RAMOLIYA PARUL GIRDHARBHAI

I.D.NO: 08BBA087
T.Y.B.B.A.
SEM: 6TH
RESEARCH METHODOLOGY
&
OBJECTIVE
1. NEED FOR RESEARCH:

Foreign investment refers to investments made by the residents of a

country in the financial assets & production process of another
country. The effect of financial institutors,however,varies from country
to country. It can affects the factors productivity of the recipient
country & can also affect the balance of payment. Financial institutors
provides a channel through which countries can gain access to foreign
capital.

As a result of its efforts to attract foreign investment, the Indian

government has established a regulatory framework for three separate
investment avenues: foreign direct investment; investment by foreign
institutional investors; and investment by foreign venture capital
investors. While these investment alternatives have created clear
avenues for foreign investment in India, they remain subject to many
conditions and restrictions which continue to hamper foreign
investment in India. Each of these alternatives, together with the
restrictions and limitations applicable thereto, is discussed below.2

2. RESEARCH PROBLEM STATEMENT:

“IMPACT OF FDI & FII ON INDIAN CURRENCY”

3. RESEARCH OBJECTIVE:

PRIMARY OBJECTIVE:

a) To find out the fluctuation in Indian currency due to FDI & FII.

SECONDARY OBJECTIVE:

The secondary objectives of the researcher are:

(a) To know about trends of FDI & FII investment in India.

(b)To know about factors affecting Indian currency.

4. VARIABLES UNDER STUDY:

The variables to be studied by the researcher in the study are:

(1) FDI investment

(2) FII investment

(3) INDIAN CURRENCY

5. RESEARCH DESIGN:

(1) TYPE OF RESEARCH:

Causal researcher:-

The researcher tests the hypothesis of causal relationships between

variables.

(2)DATA COLLECTION METHOD:

The data is collected from secondary source through internet, RBI,

SEBI, and equity master.com, www.google.com.

(3) SAMPLE DESIGN:

In impact of FDI & FII investment researcher has include last five
years data for the period 1st January2005 to 31st december2010.

(4)TOOLS USE FOR DATA ANALYSIS:

The researcher has analyzed the data using ordinary linear

regression.

(a) Corelation:
Correlation is a measure of association between two variables. The
variables are not designated as dependent or independent. The two
most popular correlation coefficients are: Spearman's correlation
coefficient rho and Pearson's product-moment correlation
coefficient.

When calculating a correlation coefficient for ordinal data, select

Spearman's technique. For interval or ratio-type data, use Pearson's
technique.

The value of a correlation coefficient can vary from minus one to

plus one. A minus one indicates a perfect negative correlation,
while a plus one indicates a perfect positive correlation. A
correlation of zero means there is no relationship between the two
variables. When there is a negative correlation between two
variables, as the value of one variable increases, the value of the
other variable decreases, and vise versa. In other words, for a
negative correlation, the variables work opposite each other. When
there is a positive correlation between two variables, as the value
of one variable increases, the value of the other variable also
increases. The variables move together.

The standard error of a correlation coefficient is used to determine

the confidence intervals around a true correlation of zero. If your
correlation coefficient falls outside of this range, then it is
significantly different than zero. The standard error can be
calculated for interval or ratio-type data (i.e., only for Pearson's
product-moment correlation).

The significance (probability) of the correlation coefficient is

determined from the t-statistic. The probability of the t-statistic
indicates whether the observed correlation coefficient occurred by
chance if the true correlation is zero. In other words, it asks if the
correlation is significantly different than zero. When the t-statistic is
calculated for Spearman's rank-difference correlation coefficient,
there must be at least 30 cases before the t-distribution can be
used to determine the probability. If there are fewer than 30 cases,
you must refer to a special table to find the probability of the
correlation coefficient.

Karl Pearson’s short-cut method of finding corelation coefficient:

R= n∑uv-∑u∑v

1/2[n∑u2 – (∑u)2]* 1/2[n∑v2 – (∑v)2]

 Where:-

U=x-a or u= x-a/cx

V= y-b or v= y-b/cy

A= assumed mean of series x.

B= assumed mean of series y.

Cx= common factor of series x.

Cy= common factor of series y.

∑u= sum of deviations of series x.

∑v= sum of deviations of series y.

∑u2= sum of sqares of deviations of series x.

∑v2= sum of sqares of deviations of series y.

∑uv= sum of the products of deviations of x & y.

(c) Linear regression:

Simple regression is used to examine the relationship between one

dependent and one independent variable. After performing an
analysis, the regression statistics can be used to predict the
dependent variable when the independent variable is known.
Regression goes beyond correlation by adding prediction
capabilities.

People use regression on an intuitive level every day. In business, a

well-dressed man is thought to be financially successful. A mother
knows that more sugar in her children's diet results in higher energy
levels. The ease of waking up in the morning often depends on how
late you went to bed the night before. Quantitative regression adds
precision by developing a mathematical formula that can be used
for predictive purposes.

For example, a medical researcher might want to use body weight

(independent variable) to predict the most appropriate dose for a
new drug (dependent variable). The purpose of running the
regression is to find a formula that fits the relationship between the
two variables. Then you can use that formula to predict values for
the dependent variable when only the independent variable is
known. A doctor could prescribe the proper dose based on a
person's body weight.

The regression line (known as the least squares line) is a plot of the
expected value of the dependent variable for all values of the
independent variable. Technically, it is the line that "minimizes the
squared residuals". The regression line is the one that best fits the
data on a scatterplot.

Using the regression equation, the dependent variable may be

predicted from the independent variable. The slope of the
regression line (b) is defined as the rise divided by the run. The y
intercept (a) is the point on the y axis where the regression line
would intercept the y axis. The slope and y intercept are
incorporated into the regression equation. The intercept is usually
called the constant, and the slope is referred to as the coefficient.
Since the regression model is usually not a perfect predictor, there
is also an error term in the equation.

In the regression equation, y is always the dependent variable and x

is always the independent variable. Here are three equivalent ways
to mathematically describe a linear regression model.

Y = intercept + (slope x) + error

Y = constant + (coefficient x) + error

Y = a + bx + e

The significance of the slope of the regression line is determined

from the t-statistic. It is the probability that the observed correlation
coefficient occurred by chance if the true correlation is zero. Some
researchers prefer to report the F-ratio instead of the t-statistic. The
F-ratio is equal to the t-statistic squared.

The t-statistic for the significance of the slope is essentially a test to

determine if the regression model (equation) is usable. If the slope
is significantly different than zero, then we can use the regression
model to predict the dependent variable for any value of the
independent variable.

On the other hand, take an example where the slope is zero. It has
no prediction ability because for every value of the independent
variable, the prediction for the dependent variable would be the
 same. Knowing the value of the independent variable would not
improve our ability to predict the dependent variable. Thus, if the
slope is not significantly different than zero, don't use the model to
make predictions.

The coefficient of determination (r-squared) is the square of the

correlation coefficient. Its value may vary from zero to one. It has
the advantage over the correlation coefficient in that it may be
interpreted directly as the proportion of variance in the dependent
variable that can be accounted for by the regression equation. For
example, an r-squared value of .49 means that 49% of the variance
in the dependent variable can be explained by the regression
equation. The other 51% is unexplained.

The standard error of the estimate for regression measures the

amount of variability in the points around the regression line. It is
the standard deviation of the data points as they are distributed
around the regression line. The standard error of the estimate can
be used to develop confidence intervals around a prediction.

Equations of regression line of y on x

Y= a+byx*x

Byx = cov(x,y)/sx2

Equations of regression line of x on y

X = a+bxy*y

Bxy =cov(x,y)/sy2

6. LIMITATIONS OF THE STUDY:

Every advantage is followed by some disadvantage. The limitations

that researcher faced during the study are as follows:

(1) Time constraint.

(2) Cost of investment is impact to FDI & FII.

(3) Accuracy in the data is main limitation for the researcher.

(4) The sample size under study covers data only for 5 years.

(5)The data collected is subject to the risk of changes in sample size

and change of time as the data changes with changes in market.
 LITRATURE REVIEW
Foreign Direct Investment.

Foreign direct investment in India is now permitted in most sectors of the

Indian economy without the need to obtain prior governmental authorization
(commonly, referred to as the "automatic route"). Foreign Direct Investment,
or FDI, within the meaning of the regulations, means the purchase by a
person outside of India of newly issued equity shares, preference shares,
fully convertible or partly convertible bonds, American Depository Receipts
or Global Depository Receipts. FDI, however, even under the automatic
route, where no governmental authorization is required, is subject to a
number of important conditions. These conditions include the following:

Foreign Institutional Investors.

Special regulations have been adopted which allow foreign institutional

investors ("FIIs") to make portfolio investments in India through the Portfolio
Investment Scheme.7 A FII is defined as an institution organized outside of
India for the purpose of making investments into the Indian market under the
regulations prescribed by SEBI. FIIs may be comprised of foreign pension
funds, mutual funds, investment trusts, asset management companies,
nominee companies, incorporated/institutional portfolio managers,
endowments, foundations, charitable trusts and other similar entities. FIIs
are required to register with SEBI in order to benefit from the Portfolio
Investment Scheme, and must comply with certain exchange control
regulations adopted by the Reserve Bank which are specific to FIIs.

REVIEW OF LITERATURE:-

1. Nitin Kansal(1991) examine the “Impact of FDI & FII on india”. The
objective of researcher is to find the trends & patterns in the FDI
across different countries in India during 1991-2007 period means
during post liberalization period&Influence of FII on movement of
Indian stock exchange during the post liberalization period that is 1991
to 2007.The key findings for research is Net FDI in India was valued at
$4.7billion in the 2005-2006 Indian fiscal year, & more than tripled, to
$15.7billion, in the 2006-2007 fiscal year. Almost one-half of all FDI is
invested in the Mumbai & New Delhi regions. Researcher conclude the
process of economic reforms which was initiated in July 1991 to
 liberalize & globalize the economy had gradually opened up many
sectors of its economy for the financial institutors. According to
findings & results, I concluded that FII did have high significant impact
on the Indian capital market. Therefore, the alternate hypothesis is
accepted. S&P CNX Nifty, bank Nifty, CNX nifty junior, S&P CNX 500
showed positive Corel but CNX 100, CNX IT showed negative Corel with
FII.

2. Lensik et al (1999) examine the impact of uncertain capital flows on

the growth of 60Developing countries during the 1990’s. They
distinguished between total capital flows,Official capital flows and
private capital flows. For the three types of capital flows, theyDerived a
yearly uncertainty measure. They have used the yearly uncertainty
measure inOrdinary Least Square (OLS) as we as Generalized Method
of Moments (GMM)Estimates, to explain the impact of uncertain capital
flows on growth. They conclude thatBoth types of estimates suggest
that uncertain capital flows have a negative effect onFinancial market
and growth in developing countries.

3. Rangrajan (2000) investigates the capital flows and its impact on the
capital Formation and economic growth taking into the variable as net
private capital flows, net Direct investment, net official flows, net
portfolio investment and other net investments in 22 countries during
1992 to 2000. If capital inflows were volatile or temporary, the Country
would have to go through an adjustment process in both the real and
financial Market. Inflows, which take the form of direct foreign
investment, are generally Considered more permanent in character.
Capital flows can be promoted purely by External factors which may
tend to be less sustainable than those induced by domestic Factors.
Both capital inflows and outflows when they are large and sudden have
important Implication for economies. When capital inflows are large,
they can lead to an Appreciation of real exchange rate. He concludes
that the capital account liberalization is Not a discrete event.
4. Arshanapalli bala et al (1997) has examined the nature and extent of
linkage between the u.s. And the indian stock markets. The study uses
the theory of co-integration to study interdependence between the
bse, nyse and nasdaq. The sample data consisted of daily closing
prices for the three indices from january 1991 to december 1998 with
2338 observations. The results were in support of the intuitive
hypothesis that the indian stock market was not interrelated to the us
stock markets for the entire sample period. It should be noted that
stock markets of many countries became increasingly interdependent
with the us stock markets during the same time period. India was late
in effecting the liberalization policy and when it implanted these
policies it did so in a careful and slow manner. However, as the effect
of economic liberalizations started to take place, the bse became more
integrated with the nasdaq and the nyse, particularly after 1998. It
must be noted that though bse stock market is integrated with us
stock markets, it does not influence the nasdaq and nyse markets.

5. Dhamija Nidhi (2007) held that the increase in the volume of foreign
institutional investment (FII) inflows in recent years has led to concerns
regarding the volatility of these flows, threat of capital flight, its impact
on the stock markets and influence of changes in regulatory regimes.
The determinants and destinations of these flows and how are they
influencing economic development in the country have also been
debated. This paper examines the role of various factors relating to
individual firm-level characteristics and macroeconomic-level
conditions influencing FII investment. The regulatory environment of
the host country has an important impact on FII inflows. As the pace of
foreign investment began to accelerate, regulatory policies have
changed to keep up with changed domestic scenarios. The paper also
provides a review of these changes.

6. David A. Carpenter et al (2005) has examined that the Indian

government has establishe regulatory framework for three separate
investment avenues: foreign direct investment; investment by foreign
institutional investors; and investment by foreign venture capital
investors. While these investment alternatives have created clear
avenues for foreign investment in India, they remain subject to many
conditions and restrictions which continue to hamper foreign
investment in india.