutes in the country (the BSE institute Ltd.). BSE also provides
depository services through its central depository services ltd services.

BSE s popular equity index the S&P BSE SENSEX - is indias most
widely tracked stock market benchmark index . it is traded
internationally on the EUREX as well as leading exchange of the BRCS
nations (Brazil,Russia,and china ,southafrica ).BSE has own several
awards and recognizations that acknowledge the work done and progress
made like the golden peacock Global CSR award for its initiatives in
corporate social responsibility, NASSCOM -CNBC-TV18 s IT user
award s,2010 in financial service category, skoch virtual corporation
2010 Award in the BSE STAR MF category and responsibility Award by
world council of corporate governance. Its recent milestones include the
launching of BRICSMART indices derivatives ,BSE-SME exchange
platform, S&P BSE GREENEX to promote investment in green
india .Affects Stock Prices :Stock market prices are affected by
business fundamentals company and world events,human psychology,
and much more stock trading is driven by psychology just as much as it
is by business fundamentals ,belive it or not . fear and greed are the two
of strongest human emotions that affect the market .for example it is to
get caught in the trap of selling of stock permturely because it dipped
temporarily and fear set in . on the other hand ,it is also easy to miss out
on a respectable gain because greed was telling you to hold out or more,
and then the stock drops back down.

one of the main business factor in determining a stocks prices is a

compny s earning including the current earnings and estimated future
earnings. news from the company and other national and world events
also plays a large role the direction of stock market .some examples of
this are oil prices ,inflation and terrorist attacks.
every analyst and trader has a different perception of what that stock
price should be now and where it might be in the future and trading
decisions are made accordingly.
Bad News or "Good" Bad News?
Layoffs
This is usually good for the company and its stock price because
expenses will be reduced significantly and quickly. This should help
increase earnings right away. It is not always a major warning sign; it
could just be a reaction to a slower economy. It is one of the quickest
ways a company can cut expenses if sales have not been meeting
expectations.

Store Closings
This event often causes the stock price to go up for the same reasons as
layoffs. However. this is not always the case. Closing stores actually
requires a lot of money, and the positive effects of it do not take place
immediately. This could be a sign that the company is truly in trouble at
the moment. They probably have lower sales and higher expenses than
they want, possibly due to a slowdown in the industry or the overall
economy. The good news is that their management is being pro-active
about maintaining profitability. Unfortunately, the stock price may go
down for the next few months.
Firing of CEO or Company Official
This may sound very negative at first, but it does show that the
company's board of directors was bold enough to take drastic actions to
help the company in the long run. The stock price could go up or down
after this announcement, depending on the situation. In some cases this
event could be a sign of corruption that reaches beyond these individuals
and there could be more negative announcements to come.
Market Scandals
Trader tend to frown upon corruption in the stock market. Mutual fund
scandals that have occurred in the past few years and corporate
corruption such as Enron are two such examples. If people cannot trust
the stock market. why would they investtheir hard-earned money in it?
In these situations it is harder for the market to go up because there is a
lower demand for stocks.
Analyst Recommendations
Many traders rely on experts' opinions about companies and future stock
prices. Are they always correct? Of course not. Nobody can predict what

will happen in the future. They can, however. make educated guesses
based on past performances and future prospects for the companies and
industries they follow.
Round Numbers
Traders often like nice round numbers for their perceived stock price,
such as $10.00 or $35.00. It is common for prices to settle near these
round numbers, at least briefly. Also, many traders place automatic buy
or sell orders right near these round numbers, causing the stock price to
become slightly erratic when it first reaches that target.
Technical Analysis
One of the most popular methods for helping predict a .stock's price, at
least in the short term, is called Technical Analysis. This method
involves looking for patterns or indicators in stock prices, volumes,
moving averages, and many others, over time. Obviously nobody can
predict the future but this method can be effective in many cases because
human beings are somewhat predictable. For example, when people see
a stock start falling dramatically they often panic and sell their positions
without investigating what caused the fall. This causes even more people
to sell their shares and this often leads to an "overshoot" of the stock
price. If you believe the price went too far down you can try to buy it at
the bottom and hope that it will come back up to a more reasonable
level.
Another common example involves Moving Averages. Man)
traders like to chart the 50-day and 200-day moving averages of their
stock prices along with the prices themselves. When they see the current
price cross over one of these Moving Averages on the charts it can be an

indicator of a change in a long-term trend and it may be time to buy (or

sell) the stock.
Fundamental analysis :
Is a term for several methods of forecasting the market value of a
company and movement of FX rates based on the analysis of financial
and production indicators. Fundamental factors have a significant
impact. but they do not give hundred-percent guarantee of the desired
changes in quotations. Before openimg a position it is necessary to
examine the trends and only then decide in which direction it is better to
open position When working in the financial markets technical and
fundamental analyses are used. Both types of analyses try to predict the
future movement of prices. The difference between them is that
fundamental analysis looks at the market in terms of the economy than
from the standpoint of the functioning of the market (technical analysis).
The school of fundamental analysis of the market came into existence
during development of the applied economic science. It has taken
knowledge of the macro-economic life of society and its impact on
prices of specific goods as a base. The main task of the school of
fundamental analysis is to develop and forecast new trends in price
movements, therefore, a purpose of fundamental analysis is an analysis
and prediction of fundamental factors and their impact on price trends.

The concept of a currency rate and the basic concepts.

Exchange rate is the value of the currency of one country expressed in
the currency of the other country, precious metals, securities.
Types of exchange rates are the following:
By control method:
fixed exchange rate:
flexible exchange rate:
floating exchange rate:
By type of the market:

current rate SPOT (TOD i TOM):

forward rate;
futures rate:
market and the weighted average rate.

Outwardly. the exchange rate is the coefficient recalculation of one

currency in the other determined by the ratio of supply and demand in
the foreign exchange market. However, the cost basis of the exchange
rate is the purchasing power of currencies expressing the national
average prices of goods. services. investment. This economic category is
intrinsic to commodity production and expresses productive
relationships between producers and the world market. As the cost is a
comprehensive expression of economic conditions of commodity
production, then comparability of national currencies of various
countries is based on the value ratio, which is made up during process of
production and exchange. Producers and buyers of goods and services
using the exchange rate of national prices compare with prices in other
countries. As a result of the comparison, the extent of the benefits of the
development of production in the country or external investment is

exposed. No matter how the law of value is distorted, the exchange rate
is subject to its action, and expresses correlation of the national and
world economy, where the actual ratio of exchange rates is reflected.
When selling products on the world market, a product receives public
recognition based on international measures of value. Thus, the
exchange rate mediates absolute exchange products in the world
economy. The cost basis of the exchange rate is due to the fact that
international prices of production, Which are the base for the world
prices. osounded on the national prices of production in the countries
that are major suppliers to the world market.
The exchange rate is needed for:
Mutual exchange of currencies for trade in goods, services, capital
movements and credits. Exporter exchanges the proceeds in
foreign currency exchanges Ibr the national one as currencies of
other countries cannot be treated as purchasing and payment means
on the territory of the state. Importer exchanges a foreign currency
to pay for the goods purchased abroad. Debtor buys a foreign
currency to repay the national debt and interest payments on
external loans;
Compare of prices of the world and national markets as well as the
cost parameters of different countries, expressed in the national or
foreign currencies;
periodic reassessment of the company and bank accounts in
foreign currencies.
The exchange rate regime
Is the way a country manages its currency in respect to foreign
currencies and the foreign exchange market. It is closely related to

monetary policy and the two are generally dependent on many of the
same factors. There are administrative and market regimes.
The administrative regime Is in the plural form of exchange rates, i.e.
it is existence of differentiated exchange ratios for different types of
currency transactions, commodity groups and regions. The
administrative regime is used as a stabilization step during a crisis to
reduce inflation and to accumulate gold and currency reserves.
Introduction of administrative regime is an temporary step towards the
normalization of the economic situation in the country and the transition
to market conditions of forming exchange rate. For the first time such a
regime was used during the economic crisis of 1929-1933.

The Market regime is divided into three types:

Fixed regime. It is a regime in which countries have a pegged or fixed
rate. Such countries fix the value of its currency ith no possibility of
rejection or with very narrow limits (less than 1%) of such deviations
from the other or combine currency . Leaders in the list of standard rates
to which the national currency is tied. are the U.S. dollar and euro. As an
example of 100% fixation is the European 11nion. They have fixed the
exchange rates of their national currencies within the Eli relative to other
currencies and euro as of the last business day in 1998 and adhered to
the exchange ratio till the final adoption of euro.as A regime in which
countries have limited flexibility of exchange rates. It is such a regime,
when officially specified ratios between the national currencies which
allow minor fluctuations are formed. The currency-corridor regime
belongs to this type. i.e. forming the limits of currency fluctuations in
order to stabilize the monetary system. A regime with high flexibility of

the courses. Exchange rates can move freely, changing under the
influence of factors of supply and demand, etc. Such a regime has
subcategories:
Free float (freely fluctuating);
Managed floating (managed fluctuating);
Exchange rate that is periodically adjusted.
Factors that affect exchange rates.
Like any price, the exchange rate deviates from the cost basis - the
purchasing power of currencies under the influence of supply and
demand of currency. The ratio of the supply and demand depends on
several factors. It reflects connections with other economic categories cost, price, money, interest, balance of payments, etc. There is a complex
of interweaving and nomination of decisive factors. Among them are the
following.
The rate of inflation
The ratio of currency in their purchasing power (purchasing power pail))
sen cs as a kind of axis of the exchange rate reflecting the law of\ alue.
That's wh) the rate of inflation has an impact on the exchange rate. All
other things being equal. the inflation rate in the country has inversely
proportional impact on the value of national currency. i.e. an increase in
inflation in the country leads to a reduction in the national currency. and
vice versa. Inflationary depreciation of money in the country reduces the
purchasing power and a tendency to a drop in their currency's exchange
rate against currencies of countries where the rate of inflation is lower.
Alignment of the 'exchange rate and adjustment to purchasing power
parity are occurred within two years. This is because the daily quotation
of exchange rates is not corrected on the basis of their purchasing power,
and there are other factors of forming of exchange rates.

The balance of payments.

Balance of payments directly affects the value of the exchange rate.

Thus, the active balance of payments improves the national currency as
the demand from foreign debtors increases. The passive balance of
payments leads to a tendency to a decrease in the national currency's
exchange rate as domestic debtors try to sell everything using a foreign
currency to repay their external obligations. The size of the impact of
balance of payments on the exchange rate is determined by the degree of
openness of the economy. Thus, the higher the share of exports in gross
national product (the higher the openness of the economy), the higher
the elasticity of the exchange rate. In addition, the exchange rate affects
economic policy of the state in components of the balance of payments:
current account and capital account. For example, the effect of changes
in tariffs, import restrictions, trade quotas, export subsidies has an
impact on the trade balance. When the positive balance of trade is on the
advance there is an increase in the demand for the currency of the
country that raises its rate, and in case of negative balance the reverse
process occurs. Movement of short-term and long-term capital depends
on the level of domestic interest rates, restrictions or encourage of
import and export of capital. Changes in the balance of capital have an
impact on the currency, which is similar to the trade balance by its mark
(plus or minus). However, there is a negative influence of excessive
short-term capital inflows into the country on the rate of its currency
because it can increase the Acess money supply, which, in turn, may lead
to higher prices and the depreciation of the currency.

The difference in intrest rates in different countries

The influence of this factor on the exchange rate is explained by two
many factors. First. changes in interest rates in a county) affect. all else
being equal. international capital flows, especially short-term ones. In
principle. an increase in the interest rate stimulates the inflow of foreign
capital and its cutting promotes the reduction of outflow of capital.
including national. That is why in a country with higher interest rates
capital comes into. the demand for its currency increases. and it becomes
expensive. The movement of capital, especially speculative "hot" money.
increases instability of the balance of pa) ments. Secondly. interest rates
affect the operation of foreign exchange markets and money markets.
When executing transactions, banks take into account the difference in
interest rates on national and global capital markets with a view of
deriving of profit. They prefer to get cheaper loans in foreign money
markets, where rates are lower, and place foreign currency on the
domestic credit market, if its interest rates are higher. On the other hand,
the nominal increase in interest rates in the country reduces the demand
for domestic -currency as receipt of credits becomes expensive for
business. In case of taking out a loan, an entrepreneur increases the cost
of their product that. in turn, leads to higher prices for goods inside the
country. This relatively devalues the national currency against a foreign
one.

Activities of foreign exchange markets and speculative

currency transactions.

If the rate of a currency tends to decline firms and banks sell it for a
more stable currency and it worsens the position of weakened currency.
Currency markets react quickly to changes in the economy and politics,
fluctuations in exchange ratios. In doing so, they increase opportunities
of currency speculations and spontaneous movement of money

The degree of confidence in the national and world currency

markets.
It depends on the economy and political situation in the country as
well as the factors indicated above which affect the exchange rate.
Dealers take into account not only the rate of economic growth,
inflation, the purchasing power of currencies, the balance of demand and
supply of currency, but the prospects of their dynamics. Sometimes,
even the expectation of the publication of official data on the trade
balance and the balance of payments or election results affects the ratio
of supply and demand and currency rate. Sometimes, in the currency
market there is a change of priorities in favor of political news, rumors
of resignations of ministers, etc.
The monetary policy.
The ratio of market and state regulation of the exchange rate affects its
dynamics. The formation of the exchange rate on foreign exchange
markets through the mechanism of demand and supply of currency is
usually accompanied by sharp fluctuations in exchange relations. Real
exchange rate forms in the market which is an indicator of the economy.
money. finance. credit and confidence in a certain currency. State

regulation of the exchange rate is aimed at its raising or lowering on the

basis of the purposes of monetary and economic policy.
National income is not an independent component that can change
itself.
However, in general. the factors which lead to changes in the national
income have a great impact on the exchange rate. Thus. an increase in
the supply of products enhances the exchange rate, while increases in
domestic demand reduce its rate. In the long run. a higher national
income means higher value of the currency of the country.

Market factors.
These factors can significantly change the value of currency at short
intervals. Thus, the overall expectations for future economic growth,
changes in fiscal and foreign trade deficits directly affect the exchange
rate. In addition, the foreign exchange market participants' expectations
have a significant impact on the value of the exchange rate. Seasonal
peaks and downs of business activity in the country have a significant
impact on the rate of national currency.
FIXING THE VALUE OF THE CURRENCY IS DUNE IN WHAT
BASIS :
Internal Developments
Developments that can occur within companies will affect the price of
its stock, including mergers and acquisitions, earnings reports, the
suspension of dividends, the development or approval of a new
innovative product, the hiring or firing of company executives and

allegations of fraud or negligence. Stock price movements will be most

drastic when these internal developments are unexpected.
World Events
company stock prices and the studk market in general can be affected by
world events such as war and civil unrest, natural disasters and
terrorism. These influences can be direct and indirect. and they.often
occur in chain reactions. The social uncertainty and fear generated by the
terrorist attacks on Sept. I I. 2001. affected markets directly as they
caused many investors in the United States to trade less and to focus on
stocks and bonds vdth less risk. An example of an indirect influence on
markets is the announcement of a new military venture by a country in
response to the outbreak of civil unrest or conflict abroad. This
announcement likely would cause the price of the stocks of military
equipment and weapons manufacturers to rise due to an expected
increase in defense. contracts. hich in turn can raise the value of stocks
for companies that supply military equipment parts and technology. It
likely would raise the demand for, and price of, natural resources used to
make these parts, which would raise the price of stocks representing
particular mining and natural resource processing companies.

Inflation and Interest Rates

One of the more predictable influences of the stock market are periodic
adjustments of interest rates by the U.S. Federal Reserve to combat
inflation. When interest rates are raised, many investors sell or trade
their higher risk stocks for government-backed securities such as bonds
to take advantage of the higher interest rates they yield and to ensure that
their investments are protected.

Exchange Rates
Foreign currency rates have a direct impact on the price and value
of stocks in foreign countries, and changes in exchange rates will
increase or decrease the cost of doing business in a country, which
will affect the price of stocks of companies doing business abroad.
While long-term movements in exchange rates are affected by
fundamental
Market forces of supply and demand and purchase price parity,
short-term movements are driven by news, events and futures
trading and are difficult to predict.
Hype
Stocks and the stock market also can be affected by hype about a
company or the release of new products or services.
Many people and organizations have an interest in promoting
particular stocks and industries to increase the value of their own
shares and profits. and positive financial reports and stock market
newsletters. Internet blogs. press releases and news reports can
build high expectations for the performance of companies. which
will raise the price of their stocks.
This can occur even when the hype has no foundation in truth:
investors are wise to consider peoples reaction to hype rather than
analyze the merits of the positive promotion.rnrnll)pe (and its
opposite) can be advanced by respected stock market authorities
such as Warren Buffet, Peter Lynch and hedge fund investor and
financial speculator George Soros; such is the respect given to
these individuals skill and past success that they sometimes can

affect the movement of markets by simply suggesting that

developments might occur.
The foreign exchange market (forex, FX, or currency market):
Is a global decentralized market for the trading of currencies. The
main participants in this market are the larger international banks.
Financial centers around the world function as anchors of trading
between a wide range of multiple types of buyers and sellers around the
clock, with the exception of weekends. The foreign exchange market
determines the relative values of different currencies.111 The foreign
exchange market works through financial institutions, and it operates on
several levels. Behind the scenes banks turn to a smaller number of
financial firms known as "dealers." who are actively involved in large
quantities of foreign exchange trading. Most foreign exchange dealers
are banks, so this behind-the-scenes market is sometimes called the
"interbank market", although a few insurance companies and other kinds
of financial firms are involved. Trades between foreign exchange dealers
can be very large, involving hundreds of millions of dollars.1"i" needed'
Because of the sovereignty issue when involving two currencies, Forex
has little (if any) supervisory entity regulating its actions.
The foreign exchange market assists international trade and investments
by enabling currency conversion. For example, it permits a business in
the United States to import goods from the European Union member
states, especially Eurozone members, and payeuros, even though its
income is in United States dollars. It also supports direct speculation and
evaluation relative to the value of Market 11M currencies, and the carry
trade. speculation based on the interest rate differential between two
currencies.

In a typical foreign exchange transaction. a party purchases some

quantity of one currency by paying for some quantity of another
currency. The modern foreign exchange market began forming during
the 1970s after three decades of government restrictions on foreign
exchange transactions (the Bretton Woods system of monetary
management established the rules for commercial and financial relations
among the world's major industrial states after World War(II). when
countries gradually switched to floating exchange rates from the
previous exchange rate reeime. which remained fixed as per the Bretton
Woods system.
The foreign exchange market is unique because of the following.
characteristics:
Its huge trading volume representing the largest asset class in the world
leading to high liquidity;
Its geographical dispersion;
Its continuous operation: 24 hours a day except weekends, i.e.,
trading from 22:00 GMT on Sunday (Sydney) until 22:00 GMT
Friday (New York):
The variety of factors that affect exchange rates;
The low margins of relative profit compared with other markets of
fixed income; and ;
The use of leverage to enhance profit and loss margins and with
respect to account size.
As such. it has been referred to as the market closest to the ideal of
perfect competition, notwithstanding currency intervention by
central banks. According to the Bank for International Settlements,
the preliminary global results from the 2013 Triennial Central
Bank Survey of Foreign Exchange and OTC Derivatives Markets
Activity show that trading in foreign exchange markets averaged

$5.3 trillion per day in April 2013. This is up from $4.0 trillion in
April 2010 and $3.3 trillion in April 2007. Foreign exchange swaps
were the most actively traded instruments in April 2013, at $2.2
trillion per day, followed by spot trading at $2.0 trillion. 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:
History
Currency trading and exchange first occurred in ancient times Moneychanging people. people helping others to change mono and also taking
a commission or charging a fee were lip ing in the times of the talmudic
writings (Biblical times). these people (sometimes called "kollybistes")
used city-stalls. at least times the temples Court of the Gentiles instead.
Money-changers were also in more recent ancient times silver-smiths
and, or. gold-smiths During the fourth century. the Byzantium
government kept a monopoly on the exchange of currency. Currency and
exchange was also a vital and crucial element of trade during the ancient
world so that people could buy and sell items like food, pottery and raw
materials. If a Greek coin held more gold than an Egyptian coin due to
its size or content, then a merchant could barter fewer Greek gold coins
for more Egyptian ones. or for more material goods. This is why the vast
majority of world currencies are derivatives of a universally recognized
standard like silver and gold. Medieval and later

During the fifteenth century the Medici family were required to open
banks at foreign locations in order to exchange currencies to act on
behalf of textile merchants. To facilitate trade the bank created the nostro
(from Italian translated "ours") account book which contained two
columned entries showing amounts of foreign and local currencies,
information pertaining to the keeping of an account with a foreign bank.
During the 17th (or 18t) 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
Alex. Brown & Sons traded foreign currencies exchange sometime
about 1850 and was a leading participant in this within U.S.A. During
1880 J.M. do Espirito Santo de Silva (Banco Espirito e Comercial de
Lisboa) applied for and was given permission to begin to engage in a
foreign exchange trading business.
The year 1880 is considered by at least one source to be the beginning of
modern foreign exchange, significant for the fact of the beginning of the
gold standard during the year.
Prior to the First World War there was a much more limited control of
international trade. Motivated by the outset of war countries abandoned
the gold standard monetary system.
Modern to post-modern I mill 1899 to 1913. holdings of countries'
toreign exchange increased at an annual rate of while holdings of gold
increased at an annual rate of 6.3% between 1903 and 1913. At the time
of the closing of the year 1913. nearly half of the world's foreign
exchange was conducted using the Pound sterling. The number of
foreign banks operating w ithin the boundaries of London increased in
the years from 1860 to 1913 from 3 to 71. 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. Between

1919 and 1922 the employment of foreign exchange brokers within
London increased to 17. in 1924 there were 40 firms operating for the
purposes of exchange. During the 1920s the occurrence of trade in
London resembled more the modern manifestation, by 1928 forex trade
was integral to the financial functioning of the city. Continental
exchange controls, plus other factors, in Europe and Latin America,
hampered any attempt at wholesale prosperity from trade for those of
1930's London
During the 1920s, the Kleinwort family were known to be the leaders of
the foreign exchange market; while Japheth. Montagu & Co.. and
Seligman still warrant recognition as significant FX traders.
After WWII
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. Between 1954 and 1959
Japanese law was made to allow the inclusion of many more Occidental
currencies in Japanese forex
U.S. President Richard Nixon is credited with ending the Bretton Woods
Accord and fixed rates of exchange, eventually bringing about a freefloating currency system. After the ceasing of the enactment of the
"Bretton Woods Accord" during 1971, the Smithsonian Agreement
allowed trading to range to 2%. During 1961-62, the amount of foreign
operations by the U.S. Federal Reserve was relatively low. Those
involved in controlling exchange rates found the boundaries of the
Agreement were not realistic and so ceased this in March 1973, when

sometime afterward none of the major currencies were maintained with

a capacity for conversion to gold, organisations relied instead on
reserves of currency. During 1970 to 1973 the amount of trades
occurring in the market increased three-fold. At some time (according to
Gandolfo during FebruaryMarch 1973) some of the markets' were
"split", so a two tier currency market was subsequently introduced, with
dual currency rates. This was abolished during March 1974. Reuters
introduced during June 1973 computer monitors, replacing the
telephones and telex used previously for trading quotes.

Markets close

Due to the ultimate ineffectheness of the Bretton Woods Accord and the
European Joint Float the fore\ markets were forced to close sometime
during 1972 and March 1973. The very largest of all purchases of dollars
in the history of 1976 was when the West German government achieved
an almost 3 billion dollar acquisition (a figure given as 2.75 billion in
total by The Statesman: Volume 18 1974). this event indicated the
impossibility of the balancing of exchange stabilities by the measures of
control used at the time and the monetary system and the foreign
exchange markets in "West" Germany and other countries within Europe
closed for two weeks (during February and. or. March 1973. Giersch,
Paque, & Schmieding state closed after purchase of "7.5 million
Dmarks" Brawley states "... Exchange markets had to be closed. When
they re-opened ... March 1 That is a large purchase occurred after the
close.

After 1973
The year 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 (as part of changes beginning during 1978 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.
Intervention by European banks especially the Bundes bank influenced
the forex market, on February the 27th 1985 particularly. The greatest
proportion of all trades world-wide during 1987 were within the United
Kingdom, slightly over one quarter, with the U.S. of America the nation
with the second most places involved in trading. During 1991 the
republic of Iran changed international agreements with some countries
from oil-barter to foreign exchange

Market size and quality

4500
4000
3500
3000
2500
2000
1500
1000
500
0
1

- Foreign exchange market turnover. 1988-2007, measured in billions of

USD.
The foreign exchange market is the most liquid financial market in the
world Traders include large banks, central banks. institutional investors,
currency speculators. corporations, governments, other financial
institutions, and retail investors. The average daily turnover in the global
foreign exchange and related markets is continuously growing.
According to the 2010 Triennial Central Bank Survey, coordinated by
the Bank for International Settlements, average daily turnover was
US$3.98 trillion in April 2010 (vs $1.7 trillion in 1998).1410f this $3.98
trillion, $1.5 trillion was spot transactions and $2.5 trillion was traded in
outright forwards, swaps and other derivatives.

Review of literature:
(Gauan deep Sharma) This paper's contributions are as IblItms. First by
embracing a stud) period that extends beyond January 2008, this paper
provides the first attempt to analyze the health of stock market near to
the elections. The time period examined by existing studies on time
series behaviour of BSE do not cover the post election period.
Naka(1990) employed a vector error correction model (VECM)
(Johansen (1991)) in a system of five equations to investigate the
presence of cointegration among these factors. analyzed a negative
relationship between interest rates or inflation and stock prices, and a
positive relation between output growth and stock prices. Sharma (2008)
tests weak form of efficiency of the BSE. Bhattacharya (2001) by
applying the techniques of unitroot tests, cointegration and the long
run Granger non causality test recently proposed by Toda and Yamamoto
(1995), tests the causal relationships between the BSE Sensitive Index
and the five macroeconomic variables, viz.. money supply, index of
industrial production, national income, interest rate and rate of
inflation using monthly data for the period 1992-93 to 2000-01. They
found that (i) there is no causal linkage between stock prices and money
supply, stock prices and national income and stock prices and interest
rate, (ii)index of industrial production lead the stock price, and (iii) there
exists a two way causation between stock price and rate of inflation.
(Dr. Nikhil Saket) The rupee's decline affects everyone in the
economy because it feeds directly and indirectly into general inflation,
which is a continuing problem even as output growth decelerates, and
therefore hits common people hard. There are several ways in which the
falling rupee immediately has an inflationary impact, one of the most
important of which is the price of energy. The govt should concentrate

On correcting the economic fundamentals rather than indulge in soap

operas in a run up to the election. A better co-ordination with RBI is
required rather than blame game. Apart from all the political parties
should come together in fixing the problem and getting back the
investors' confidence.
Brahman and Uddin (2009) examined the relationship between exchange
rates and stock prices of three emerging countries of South Asia named
as Bangladesh, India and Pakistan. They considered average monthly
nominal exchange rates of US Dollar in terms of Bangladeshi Taka,
Indian Rupee and Pakistani Rupee and monthly values of Dhaka Stock
Exchange General Index, Bombay Stock Exchange Index and Karachi
Stock Exchange All Share Price Index for period of Januar. 2003 to June
2008 to conduct the study
Franck and Young (1972) show that there is no significant interaction
between exchange rate and stock price dynamics. Aggarwal (1981)
discussed the relationship between exchange rates of US Dollar and
changes in the indices of US stock prices and found a positive
correlation. Giovannini and Jorion (1987) also considered the exchange
rates and stock prices of USA and supported the conclusions of
Aggarwal (1981). Two conclusions can be drawn based on the empirical
analysis. Firstly, there is no inter-relation between the daily returns in the
foreign exchange and the stock market of India for the period January
2006 to March 2012. The time period was also divided into three sub
periods; first from 2006-09, second from 2008-10 and the third from
2009-12. The same conclusion was arrived at for these subsequent
periods too. Secondly, factors like India-U.S. inflation differential.
lending interest rate, current account deficit (as a percentage of India's
GDP) and percentage change in India's public debt were found to be
significantly linked to the exchange rate.

(Santosh Kumar) The contagion linkages between forex market and

stock market have been the focus area of research in recent times.
Cause-effect and transmission relationship between these two markets
has gained significant importance with the advent of globalization,
financial market deregulation and opening up of the economy.
developments in the emerging equity markets in Asia and Latin America
and their contagion effect, and find that the herding behavior and
heterogeneous macroeconomic fundamentals across the economies are
the major contributory factors for the degree of transmission effect.
Badhani (2005) examines the relationship among stock prices, dollarrupee exchange rate and net FII investment in India and reveals a longterm relationship between FII capital flow and stock prices and
exchange rate. However, the study does not conclude upon any longterm
relationship between exchange rate and stock prices.

Capital Market:
A financial market consists of primary and secondary markets. A
primary market is where new securities are initially placed and
distrihuted. A secondary market is where securities arc bought and sold
after initial distribution. The most tradable financial instruments on the
financial markets are shares and bonds. Shares are certificates of
ownership that represent a shareholder's share in a joint stock company's
equity. Equity is defined as capital permanently used in business which
does not have to be paid out unless the enterprise is in liquidation. The
term is often used to mean the shareholders' ownership.
Some types of shares are: common. preferred. and employee share
Common shares confer voting rights at the Stockholders' Annual
General Meeting (AGM) and a dividend. if the company makes a profit

and the AGM decides a dividend is to be paid. Preferred shares do not

confer voting rights at the AGM. but have priority when it comes to
dividend payments. Companies typically issue preferred shares when
they want additional financing, but not new owners able to take part in
decision-making. We distinguish:
Cumulative shares, which confer the right to accumulate unpaid
dividends, as well as priority over common shareholders with regard to
dividend payments; Participating shares, which grant the right to certain
priority dividends, as well as common shareholder dividends; And
Participating-cumulative shares, which combines the rights of both
types. Bonds are typically long-term debtor securities, with a maturity of
at least a year, bought on the market by investors looking for income in
the form of interest. They are sold by issuers looking for financing.
issuers may be the state (state bonds), cities (municipal bonds), or
enterprises (corporate bonds).
Bonds are extremely attractive securities, since they form the basis
for acquiring interest at known time internals. while the resources
invested in the purchase ma). depending on the type of bond. be returned
on maturity. or in installments together with the interest. Capital markets
also deal in other forms of security. including options. futures. forwards.
warranties. etc. An Option is a contract that grants the holder the right.
without obligation. to buy (call option) or sell (put option) a specified
amount of financial instruments at a pre-negotiated price during a
defined period of time. We distinguish the purchase or sale of financial
instruments on maturity (European option) from sale both before and on
maturity (American option). Forwards and futures are sales contracts at a
future, specified date and a given price. They are typically used to
protect from the market risk of price or exchange rate instability.

All these instruments are traded on capital markets and are

therefore called: capital market instruments. The total market value of
securities is their market capitalization. It is the product of a security's
market price and the total number of securities. Each security has a
nominal and a market value. The nominal (par) value is the value a
security is issued at, i.e. the value written on it and -t specified at the
time of issue. The security's real value is, however. usually different
from its nominal value. The market value is the value as determined on
the financial market. If a share's market value is higher than its nominal
value, the investor has achieved a positive financial result, known as
"aggio" in finance. The opposite case is termed "disaggio.
Besides capital income, people invest in securities to secure
the dividend obtainable for a given security. The dividend is that part of
a company's net profit that is distributed to shareholders. We distinguish
dividends paid in money from dividends in shares

STOCK MARKET:
The market in which shares of publicly held companies are issued
and traded either through exchanges or over-the-counter markets. Also
known as the equity market. the stock market is one of the most vital
components of a free-market economy, as it provides companies with
access to capital in exchange for giving investors a slice of ownership in
the company. The stock market makes it possible to grow small initial
sums of money into large ones. and to become wealthy without taking
the risk of starting a business or making the sacrifices that often
accompany a high-paying career. Investopedia explains 'Stock Market'
The stock market lets investors participate in the financial achievements
of the companies whose shares they hold. When companies are

profitable, stock market investors make money through the dividends the
companies pay out and by selling appreciated stocks at a profit called a
capital gain. The downside is that investors can lose money if the
companies whose stocks they hold lose money, the stocks' prices Goes
down and the investor sells the stocks at a loss.
The stock market can be split into two main sections: the primary market
and the secondary market. The primary market is where new issues are
first sold through initial public offerings. Institutional investors typically
purchase most of these shares from investment banks. All subsequent
trading goes on in the secondary market where participants include both
institutional and individual investors.
Stocks are traded through exchanges. The two biggest stock exchanges
in the United States are the New York Stock Exchange, founded in 1792,
and.the Nasdaq, founded in 1971. Today, most stock market trades are
executed electronically, and even the stocks themselves are almost
always held in electronic form, not as physical certificates.
If you want to know how the stock market is performing, you can
consult an index of stocks for the whole market or for a segment of the
market. Examples include the Dow Jones Industrial Average, Nasdaq
index, Russell 2000, Standard and Poor's 500, and Morgan Stanley
Europe, Australasia and Far East index.
Research methodology:
Research design : (Explanatory research )
The way in which researchers develop research designs is
fundamentally affected by' whether the research question is descriptive
or explanatory. It affects what information is collected. Accurate

descriptions of the level of unemployment or poverty have historically

played a key role in social policy reforms

Factors involved:
Stock. BSE. rupee valuation
Research period
Last one year
Collection of data:
From secondary sources like company web Sites, Articles.
Hypothesis:
H1: Currency Fluctuations Influence (High) Stock Market Performance.
H2: Currency Fluctuations Influence (Low) Stock Market Performance.
Objective of the study:
To explore the major macro economic ariables for rupee devaluation. To
study the eticet of macroeconomic variables on stock prices.
Need of the study:
In the changed economic scenario study India like developed
country should have international stability to face the global
computation.
International currency value is very important for a sustainable
foreign trade development.
If currency price changes are predictable the foreign trade can gain
maximum profits.

So study enables to understand impact of rupee devaluation in

Indian stock market.
By which man's investors can understand the investment pattran
maximum benefits.
Scope of the Study:
Study is based on 12months of lyear in 2014.
Study based on available information for lyear. >
It covers information given by sum authors, journals, websites,
etc...
Problem Statement:
Rupee valuation stability not incurred.
Last Sys change has been remarkable (from 2014 -40s 2015-70s).
Statement of problem is whether the rupee devaluation has effect
on Indian stock market.

Stock market :

Date

3 Jan,
2014
3 Feb,
2014
3 Mar,
2014
3 Apr,
2014
3 May,
2014
3 Jun,
2014
3 Jul,
2014
3 Aug,
2014
3 Sep,
2014
3 Oct,
2014
3 Nov,
2014
3 Dec,
2014

Open

High

Low

Close

Avg Vol

21,222.1
9
20,479.0
3
21,079.2
7
22,455.2
3
22,493.5
9
24,368.9
6
25,469.9
4
25,753.9
2
26,733.1
8
26,681.4
7
27,943.0
4
28,748.2
2

21,409.6
6
21,140.5
1
22,467.2
1
22,939.3
1
25,375.6
3
25,735.8
7
26,300.1
7
26,674.3
8
27,354.9
9
27,894.3
2
28,822.3
7
28,809.6
4

20,343.
78
19,963.
12
20,920.
98
22,197.
51
22,277.
04
24,270.
20
24,892.
00
25,232.
82
26,220.
49
25,910.
77
27,739.
56
26,469.
42

20,513.
85
21,120.
12
22,386.
27
22,417.
80
24,217.
34
25,413.
78
25,894.
97
26,638.
11
26,630.
51
27,865.
83
28,693.
99
27,499.
42

9,100
9,300
18,800
9,100
16,000
13,300
10,900
8,600
8,400
8,800
9,900
8,800

Currency prices
Month

Open

High

Low

Close

3-Jan 61.905

62.012

59.149

61.125

3-Feb 62.565

63.021

60.822

59.215

3-Mar 61.831

61.947

56.459

50.201

3-Apr 51.965

53.216

50.021

51.012

3-May 60.325

61.548

54.213

59.456

3-Jun 59.205

60.564

57.261

60.213

3-Jul 59.521

62.897

54.932

61.021

3-Aug 60.214

61.126

53.974

59.562

3-Sep 60.025

62.025

59.543

61.021

3-Oct 61.213

63.012

60.822

61.412

3-Nov 61.895

63.546

56.584

62.394

3-Dec 62.325

63.235

60.125

69.897

H1 : CURRENCY FLUCTUATIONS INFLUENCE (HIGH) STOCK

MARKET PERFORMANCE
Model Summary
Mode

R Square

.389

.151

Adjusted R
Square
0.67

Std. Error of the

Estimate
2728.65994

A .Predictors : (Constant),Q_1 CURRENCY

FLACTIONS(HIGH)
B.Dependent Variable :Q_3 STOCK MARKET
PERFORMENCE(SENSEX)
Interpretation :
The Summary part of the output is most useful when
you are performing multiple regressions (Which we are NOT doing.)
Capital R is the multiple correlation coefficent that tell us how strongly
the multiple independent variables are related to the dependent
variable. In the simple bivariate case (what we are doing) R =|r|
(multiple correlation equals the absolute value of the bivariate
correlation.) R square is useful as it gives us the coefficent of
determination

ANOVA
Model

Sum
Squares

of Df

Mean Square

Regression 13294010.29
7

13294010.297 1.785

Residual

10

7445585.076

Sig.
.211

74455850.76
2
Total

11
87749861.05
9
a.

Dependent
variable : Q_3 STOCK MARKET
PERFORMENCE (SENSEX)
b. Predictor: (constant), Q_1 CURRENCY FLACTIONS (HIGH)
The ANOVA basically tells us whether the regression equation is
explaining a statistically significant portion of variability in the
dependent variables. The Above table shows that the sum of squares
13294010.297. the f value 1.785 and asymmetric significant value .
211. So at 5% level of significant p value is insignficant (p>0.05).
Those hypotheses Currency Fluctuations influence (high) Stock
Market performence as been rejected. It means there is no impact of
changes in currency value performence of stock market.

Coefficients
Model

un
Standardized
coefficient
B

(constant)
5635.328
Q_1 currency
flactations(hig
h)
220.212

Standardize
d
coefficient
Std.erro Beta
r
9888.97
1

T
Sing.

.570

.581
.211

.389

1.336

164.802

DEPENDET Variable : Q_3 STOCK MARKET PERFORMENCE(SENSEX)

The Coefficents part of the output gives us the values that we need in
order to write the regression equation . the regression equation will take
the form predcted variable (dependent variable) =slope * independent
variable +intercept

The slope is how steep the line regression line is.

A slope of 0 is a horizantal line,a slope of 1 is a diagonal line from the
lower left to the upper right ,and a vertical line has an infinite slope. The
intercept is where the regression line strikes the Y axis when the
independent variable has a value of 0.

The predicted variable is the

dependent variable given under the boxed table . in this case it is I d
rather stay at home than go out with my friends. The slope is found at
inter section of the line labled with the independent variable (in this
case extravert) and the coloumn labeled B. In this case example , the
slope equals 220.212 The independent variable was extravert (we
specified that when we set up the regression.) The intercept is found at
the intersection of the line labled (constant) and the column labled B.in
this example,the intercept is 5635.328, puttin it all together , the
regression equation is : predicted value of I d rather stay at home
than go out with my friends = 220.212 X value of extravert +5635.328.

H2 : CURRENCY FLUCTUATIONS INFLUENCE(LOW)STOCK MARKET

PERFORMENCE

Model Summary
Model

R Square

Adjusted R Square

.424

.180

.098

Std.Error of the
Estimate
2682.61486

a. Predictors : (Constant), Q_2 CURRENCY FLACTIONS (LOW)

b. Dependent variable : Q_3 STOCK MARKET PERFORMENCE(SENSEX)

Interpretation

The Model Summary part of the output is most

useful when you are performing multiple regression (which we
are NOT doing.) Capital R IS the multiple correlation coefficent
that tells us how strongly the multiple independent variables are
related to the dependent variable are related . in the simple
bivariate case (what we are doing) R =| r| (multiple correlation
equals the absolute value of the bivariate correlation.) R square
is useful as it gives us the coefficent of determination.

ANOVA

Model

Sum
Squares

of Df

Regression 15785636.45
4

Residual

10
71964224.60
5

Total

Mean Square

Sig.

15785636.45
4

2.194

.169

7196422.461
11

87749861.05
9

a. Dependent Variable:Q_3 STOCK MARKET PERFORMENCE

(SENSEX)

b .PREDICTORS:(Constant),Q_2CURRENCY FLACTIONS(LOW)

interpretation:

The ANOVA basically tells us whether the

regression equation is explaining a statistically significant
portion of the variability in the independent variables. The above
table shows that the sum of squares 15785636.454, the f value
2.194 and asymmwetric significant value. 169 So at 5% level of
significant p value is insignificant (p>0.05). Those currency
Fluctuations influence (low) stock market performance it means
there is no impct of changes in currency value performence of
stock market.
Coefficient

Model

(constant)

Unstand
a
Rized
B
-352.162

coefficent S.D
T
coefficent
Std error Beta
12959.40
8

-027

Sig.

.979

Q_2
CURRENCY
FLACTION 331.412
.424
1.481 .169
S
223.767
(LOW)
a. Dependent variable: Q_3 STOCK MARKET
PERFORMENCE (SENSEX)

Interpretation:
The coefficents part of the output gives us the
values that we need in order to write the regression equation.
The regression equation will take the form:
Predicted variable (dependent
variable)=slope * independent variable +intercept The slope is
how steep the line regression line is. A slope of 0 is a horizantal
line, a slope of 1 is digonal line form the lower left to the upper
right, and a vertical line has a infinite slope. The intercept is
where the regression line strikes the Y axis when the
independent variable has a value of 0.
The predicted variable is the
dependent variable given under the boxed table. In this case it is
i d rather stay at home than go out with my friends. The slope
is found at the inter section of line labeled with the independent
variable (in this case extravert) and the coloumn labled B. In this
example , the slope equals 331.412 the independent variable was
extravert (we specifide that when ew set up the regression.) The
intercept is fpund at the intersection of the line labled
(constat)and the coloumn labled B. In this example, the
intercept is -352.162. Putting it all together , the regression
equation:

Predicted value of i d rather stay at home than go

out with my friends = 331.412X value of extravert +352.162

FINDINGS :
Currency Fluctuations Influence (high) Stock Market Performance:

 If Stock market performance is negative either at higher value

which is contrast to m) assumption that the Stock market
performance is positive at higher and negative at lower.
The Model Summary part of the output is most useful when you
are performing multiple regressions.
Capital R is the multiple correlation coefficients that tell us how
strongly the multiple independent variables are related to the
dependent variable. In the simple bivariate case (what we are
doing) R=Ir I (multiple correlation equals the absolute value of the
bivariate correlation.) R square is useful as it gives us the
coefficient of determination.
The sum of squares 13294010.297, the f value 1.785 and
asymmetric significant value .211. So at 5% level of significant p
value is insignificant (P>0.05).
Hypotheses Currency Fluctuations Influence (high) Stock Market
Performance as been rejected. It means there is no impact of
changes in currency value performance of stock market.
Currency Fluctuations
Performance

Influence

(low)

Stock

Market

That the sum of squares 15785636.454, the f value 2.194 and

asymmetric significant Value .169 so at 5% level of significant p
value is insignificant (P>0.05). Those Currency Fluctuations
Influence (low) Stock Market Performance it means there is no
impact of changes in currency value performance of stock Market.

Conclusion:
In the Study Mutable regression model is employed to test for
effects of micro economic factors on stock price on the period of March

2014. Macroeconomic variables used in this study are foreign exchange

reserve, exchange rates.
Stock Market Performance (high) will be taken and used in
Spss package in Anova table value .21 I . So at 5% level of significant p
value is insignificant (P>0.05) so
Hypotheses Currency Fluctuations Influence (high) Stock
Market Performance as been rejected. It means there is no impact of
changes in currency value performance of stock market.and also will be
taken
Stock Market Performance (low) asymmetric significant Value .
169 so at 5% level of significant p value is insignificant (P>0.05). Those
Currency Fluctuations Influence (low) Stock Market Performance it
means there is no impact of changes in currency value performance of
stock Market.
In my results of the study Currency Fluctuations Influence (high,
low) Stock Market Performance it means there is no impact of changes
in currency value performance of stock Market. Study on Impact of
Rupee Devaluation in Indian Stock Market

References

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Co Private limited. New Delhi
bhole, L M, 1985, Impacts of Monetary Policy. Himalaya
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Roy. Subroto and William E James (ed), 1992. Foundations of
India's Political Economy. Sage Publications, New Delhi.
Gupta. Suraj B. 2001. Monetary Economics: Institutions. Theory
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Uma Kapila (ed). 2001. Indian Economy Since Independence.
Edited by. Academic Foundation, Delhi.
Joshi. Vijay and IMD Little, 1998, India's Economic Reforms:
1991-2001. Oxford University Press, Delhi.
Ranga rajan, C, 1998, Indian Economy: Essays on Money and
Finance, UBS Publishers' Distributors Limited, New Delhi.
Taneja, S K, 1976, India and International Monetary Management,
Sterling Publishers Private Limited, New Delhi.