Draft Report

A Study on S&P CNX Nifty and Exchange Rate
With special reference to
SMC GLOBAL
(In Partial Fulfilment for the degree of MBA – International Business from
Pondicherry University, Pondicherry)
BY
Mr Ranjan Kumar
(Reg. No. 1095640 )
Under the supervision of
Mr. Vinay Hiremath Dr Rajeesh Viswanathan

Industrial Guide Academic Guide
Sales Manager Lecturer
SMC Global, Pune Department of International Business
School of Management
PONDICHERRY CENTRAL UNIVERSITY

Department of International Business
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A study on S&P CNX Nifty and Exchange rate
Pondicherry 605014
Department of International Business

School of Management, Pondicherry University
Pondicherry 605014
Certificate
This to certify that Mr. Ranjan Kumar , a student of MBA-International Business session 2009-
11 has successfully completed his project in SMC GLOBAL AT PUNE,MAHARASTRA. His
period of training was for eight weeks that commenced from 1st May ‟10 to 1st July 2010. He
has prepared the training report titled “A Study on S&P CNX Nifty and
Exchange Rate” for the requirement of the concern and for the Master of Business
Administration (International Business) programme in the Department of International
Business, School of Management, Pondicherry University.
Dr Rajeesh Viswanathan Dr MOHAN K. PILLAI

Academic Guide Head of the Department
Lecturer Department of International Business
Department of International Business School of Management
School of Management Pondicherry University
Pondicherry University
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DECLARATION
I hereby state that the Project Report titled “A Study on S&P CNX Nifty and
Exchange Rate” submitted in partial fulfillment of the degree of Masters of Business
Administration (International Business) is an original work done entirely by me and is based
entirely on my own observations. It has not previously formed the basis for the award of any
other degree, diploma, fellowship or any other similar title. The facts presented here are true to
the best of my knowledge.
PLACE:
DATE: SIGNATURE
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ACKNOWLEDGEMENT
Would it be all-envisaging to offer salutations at the feet of the Lord, who kindly
imbued the energy and enthusiasm through ramifying paths of thick and thin of
my efforts.
This project is an authenticated work of mine prepared on training report at SMC
GLOBAL, PUNE, MAHARASTRA. I would like to take this opportunity to thank all
the people, who extended their immense help to complete my project.
I would like to express my gratitude to Mr. Vinay Hiremath, Manager,
who spent his valuable time to discuss about the project and his continuous co-
operation helped me to get on with the project on a full swing without much
hassles.
I express my sincere thanks to Dr. M. Basheer Ahmed Khan DEAN, School
Of Management and also I express my sincere thanks to Department Head,
Dr.MOHAN.K.PILLAI, Department of International Business, School Of
Management. and Dr Rajeesh Viswanathan, Lecturer, Department of
International Business, School Of Management. I humbly submit my thanks for
his guidence and support through out this projec
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Executive Summary
The relationship between stock prices and exchange rates has preoccupied the minds of
economists since both play important roles in influencing the development of a country‟s
economy. Many factors, such as enterprise performance, dividends, stock prices of other
countries, gross domestic product, exchange rates, interest rates, current account, money supply,
employment, their information etc. have an impact on daily stock prices (Kurihara, 2006: p.376).
Especially, the continuing increases in the world trade and capital movements have made the
exchange rates as one of the main determinants of business profitability and equity prices (Kim,
2003. NSEs Currency Derivatives segment provides trading on currency futures contracts on the
USD-INR and other currency pairs which commenced on August 29, 2008 and interest rate
futures were allowed for trading in this segment on August 31, 2009. ). In my project work that I
have done in SMC global securities, Pune, I have collected the data of five months performance
of S&P CNX Nifty (1st Jan 2010 to 31st May 2010) and USD/INR exchange rate values. After
analyzing this project work, It is found that there is a relationship between the movements of
these two variables (Nifty and exchange rate).
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CONTENTS
CHAPTER 1 Introduction
1.1 Introduction
1.2 Statement of Problem
1.3 Objective of the Study
1.4 Scope of the study
1.5 Limitation of the Study
CHAPTER 2 Profile of Company
CHAPTER 3 Study concepts & Review of Literature
CHAPTER 4 Research Methodologies
4.1 Types &Source of data

4.2 Tools of Analysis
CHAPTER 5 Analysis & Interpretation
CHAPTER 6 Summary of findings and Suggestions
CHAPTER 7 Conclusions
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CHAPTER 1
INTRODUCTION
1.1 INTRODUCTION
1.2 STATEMENT OF PROBLEM
1.3 OBJECTIVE OF STUDY
1.4 SCOPE OF STUDY
1.5 LIMITATION OF STUDY
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INRRODUCTION
Stock exchange and exchange rate fluctuations are the center of curiosity for researchers and
businessman for a long time. Knowledge of exchange rate movement is of immense helpful for
both exporter as well as importers. Because it is directly related to company‟s transaction
exposure. There are many concepts and theories regarding these two variables (stock exchange
value and exchange rate value). This research is carried out by taking S&P CNX Nifty and
exchange rate between USD and INR. The reason for selecting S&P CNX Nifty is that S&P
CNX Nifty tracks the behavior of a portfolio of blue chip companies, the largest and most liquid
Indian securities. It includes 50 of the approximately 935 companies listed on the NSE, captures
approximately 60% of its equity market capitalization and is a true reflection of the Indian stock
market. The S&P CNX Nifty covers 22 sectors of the Indian economy and offers investment
managers exposure to the Indian market in one efficient portfolio. The reason for selecting USD
and INR is that UD dollar is the most readily available currency in the world and most of the
trade settlement done in dollar. US dollar is called “vehicle currency” and its quote is easily
available in the Forex market.
1.1 STATEMENT OF PROBLEM

One question that always rotates in front of exporters and importers or an export or import
dominated company is how exchange rate and stock prices of their company going to change in
coming time. The various problems that they might have to face are as follows-
 How appreciation or depreciation of home currency will affect the share price of any
particular company
 How the inflow or outflow of money from home country affect exchange rate
 Is there any relation between Indian market or stock market performance and exchange
rate
 Who will more affected because of currency fluctuations – export oriented company or
import oriented company
 How these two variables behaves in long run and short run
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1.2 OBJECTIVE OF THE STUDY
 The main objective of my study is to figure out relationship between a stock exchange index
and exchange rate between US dollar and Indian rupee.
 To find out relationship between S&P CNX Nifty and Exchange rate (USD/INR) in short as
well as long run
1.3 SCOPE OF THE STUDY
The various scope of the study is as follows-
a) The finding and various concepts of this study are useful to the importer and exporter
b) This study is helpful in currency trading
c) Government and various financial institutes can use this concepts in making rules and
regulations
d) Helpful to RBI for setting monetary policies
e) Helpful to figure out total demand and supply of money
f) It will be helpful to find out current position of BOP( balance of payments)
1.4 SIGNIFICANCE OF THE STUDY
The various significance of the study is as follows-
 This study focuses on two very important variables of the financial market- stock index
value and exchange rate
 Knowledge of fluctuation pattern of stock index and exchange rate will be helpful for
people or brokers involved in stock as well as currency trading
 This study can be used for the forecasting of appreciation or depreciation degree of
domestic currency
 This study will be helpful in generating basics theoretical concepts about stock index
movement and exchange rate
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1.5 LIMITATION OF THE STUDY
1 LIMITED TIME:
The time available to conduct the study was only 2 months. It being a wide topic, had a
limited time.
2 LIMITED RESOURCES:
Limited resources are available to collect the information about the currency trading
3 VOLATALITY:
Share market and foreign exchange market is so much volatile and it is difficult to forecast
anything about it whether you trade through online or offline
4 ASPECTS COVERAGE:
Some of the aspects may not be covered in my study.
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CHAPTER 2
PROFILE OF COMPANY
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INTRODUCTION TO COMPANY
SMC Group, a leading financial services provider in India is a vertically integrated investment
solutions company, with a pan-India presence. Over the Years, SMC has expanded its domestic
as well as international operations. Existing network includes regional offices at Mumbai,
Kolkata, Chennai, Bangalore, Cochin, Ahmedabad, Jaipur and Hyderabad plus a growing
network of more than 1800 offices across over 400 cities/towns in India. SMC has plans to grow
its network to 5,000 offices across 700+ cities in the next 3 years. The company has expanded
internationally, and has established office in Dubai. Its products and Services include
Institutional and retail brokerage of equity, commodity, currency, derivatives, online trading ,
investment banking, depository services, clearing services, IPOs and mutual funds distribution,
Portfolio management, wealth advisory, insurance broking, margin funding and research. SMC
has a highly efficient workforce of over 6,000 employees and one of the largest retail network in
India currently serving the financial needs of more than 5,50,000 satisfied investors.
SMC has entered into a 50:50 joint venture with Sanlam Group, one of the largest listed
financial services group in South Africa for setting up wealth Management and Asset
Management business in India, Sanlam is operating in over 30 countries globally including UK,
USA, Switzerland, Luxembourg, Dublin, Australia and other
MEMBERSHIPS & REGISTRATIONS
 Trading Member of NSE, BSE, MCX, NCDEX, MCX-SX, NMCE, DGCX, DGR (Dubai
Gold Receipt), ICEX, National Spot Exchange Ltd. and NCDEX Spot Exchange Ltd.
 Clearing Member in NSE (F&O, Currency), BSE (F&O, Currency), MCX & NCDEX
(Commodities), MCX-SX(currency) & DGCX
 Depository Participant with NSDL & CDSL
 Category 1 Merchant Banker
 Direct Insurance Broker for Life & General Insurance (Registered with IRDA)
 Distributor of IPOs & Mutual Funds (Registered with AMFI)
 Portfolio Management Services (PMS) registered with SEBI
 Non-Banking Financial Company (NBFC) registered with RBI
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SMC‟s Products and Services
Equity & Derivative Trading
SMC Trading Platform offers online equity & derivative trading facilities for investors who are
looking for the ease and convenience and hassle free trading experience. It provides ODIN
Application, which is a high -end, integrated trading application for fast, efficient and reliable
execution of trades. Customers can now trade in the NSE and BSE simultaneously from any
destination at their convenience. They can access a multitude of resources like live quotes,
charts, research, advice, and online assistance helps them to take informed decisions. Customers
can also trade through SMC‟s branch network by registering .Customers can also trade through
SMC on phone by calling its designated representatives in the branches where customers are
registered as a client.
Clearing Services
Being a clearing member in NSE (F&O, Currency), BSE (F&O, Currency), MCX, MCX-SX,
NCDEX, and DGCX. SMC are clearing massive volumes of trades of its trading members in this
segment.
Commodity Trading
SMC is a member of 3 major national level commodity exchanges, i.e. National Commodity and
Derivative Exchange (NCDEX), Multi Commodity Exchange (MCX) and National Multi
Commodity Exchange of India (NMCE) offers its customers a trading platform of NCDEX,
MCX and NMCE. Its customers can get Real-Time streaming quotes, place orders and watch the
confirmation, all on a single screen. It use technology using ODIN application to provide its
customers with live Trading Terminals. In this segment, SMC has spread its wings globally by
acquiring Membership of Dubai Gold and Commodities Exchange. It provide trading platform to
trade in DGCX and also clear trades of trading members being a clearing member.
Distribution of Mutual Funds & IPOs
SMC offers distribution and collection services of various schemes of all Major Fund houses and
IPOs through its mammoth network of branches across India. It is registered with AMFI as an
approved distributor of Mutual Funds. It is registered with all major Fund Houses including
Fidelity, Franklyn Templeton etc. It has a distinction of being leading distributors of IPOs.
Shortly SMC will be providing the facility of online investment in Mutual Funds and IPOs
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Online back office support
To provide robust back office support backed by excellent accounting standards to its branches
SMC has ensured connectivity through FTP and Dotnet based Application. To ensure easy
accessibility to back office accounting reports to its clients, SMC is offering facilities to view
various user friendly, easily comprehendible back office reports using the link My SMC
Account.
SMC Depository
SMC is ISO 9001:2000 certified DP for shares and commodities. It is one of the leading DP and
enjoys the trust of more than 5.5 lacks investors. It offers a quick, secure and hassle free
alternative to hold the securities and commodities in physical form. It is one of the few
Depository Participants offering depository facilities for commodities and it is empanelled
with both NCDEX & MCX
SMC Research Based Advisory Services
SMC‟s massive R&D facility caters to the need of Investors, who are continuously in need of
opportunities for striking rich rewards on their investment. SMC has one of the most advanced,
hi tech in house R&D wing with some of the best people, process and technology resources
providing complete research solutions on Equity, Commodities, IPOs and Mutual Funds. It
offers proactive and timely world class research based advice and guidance to its clients so that
they can take informed decisions.
SMC Investor Awareness Forum
SMC‟s dedicated team of professionals is conducting investor meet/seminars across India. It

believes that a well-informed investor is an empowered investor. We also seek your feedback on
our services in these Investor meets.
Research:
With the EIC (Economy, Industry, and Company) approach, its Research team offers timely
Research reports covering investment summary, trend of world markets, sector trends,
commodity trends. The same is covered in its esteemed weekly magazine “Wise Money”. SMC
has a team of highly experienced analysts, who cover stocks, commodity, currency, mutual funds
and special reports. All its research reports, estimates and enhanced analytics are available on
website www.smctradeonline.com
Equity Reports Commodities Reports
14
 Morning Mantra  Morning Mantra- Agri
 Evening Buzzer  Morning Mantra- metals & energy
 Derivatives  Afternoon Metals & Energy
 IPO Reports  Evening Buzzer- Agri & Metals
 Wise Money equity content.  Special Commodities Updates
 Trading opportunity report
 DGCX Daily
Currency Reports Mutual fund Reports
 Currency Daily  NFO Analysis

 Afternoon Currency Buzzer  Mutual Fund Tracker
 Mutual Fund Weekly update
 Portfolio Monitor
Special reports Newsletters
 Result Updates  Wise Money

 Pre-Budget Analysis  Wise Fund Focus
 Post-Budget Analysis
SMC specialize in five core product areas. These are Equities, Commodities, Currencies,
Derivatives and Mutual Funds. Its views are purely based on analysis and are independent,
unbiased and balanced.
15
CHAPTER 3
STUDY CONCEPTS AND REVIEW OF

LITERATURE
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3.1 INTRODUCTION TO EXCHANGE RATE AND STOCK PRICES
The Asian crisis of 1997-98 has made a strong pitch for dynamic linkage between stock prices
and exchange rates. During the crisis period, the world has noticed that the emerging markets
collapsed due to substantial depreciation of exchange rates (in terms of US$) as well as dramatic
fall in the stock prices. This has become important again from the view point of large cross
border movement of funds due to portfolio investment and not due to actual trade flows, though
trade flows have some impact on stock prices of the companies whose main sources of revenue
comes from foreign exchange.
In retrospect of the literature, a number of hypotheses support the existence of a causal relation
between stock prices and exchange rates. For instance, „goods market approaches‟ (Dornbusch
and Fischer, 1980) suggest that changes in exchange rates affect the competitiveness of a firm as
fluctuations in exchange rate affects the value of the earnings and cost of its funds as many
companies borrow in foreign currencies to fund their operations and hence its stock price. A
depreciation of the local currency makes exporting goods attractive and leads to an increase in
foreig demand and hence revenue for the firm and its value would appreciate and hence the stock
prices. On the other hand, an appreciation of the local currency decreases profits for an exporting
firm because it leads to a decrease in foreign demand of its products. However, the sensitivity of
the value of an importing firm to exchange rate changes is just the opposite to that of an
exporting firm.
In addition, variations in exchange rates affect a firm's transaction exposure. That is, exchange
rate movements also affect the value of a firm‟s future payables (or receivables) denominated in
foreign currency. Therefore, on a macro basis, the impact of exchange rate fluctuations on stock
market seems to depend on both the importance of a country‟s international trades in its
economy and the degree of the trade imbalance.
An alternative explanation for the relation between exchange rates and stock prices can be
provided through „portfolio balance approaches‟ that stress the role of capital account
transaction. Like all commodities, exchange rates are determined by market mechanism, i.e., the
demand and supply condition. A blooming stock market would attract capital flows from foreign
investors, which may cause an increase in the demand for a country‟s currency. The reverse
would happen in case of falling stock prices where the investors would try to sell their stocks to
avoid further losses and would convert their money into foreign currency to move out of the
country. There would be demand for foreign currency in exchange of local currency and it would
lead depreciation of local currency. As a result, rising (declining) stock prices would lead to an
appreciation (depreciation) in exchange rates. Moreover, foreign investment in domestic equities
could increase over time due to benefits of international diversification that foreign investors
would gain. Furthermore, movements in stock prices may influence exchange rates and money
17
demand because investors‟ wealth and liquidity demand could depend on the performance of the
stock market.
Although theories suggest causal relations between stock prices and exchange rates, existing
evidence on a micro level provides mixed results. Jorion (1990, 1991), Bodnar and Gentry
(1993), and Bartov and Bodnar (1994) all fail to find a significant relation between simultaneous
dollar movements and stock returns for U.S. firms. He and Ng (1998) find that only about 25
percent of their sample of 171 Japanese multinationals has significant exchange rate exposure on
stock returns.
Griffin and Stulz‟s (2001) empirical results show that weekly exchange rate shocks have a
negligible impact on the value of industry indexes across the world. However, Chamberlain,
Howe, and Popper (1997) find that the U.S. banking stock returns are very sensitive to exchange
rate movements, but not for Japanese banking firms. While such findings are different from those
reported in prior research, Chamberlain et al. attributed the contrast to the use of daily data in
their study instead of monthly data as used in most prior studies.
On a macro level, the empirical research documents relatively stronger relationship between
stock price and exchange rate. Ma and Kao (1990) find that a currency appreciation negatively
affects the domestic stock market for an export-dominant country and positively affects the
domestic stock market for an import-dominant country, which seems to be consistent with the
goods market theory.
Ajayi and Mougoue (1996), using daily data for eight countries, show significant interactions
between foreign exchange and stock markets, while Abdalla and Murinde (1997) document that
a country‟s monthly exchange rates tends to lead its stock prices but not the other way around.
Pan, Fok & Lui (1999) used daily market data to study the causal relationship between stock
prices and exchange rates and found that the exchange rates Granger-cause stock prices with less
significant causal relations from stock prices to exchange rate. They also find that the causal
relationship have been stronger after the Asian crisis.
In the context of Indian economy, however, study in the similar direction is not available, though
the issue is gaining importance in recent years. Like other Asian emerging economies, Indian
equity market has continued to grow and has seen the relaxation of foreign investment
restrictions primarily through country deregulation. During the 1990s, India has initiated the
financial sector reforms by way of adopting international practices in its financial market.
Parallel to this, the issuance of American Depository Receipts (ADR‟s) or General Depository
Receipts (GDR‟s) has facilitated the trade of foreign securities on the NYSE, NASDAQ or on
non-American exchanges.
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Over the years, Indian Rupee is slowly moving towards full convertibility, which has also had an
impact in the Indian capital market as international investors have invested about US $15 billion
in Indian capital market. The two-way fungibility of ADRs/GDRs allowed by RBI has also
possibly strengthened the linkages between the stock and foreign exchange markets in India. In
this background, this study aims at examining the dynamic linkages between foreign exchange of
Indian Rupee and stock market price index in India.
3.2 Current reason of Exchange rate fluctuations:
The rupee movement against major world currencies is in the limelight since the last August
2009. The rupee appreciated sharply against the US dollar in May 2010, by almost four percent,
from Rs 48 per dollar to Rs 46 per dollar, in a span of four weeks.
One of the main reasons for the appreciation of the rupee against the dollar, and other major
currencies, is the funds coming in from large global players. Foreign investors have invested
around 13 billion dollars this year. These funds coming in since the middle of September have
triggered an appreciation in the rupee against major world currencies. Here are some of the major
reasons behind large foreign players pumping funds into the markets:
Liquidity
There is surplus liquidity in most of the large economies of the world. One of the main reasons
for this liquidity is the large economic stimulus packages given by governments and the liberal
monetary policy adopted by central banks. In the recent G-20 nations' meet, it was decided to
continue the liberal monetary measures. This has increased the money flow from large financial
players into emerging markets which have better potential for growth in the medium term.
Some expect the Reserve Bank of India (RBI) to hike policy rates in the 3rd quarter of 2010 to
control inflation. This is another reason why funds are flowing into the domestic markets. The
softer interest rate regimes in developed countries are attracting foreign funds to the domestic
debt market. Another reason for currency fluctuations is speculation. Some large funds and
major traders are pumping money into emerging markets to make arbitration profits due to
currency fluctuations.
Impact of currency fluctuations:
As more businesses are expanding their operations around the globe there is a widespread impact
of sharp currency fluctuations. In simple terms, it shrinks the receivables of exporters and makes
life easier for importers as the prices of imports get cheaper.
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A sharp fluctuation in the currency hits the small and mid-cap companies harder than their larger
peers, as the larger players can manage the situation through actively managing (hedging) the
currency and working with the scale. The rupee appreciation would also have an impact on
investors in international commodities funds (for example, gold exchange traded funds).
Although gold prices are rising in international markets in terms of dollar, it translates to lower
gains due to rupee appreciation against the dollar.
RBI action:
Theoretically, currency movements should be driven by the economic fundamentals and progress of the
economy. But modern communication systems and globalization have made active management of large
funds easy which in turn has increased the short term currency volatility. This short-term currency
volatility (upward or downward) is not good for business and hence the central banks in many countries
allow controlled/managed currency movements by actively intervening from time to time. In India RBI
smoothens the short-term currency fluctuations by buying/selling dollars in the market.
Outlook:
Analysts expect capital inflows to continue and even increase in the short to medium terms due
to the huge increase in global liquidity conditions in recent years. There are large financial
institutions and funds that are accessing offshore markets for debt and equity. Analysts believe
there is a huge amount of money waiting to come into the domestic markets. This will ensure a
steady stream of dollars and hence keep the rupee moving in an upward direction.
3.3 Factors affecting Exchange Rate:
Foreign Exchange being a commodity likes any other commodities the exchange rates tend to
fluctuate from time to time. There are various factors that cause the fluctuation in the rates of
exchange. These factors can be divided into several following groups. These groups can affect
the exchange rates on a short term as well as long-term basis.
1 Fundamental Factor
The fundamental factors include all such events that affect the basic economic and fiscal
policies of the concerned government. These factors normally affect the long-term exchange
rates of any currency. On short-term basis on many occasions, these factors are found to be
rather inactive unless the market attention has turned to fundamentals. However, in the long run
exchange rates of all the currencies are linked to fundamental causes. The fundamental factors
are basic economic policies followed by the government in relation to inflation, balance of
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payment position, unemployment, capacity utilization, trends in import and export, etc.
Normally, other things remaining constant the currencies of the countries that follow the sound
economic policies will always be stronger. Similar for the countries which are having balance of
payment surplus, the exchange rate will always be favorable. Conversely, for countries facing
balance of payment deficit, the exchange rate will be adverse. Continuous and ever growing
deficit in balance of payment indicates over valuation of the currency concerned and the dis-
equilibrium created can be resolved through devaluation.
2. Political
Political and psychological factors are believed to have an influence on exchange rates. Many
currencies have a tradition of behaving in a particular way for e.g. Swiss franc as a refuge like
currency. The US Dollar is also considered a safer haven currency whenever there is a political
crisis anywhere in the world.
3. Technical Factors:
The various technical factors that affect exchange rates can be mentioned as under:
(a) Capital Movement:
The phenomenon of capital movement affecting the exchange rate has a very recent origin. Huge
surplus of petroleum exporting countries due to sudden spurt in the oil prices could not be
utilized by these countries for home utilized by these countries for home consumption entirely
and needed to be invested elsewhere productively. Movement of these petro dollars started
affecting the exchange rates of various currencies. Capital tended to move from lower yielding to
higher.
(b) Relative Inflation Rates:
It was generally believed until recently that one prima-facie direction for exchange rates to
move was in the direction adjusted to compensate the relative inflation rates. For instance, if a
currency is already overvalued, i.e., stronger than what is warranted by relative inflation rates,
depreciation sufficient enough to correct that position can be expected and vice versa.
It is necessary to note that exchange rate is a relative price and hence the market weighs all the
relevant factors in a relative term, (in relation to the counterpart countries). The underlying
reasoning behind this conviction was that a relatively high rate of inflation reduces a country's
competitiveness in international markets and weakens its ability to sell in foreign markets. This
will weaken the expected demand for foreign currency (increase in supply of domestic currency
and decrease in supply of foreign currency). But during 1981-85 period exchange rates of major
currencies did not confirm the direction of relative inflation rates.
21
(c) Exchange rate policy and intervention:
Exchange rates are also influenced in no small measure by expectation of changes in regulation
relating to exchange markets and official intervention. Official intervention can smoothen an
otherwise disorderly market but it is also the experience that if the authorities attempt half-
heartedly to counter the market sentiments through intervention in the market, ultimately more
steep and sudden exchange rate swings can occur. In the second quarter of 1985 the movement
of exchange rates of major currencies reflected the change in the US policy in favor of co-
ordinated exchange market intervention as a measure to bring down the value of dollar.
(d) Interest Rates:
An important factor for movements in exchange rates in recent years has been difference in
interest rates; i.e. interest differential between major countries. In this respect the growing
integration of the financial markets of major currencies, the revolution in telecommunication
facilities, the growth of specialized asset managing agencies, the deregulation of financial
markets by major countries, the emergence of foreign exchange trading etc. having accelerated
growth.
4. Speculation
Speculation or the anticipation of the market participants many a times is the prime reason for
exchange rate movements. The total foreign exchange turnover worldwide is many a times the
actual goods and services related turnover indicating the grip of speculators over the market.
Those speculators anticipate the events even before the actual data is out and position themselves
accordingly in order to take advantage when the actual data confirms the anticipations.
The initial positioning and final profit taking make exchange rates volatile. These speculators
many a times concentrate only on one factor affecting the exchange rate and as a result the
market psychology tends to concentrate only on that factor neglecting all other factors that have
equal bearing on the exchange rate movement. Under these circumstances even when all other
factors may indicate negative impact on the exchange rate of the currency if the one factor that is
positive.
22
5. Others
The turnover of the market is not entirely trade related and hence the funds placed at the disposal
of foreign exchange dealers by various banks, the amount which the dealers can raise in various
ways, banks' attitude towards keeping open position during the course of a day, at the end of the
day, on the eve of weekends and holidays, window dressing operations as at the end of the half
year to year, end of the month considerations to cover operations for the returns that the banks
have to submit the central monetary authorities etc. - all affect the exchange rate movement of
the currencies
3.4 NATIONAL STOCK EXCHANGE (NSE)
NSE was given recognition as a stock exchange in April 1993. NSE was set up with the
objectives of (a) establishing a nationwide trading facility for all types of securities, (b) ensuring
equal access to all investors all over the country through an appropriate communication network,
(c) providing a fair, efficient and transparent securities market using electronic trading system,
(d) enabling shorter settlement cycles and book entry settlements and (e) meeting the
international benchmarks and standards. Within a short span of time, above objectives have been
realized and the Exchange has played a leading role as a change agent in transforming the Indian
Capital Markets to its present form.
NSE has set up infrastructure that serves as a role model for the securities industry in terms of
trading systems, clearing and settlement practices and procedures. The standards set by NSE in
terms of market practices, products, technology and service standards have become industry
benchmarks and are being replicated by other market participants. It provides screen-based
automated trading system with a high degree of transparency and equal access to all its investors
irrespective of geographical location. The high level of information dissemination through on-
line system has helped in integrating retail investors on a nation-wide basis. The Exchange
currently operates four market segments, namely Capital Market Segment, Wholesale Debt
Market Segment, Futures and Options segment and the Currency Derivatives Segment.
NSE has been playing the role of a catalytic agent in reforming the market in terms of
microstructure and market practices. Right from its inception, the exchange has adopted the
purest form of demutualized set up whereby the ownership, management and trading rights are in
the hands of three different sets of people. This has completely eliminated any conflict of interest
and helped NSE to aggressively pursue policies and practices within a public interest of
framework. It has helped in shifting the trading platform from the trading hall in the premises of
the exchange to the computer terminals at the premises of the trading members located country-
wide and subsequently to the personal computers in the homes of investors.
23
Management system, dematerialization and electronic transfer of securities and establishment of
clearing corporation. As a consequence, the market today uses the state-of-art information
technology to provide an efficient and transparent trading, clearing and settlement mechanism.
NSE provides a trading platform for of all types of securities-equity and debt, corporate
government and derivatives. On its recognition as a stock exchange under the Securities
Contracts (Regulation) Act, 1956 in April 1993, it commenced operations in the Wholesale Debt
Market (WDM) segment in June 1994, in the Capital Market (CM) segment in November 1994,
in Futures & Options (F&O) segment in June 2000 and Currency Derivatives Segment (CDS) in
August 2008. The Exchange started providing trading in retail debt of Government Securities in
January 2003.
Technology and Application Systems in NSE
Technology has been the backbone of the Exchange. Providing the services to the investing
community and the market participants using technology at the optimum possible cost has been
its main thrust. NSE chose to harness technology in creating a new market design. It believes that
technology provides the necessary impetus for the organisation to retain its competitive edge and
ensure timeliness and satisfaction in customer service. In recognition of the fact that technology
will continue to redefi ne the shape of the securities industry, NSE stresses on innovation and
sustained investment in technology to remain ahead of competition. NSE is the fi rst exchange in
the world to use satellite communication technology for trading. It uses satellite communication
technology to energize participation from about 2648 VSATs from nearly 201 cities spread all
over the country.
Its trading system, called National Exchange for Automated Trading (NEAT), is a state of-the-art
client server based application. At the server end all trading information is stored in an in-
memory database to achieve minimum response time and maximum system availability for
users. It has uptime record of 99.999%. For orders entered by the user, the response time within
trading system is around 10ms. NSE has been continuously undertaking full capacity
enhancement measures so as to effectively meet the requirements of increased users and
associated trading loads. NSE has also put in place NIBIS (NSEs Internet Based Information
System) for on-line real-time dissemination of trading information over the Internet.
As part of its business continuity plan, NSE has established a disaster back-up site at Chennai
along with its entire infrastructure, including the satellite earth station and the high-speed optical
fi ber link with its main site at Mumbai. This site at Chennai is a replica of the production
environment at Mumbai. The transaction data is backed up on near real time basis from the main
site to the disaster back-up site through the 2 STM-4 (1.24 GB) high-speed links to keep both the
sites all the time synchronized with each other. The various application systems that NSE uses
for its trading as well clearing and settlement and other operations form the backbone of the
24
Exchange. The application systems used for the day-to-day functioning of the Exchange can be
divided into (a) Front end applications and (b) Back offi ce applications.
The various application systems that NSE uses for its trading as well clearing and settlement and
other operations form the backbone of the Exchange. The application systems used for the day-
to-day functioning of the Exchange can be divided into (a) Front end applications and (b) Back
offi ce applications.
3.5 S&P CNX NIFTY
Introduction
The S&P CNX Nifty is the headline index on the National Stock Exchange of India Ltd. (NSE).
The S&P CNX Nifty tracks the behavior of a portfolio of blue chip companies, the largest and
most liquid Indian securities. It includes 50 of the approximately 935 companies listed on the
NSE, captures approximately 60% of its equity market capitalization and is a true reflection of
the Indian stock market. The S&P CNX Nifty covers 22 sectors of the Indian economy and
offers investment managers exposure to the Indian market in one efficient portfolio. The index
has been trading since April 1996 and is well suited for benchmarking, index funds and index
based derivatives.
Partnership
The S&P CNX Nifty is owned and managed by India Index Services and Products Ltd. (IISL),
which is a joint venture between the NSE and CRISIL. IISL is India‟s first specialized company
focused on the index as a core product. IISL has a licensing and marketing agreement with
Standard & Poor‟s, who is world leaders in index services.
Highlights
The S&P CNX Nifty is a diversified 50 stock, market-capitalization-weighted index for India,
accounting for 22 sectors of the economy. It is used for a variety of purposes such as
benchmarking fund portfolios, index based derivatives and index funds. The S&P CNX Nifty is
based on solid economic research and is created for those interested in investing and trading in
Indian equities.
25
Market Representation.
The S&P CNX Nifty stocks represent about 60% of the total market capitalization of the
National Stock Exchange (NSE).
Diversification
The S&P CNX Nifty is a diversified index, accurately reflecting overall market conditions. The
reward-to-risk ratio of S&P CNX Nifty is higher than other leading indices, making it a more
attractive portfolio, hence offering similar returns, but at lesser risk.
Liquidity
Market impact cost is the best measure of the liquidity of a stock. It accurately reflects the costs
faced when actually trading an index. For a stock to qualify for possible inclusion in the S&P
CNX Nifty, it has to reliably have market impact cost below 0.75 %, when doing S&P CNX
Nifty trades of five million rupees (Rs). The current impact cost of the S&P CNX Nifty for a
portfolio size of Rs 5 million is 0.07%.
Hedging Effectiveness
The basic risk of the S&P CNX Nifty futures will be lower, compared to other index portfolios,
owing to the superior liquidity of the S&P CNX Nifty constituent stocks and of the NSE. The
S&P CNX Nifty has higher correlations with typical portfolios in India, compared to other
indices. These two factors imply that hedging using S&P CNX Nifty futures is superior.
Index Family
S&P CNX Defty
The S&P CNX Defty is a U.S. dollar-denominated index based on the S&P CNX Nifty. This
index has been developed to provide a benchmark to the international investors, providing them
with an instrument for measuring returns on their equity investment in dollar terms. While the
underlying S&P CNX Nifty is calculated in Indian rupees, the S&P CNX Defty is calculated and
denominated in U.S. dollars. This ensures that the risk arising out of currency fluctuation is
covered through the S&P CNX Defty.
Eligibility Criteria
The constituents and the criteria for the selection judge the effectiveness of the index. The S&P
CNX Nifty is unique in this respect. Selection of the index set is based on four criteria:
• Liquidity (Impact Cost)
• Market Capitalization
• Floating Stock
26
• Others
Liquidity
For inclusion in the index, the security should have traded at an average impact cost of 0.75% or
less during the last six months, for 90% of the observations. Impact cost is the cost of executing a
transaction in a security in proportion to the weight of its market capitalization against the index
market capitalization, at any point in time. This is the percentage markup suffered while
buying/selling the desired quantity of a security compared to its ideal price -- (best buy + best
sell)/2.
Market Capitalization
Companies eligible for inclusion in the S&P CNX Nifty must have a six-month average market
capitalization of Rs 5 billion or more, during the latest six months.
Shares Outstanding
Companies eligible for inclusion in the S&P CNX Nifty should have at least 12% of its stock
available to investors (float). For this purpose, float shall mean stocks which are not held by the
promoters and associated entities (where identifiable) of such companies.
Domicile
The company must be domiciled in India and trade on the NSE.
Eligible Securities
All common shares listed on the NSE (which are of an equity and not of a fixed income nature)
are eligible for inclusion in the S&P CNX Nifty index. Convertible stock, bonds, warrants,
rights, and preferred stock that provide a guaranteed fixed return are not eligible.
Other Variables
A company which comes out with an IPO will be eligible for inclusion in the index, if it fulfills
the normal eligibility criteria for the index -- impact cost, market capitalization and floating stock
-- for a 3-month period instead of a 6-month period.
Timing of Changes
The index is reviewed every quarter and a six-week notice is given to the market before making any
changes to the index constituents.
27
Additions
The complete list of eligible securities is compiled based on the market capitalization criteria.
After that, the liquidity (impact cost) and free float filter are applied to them, respectively. Short
listed companies form the replacement pool. The top stocks, in terms of size (market
capitalization), are then identified for inclusion in the index from the replacement pool.
Deletions
Stocks may be deleted due to mergers, acquisitions or spin-offs. Otherwise, as noted above,
every quarter a new eligible stock list is drawn up to review against the current constituents. If
this new list warrants changes in the existing constituent list, then the smallest existing
constituents are dropped in favor of the new additions.
Index Construction
Approaches
The S&P CNX Nifty is computed using a market capitalization weighted methodology, wherein
the level of the index reflects the total market value of all the stocks in the index relative to a
particular base period. The methodology also takes into account constituent changes in the index
and corporate actions such as stock splits, rights issuance, etc., without affecting the index value.
Index Maintenance
Rebalancing
Index maintenance plays a crucial role in ensuring the stability of the index, as well as in meeting
its objective of being a consistent benchmark of the Indian equity markets. IISL has constituted
an Index Policy Committee, which is involved in the policy and guidelines for managing the
S&P CNX Nifty index. The Index Maintenance Subcommittee makes all decisions on
additions/deletions of companies in the index.
Changes in the index level reflect changes in the total market capitalization of the index which
are caused by stock price movements in the market. They do not reflect changes in the market
capitalization of the index, or of the individual stocks, that are caused by corporate actions such
as dividend payments, stock splits, and distributions to shareholders, mergers, or acquisitions.
When a stock is replaced by another stock in the index, the index divisor is adjusted so the
change in index market value that results from the addition and deletion does not change the
index level.
28
Calculation Frequency
The index is calculated real-time on all days that the stock exchange is open.
Share Updates
The index is reviewed every quarter and a six weeks‟ notice is given to the market before making
any changes to the index constituents.
Corporate Actions
Maintaining the S&P CNX Nifty index includes monitoring and completing the adjustments for
company additions and deletions, share changes, stock splits, stock dividends, and stock price
adjustments due to restructurings or spin-offs. Some corporate actions, such as stock splits and
stock dividends, require simple changes in the common shares outstanding and the stock prices
of the companies in the index. Other corporate actions, such as share issuances, change the
market value of an index and require a divisor adjustment to prevent the value of the index from
changing.
Adjusting the divisor for a change in market value leaves the value of the index unaffected by the
corporate action. This helps keep the value of the index accurate as a barometer of stock market
performance, and ensures that the movement of the index does not reflect the corporate actions
of the companies in it. Divisor adjustments are made after the close of trading and after the
calculation of the closing value of the index. Any change in the index divisor also affects
corresponding sub-indices and divisors. Each sub-index is maintained in the same manner as the
headline index. Corporate actions such as splits, stock dividends, spin-offs, rights offerings, and
share changes are applied on the ex-date.
Currency of Calculation
For the S&P CNX Nifty, all prices are in Indian rupees. For the S&P CNX Defty, all prices are
in U.S. dollars.
Base Date
The base period for the S&P CNX Nifty index is November 3, 1995, which marked the
completion of one year of operations of NSE's Capital Market Segment. The base value of the
index has been set at 1000, and a base capital of Rs 2.06 trillion.
29
Index Data
Total Return
The S&P CNX Nifty reflects the return one would get if an investment is made in the index
portfolio. As the S&P CNX Nifty is computed in real-time, it takes into account only the stock
price movements. However, the price indices do not consider the return from dividend payments
of index constituent stocks. Only the capital gains and losses due to price movement are
measured by the price index. In order to get a true picture of returns, the dividends received from
the index constituent stocks also need to be included in the index movement. Such an index,
which includes the dividends received, is called the total return index.
The total return index reflects the returns on the index from stock prices gain/loss plus dividend
payments by constituent index stocks.
Hedging Effectiveness
Exhaustive calculations have been carried out to determine the hedging effectiveness of the 50-
security index, the S&P CNX Nifty, against numerous randomly chosen equally weighted
portfolios of different sizes, varying from 1 to 100 small cap, mid cap and large cap companies,
as well as many industry indices/sub-indices provided by CMIE. It was observed that the
correlation (R2) for various portfolios and indices using monthly returns data on the S&P CNX
Nifty vis-à-vis other indices was significantly higher than other benchmark indices, indicating
that the S&P CNX Nifty had higher hedging effectiveness.
Trading in derivative contracts based on S&P CNX Nifty
The National Stock Exchange of India Limited (NSE) commenced trading in derivatives with
index futures on June 12, 2000. The futures contracts on the NSE are based on the S&P CNX
Nifty. The exchange introduced trading on index options based on the S&P CNX Nifty on June
4, 2001.
Index Governance
Index Committee
A professional team at IISL, a company setup by NSE and CRISIL, manages the S&P CNX
Nifty. There is a three-tier governance structure comprising the board of directors of IISL, the
Index Policy Committee, and the Index Maintenance Subcommittee. The S&P CNX Nifty has
fully articulated and professionally implemented rules governing index revision, corporate
actions, etc. These rules are carefully thought out, under Indian conditions, to dovetail with
operational problems of index funds and index arbitrageurs.
30
Index Policy
The S&P CNX Nifty uses clear, researched and publicly documented rules for index
maintenance. These rules are applied regularly to manage changes to the index. Index reviews
are carried out every quarter to ensure that each security in the index fulfills eligibility criteria.
Announcements
All index-related announcements are posted on the NSE Web site. Changes impacting the
constituent list are also posted on the Web site.
Real-Time Calculation
The indices are calculated real-time whenever there is a change in price.

• A security is traded in full accordance with the present methodology.
• The best bid price of a security exceeds the last calculated price of the security.
• The best ask price of a security is less than the last calculated price of the security.
Index Precision
The level of precision for index calculation is as follows:

• Index values are published rounded to two decimal places.
• Share prices are rounded to two decimal places.
• Shares outstanding are expressed in units.
• Market capitalization is stated to two decimal places.
• Index values are calculated to two decimal places.
• Final settlement prices are published rounded to two decimal places.
Index Dissemination
Tickers
Index Bloomberg Reuters
S&P CNX Nifty NIFTY .NSEI
Web site
Daily index values, index constituents, methodology, and special announcements are available
on the NSE Web site at www.nseindia.com.
31
Index Calculations Formulas
The S&P CNX Nifty index is computed by dividing the total market capitalization of the index
component securities as of current date (MCn) by the total market capitalization of the same
securities as of initial date (MC1) multiplied by the index value as of initial date (I1):
In = (I1 *MCn)/MC1
Where MCn = Total index market capitalization as of the current date
MCn = Σ Pi * Qi
Where:
Qi = Number of shares outstanding (of the ith issue) as of the current date.
Pi = Security price of the ith issue as of the current date.
N = Total number of component securities used in the index calculation.
Calculations of the S&P CNX Defty
The S&P CNX Defty is calculated as follows

S&P CNX Defty = S&P CNX Nifty at time t * Exchange rate as on base date
Exchange rate at time t
The U.S. dollar/Rupee exchange rate is based on the real-time polled indicative data feed which
contains bid/ask rates at a point in time. The polled data is sourced from Indian Quotation
Systems, regarded as one of the best providers of information in the financial markets. The data
is polled from market participants, which include the leading nationalized banks of the country
such as the State Bank of India, leading foreign banks such as American Express Bank, Deutsche
Bank, HSBC, leading private Indian banks such as UTI Bank, ICICI Bank, HDFC bank and
foreign exchange brokers such as Kanji Pitamber, Parekh & Sons and Mecklai. The frequency of
data polled is more than 3-4 updates per minute, depending on market volatility, totaling more
than 1000 updates in a day.
The closing value of S&P CNX Defty is computed based on a simple average of the
U.S.dollar/Rupee exchange rates received during the last half an hour of trading on the National
Stock Exchange of India Ltd. (NSE) and applied to the closing value of the S&P CNX Nifty.
The S&P CNX Nifty is a market capitalization index based upon solid economic research. It was
designed not only as a barometer of market movement but also to be a foundation of the new
32
world of financial products based on the index like index futures, index options and index funds.
A trillion calculations were expended to evolve the rules inside the S&P CNX Nifty index. The
results of this work are remarkably simple: (a) the correct size to use is 50, (b) stocks considered
for the S&P CNX Nifty must be liquid by the 'impact cost' criterion, (c) the largest 50 stocks that
meet the criterion go into the index. S&P CNX Nifty is a contrast to the ad hoc methods that
have gone into index construction in the preceding years, where indexes were made out of
intuition and lacked a scientific basis. The research that led up to S&P CNX Nifty is well-
respected internationally as a pioneering effort in better understanding how to make a stock
market index.
The Nifty is uniquely equipped as an index for the index derivatives market owing to its (a) low
market impact cost and (b) high hedging effectiveness. The good diversification of Nifty
generates low initial margin requirement. Finally, Nifty is calculated using NSE prices, the most
liquid exchange in India, thus making it easier to do arbitrage for index derivatives.
The period March 09 to June 09 saw some revival in index returns. BSE Sensex saw a maximum
return of 49%, followed by Nifty with an increase in return of 42%. Comparing the movement of
the Nifty, Sensex and NASDAQ over 2008-09 (all indices rebased for 1 April 2008), as depicted
in chart 4-1, it is seen that NASDAQ performed better than the Indian indices during most part of
the year. The returns on the NASDAQ were negative 33% during 2008-09, while that on Nifty
50 and BSE Sensex were negative 36% and 38% respectively, over the same period
33
3.6 Currency derivatives segment
The Currency Derivatives Segment (CDS) on the NSE has witnessed high growth over the first
ten months of introduction (September 08 to June 09). Table 7-7 presents the growth in CDS
volumes and open interest on the NSE. The volumes in this segment have increased by 1200% in
June 09 compared to September 08 levels. The average daily turnover on the NSE stood at Rs
34,256 mn in June 09 and open interest was 267400 contract (or Rs 1285 mn) as at end June 09.
3.7 IMPORTANCE OF INDICES MOVEMENT
Movements of stock Indices act as a barometer of the market of any country. S&P CNX Nifty is
the barometer of the Indian stock market that revels the true picture of the Indian market.
34
Index Movement
The blue-chip index of the NSE Nifty 50 is presented in Chart below. The index movement has
been responding to changes in the government‟s economic policies, the increase in FII inflows
etc. However, during the year 2008-09, the Nifty Index witnessed volatility of 2.66%. The point
to point return of Nifty was 36.19%.
35
CHAPTER 4
RESEARCH METHODOLOGY
36
4.1 Type and source of data
Secondary sources:-
It is the data which has already been collected by someone or an organization for some other
purpose or research study .The data for study has been collected from various sources:
 Books
 Journals
 Magazines
 Internet sources (NSE and SEBI websites)
4.2 Size of data
a) S&P CNX Nifty data- 1st Jan 2010 to 31st May 2010 (5 months)
b) Exchange rate data- 1st Jan 2010 to 31st May 2010 (5 months)
4.3 Statistical Tools Used:

Karl Pearson correlation:
CORRELATIONS
/VARIABLES=VAR00002 VAR00003
/PRINT=TWOTAIL NOSIG
/MISSING=PAIRWISE.
Correlations
VAR00002 VAR00003
*
VAR00002 Pearson Correlation 1 -.882
Sig. (2-tailed) .048
N 5 5
*
VAR00003 Pearson Correlation -.882 1
Sig. (2-tailed) .048
N 5 5
*. Correlation is significant at the 0.05 level (2-tailed).
37
CHAPTER 5
ANALYSIS & INTERPRETATION
38
5.1 Single day observation of Nifty and Exchange Rate
MAY2010
The snapshot of S&P NIFTY along with Currency Futures is given below:
Analysis: The above graph is plotted between S&P CNX Nifty‟s single day variation and
exchange rate future (USD/INR) fluctuation of 14th May 2010. It shows that as the time passes
on that particular day exchange rate value keeps on increasing till 15.30 up to 45.300 and then
decreased up to 45.225.
Interpretation: The above graph depicts an inverse relationship between both the variables. As
exchange rate curve increases, the Nifty curve starts decreasing. An increase in exchange rate
(USD/INR) means devaluation of Indian rupee. So here we can figure out that a fall in index
value leads to depreciation of domestic currency. This shows a relationship between Indian
market performance and exchange rate value.
5.2 MONTHLY GRAPH:
JANUARY 2010:
39
54
52
50
48 Series1
Series2
46
44
42
1 2 3 4
Series 1 = Nifty curve

Series 2 = Exchange curve
February 2010:
49
48.5
48
47.5
47
Series1
46.5
Series2
46
45.5
45
44.5
1 2 3 4 5

MARCH 2010:
40
54
52
50
48
Series1
46 Series2
44
42
40
1 2 3 4 5

MAY 2010:
54
52
50
48
Series1
46 Series2
44
42
40
1 2 3 4 5

FINAL GRAPH:
41
54
52
50
48
Series1
46 Series2
44
42
40
1 2 3 4 5

This study which is based on empirical data depicts the following concepts-
a) After performing the correlation between the averages of five months of Nifty and
exchange rate (USD/INR) ,final correlation value (r) comes out is -0.882
b) This value shows a very significant relationship between exchange rate and Nifty
value
c) It shows an inverse relationship between stock index and movement of exchange
rate of USD and INR.
d) After analyzing the month end value of S&P CNX Nifty and average of a month‟s
exchange rate between USD and INR, we found that as the index value rose up
the exchange rate curve moves down
e) The downward movement of exchange rate curve means that domestic currency is
appreciating.
f) There is also an inverse relationship between the two variables of every months,
but it is not much significant
g) The final graph plotted by taking averages of five months values of Nifty and
exchange rates shows a very significant curve
42
h) The relationship between index and exchange rate is visible or applicable only in
a considerable span of time
i) We can also explain this by demand and supply theory, that as Nifty starts moving
up there would be more demand of INR and consequently rupee got appreciated
j) In reverse case when Nifty drops then demand of Rupee got decreased and
consequently INR got depreciated.
43
CHAPTER 6
SUMMARY OF FINDING AND SUGGESTION
44
6.1 FINDINGS AND SUGGESTION
a) Exchange rate is complex variable that depends on a no of macroeconomic

variables
b) We should also consider the aggregate influence of Interest rate, inflation, money
supply, central government policies etc. on exchange rate.
c) We can look at the exchange rate by dividing it in to two part- spot exchange rate
and forward/future exchange rate.
d) We can also include BSE(Bombay Stock Exchange) with Nifty
e) Since exchange rate is very active variables, we should take the data for analysis
of more than 1 year
f) We can also directly link the inflow or outflow of FII and DII on the stock
exchange value and consequently to exchange rate
g) We can also analyze the effect of major foreign stock exchange performances i.e.
Dow jones industrial average etc. on Indian stock exchange
h) We can also analyze the effect of market sentiments on stock performances and
finally on exchange rate.
i) The period of this study should be around one year
j) The data for this study should be taken of more than two years
k) We can also extend this study up to forecasting part of either stock index or
exchange rate movement
l) Single month finding is not very appropriate to point out about the exact
relationship between Nifty and exchange rate
m) Relationship is more visible or transparent only after analyzing five months data
45
CHAPTER 7
CONCLUSION
46
The final conclusions of this study are as follows-
 In a long run, there is a very significant relationship between stock index and exchange
rate
 Intraday trading of currency is more risky
 A bull market will attract more foreign investment and consequently there will more
demand of domestic currency
 More demand of local currency will cause it to appreciate
 A bear market will leads to out flow of money and consequently depreciation of domestic
currency
47
BIBLIOGRAPHY
1) Oguzhan Aydemir and Erdal Demirhan, ISSN 1450-2887 Issue 23 (2009),
International Research Journal of Finance and Economics
2) Gabriele Galati and Philip Wooldridge, Int. J. Fin. Econ. 14: 1–23 (2009)
International Research Journal of Finance and Economics.
3) Historical data from - http://www.nse-india.com/
4) SEBI- http://www.sebi.gov.in/Index.jsp?contentDisp=Section&sec_id=3
5) SMC Global – Currency Report
48

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A Study on S&P CNX Nifty and Exchange Rate

With special reference to

(Reg. No. 1095640 )

Under the supervision of

Mr. Vinay Hiremath Dr Rajeesh Viswanathan

Sales Manager Lecturer

SMC Global, Pune Department of International Business

PONDICHERRY CENTRAL UNIVERSITY

Department of International Business

Dr Rajeesh Viswanathan Dr MOHAN K. PILLAI

This project is an authenticated work of mine prepared on training report at SMC

the people, who extended their immense help to complete my project.

I would like to express my gratitude to Mr. Vinay Hiremath, Manager,

I express my sincere thanks to Dr. M. Basheer Ahmed Khan DEAN, School

Of Management and also I express my sincere thanks to Department Head,

Dr.MOHAN.K.PILLAI, Department of International Business, School Of

Management. and Dr Rajeesh Viswanathan, Lecturer, Department of

International Business, School Of Management. I humbly submit my thanks for

his guidence and support through out this projec

CHAPTER 2 Profile of Company

CHAPTER 3 Study concepts & Review of Literature

CHAPTER 4 Research Methodologies

4.1 Types &Source of data

CHAPTER 5 Analysis & Interpretation

CHAPTER 6 Summary of findings and Suggestions

1.2 STATEMENT OF PROBLEM

1.3 OBJECTIVE OF STUDY

1.4 SCOPE OF STUDY

1.5 LIMITATION OF STUDY

1.1 STATEMENT OF PROBLEM

1.3 SCOPE OF THE STUDY

The various scope of the study is as follows-

1.4 SIGNIFICANCE OF THE STUDY

The various significance of the study is as follows-

MEMBERSHIPS & REGISTRATIONS

Distribution of Mutual Funds & IPOs

SMC Research Based Advisory Services

SMC Investor Awareness Forum

SMC‟s dedicated team of professionals is conducting investor meet/seminars across India. It

Equity Reports Commodities Reports

Currency Reports Mutual fund Reports

 Currency Daily  NFO Analysis

Special reports Newsletters

 Result Updates  Wise Money

STUDY CONCEPTS AND REVIEW OF

3.2 Current reason of Exchange rate fluctuations:

Impact of currency fluctuations:

3.3 Factors affecting Exchange Rate:

(a) Capital Movement:

(b) Relative Inflation Rates:

(d) Interest Rates:

3.4 NATIONAL STOCK EXCHANGE (NSE)

Technology and Application Systems in NSE

3.5 S&P CNX NIFTY

S&P CNX Defty

The company must be domiciled in India and trade on the NSE.

Trading in derivative contracts based on S&P CNX Nifty

The indices are calculated real-time whenever there is a change in price.

The level of precision for index calculation is as follows:

Index Bloomberg Reuters

S&P CNX Nifty NIFTY .NSEI

Pi = Security price of the ith issue as of the current date.