Era Business School AJ/ Ajay K Raina; PGDM 12’14

Era Business School AJ/ Ajay K Raina; PGDM 12’14

Era Business School AJ/ Ajay K Raina; PGDM 12’14

OBJECTIVE To show impact of money supply and inflation on exchange rate of ₹ v/s $ and analyse it for the period 1980 to 1990, 1991 to 2000 and 2001 to 2012

Group MembersJay Krishna Deepika HandooCol Ajay K Raina, SM AK MishraSaurabh Daravaria Anant Maheshwari

Era Business School AJ/ Ajay K Raina; PGDM 12’14

A SIMPLISTIC REPRODUCTION…….What lies ahead!

19801981

19821983

19841985

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

2012

-60.00

-40.00

-20.00

0.00

20.00

40.00

60.00

80.00

100.00

120.00

Era Business School AJ/ Ajay K Raina; PGDM 12’14

Broad Parameters• Data, as used in the presentation, are in terms of

percentage (YoY) increase.• The following values have been used:-– ER – Market price, averaged to calendar year.– Inflation – GDP deflator.– Money Supply – Narrow Money only.

Era Business School AJ/ Ajay K Raina; PGDM 12’14

COMPARATIVE INFLATIONARY TRENDS1980- 1990

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 19900.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

GDPd India%GDPd US%

Era Business School AJ/ Ajay K Raina; PGDM 12’14

1980- 1990

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 19900.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

GDPd India%GDPd US%ER% incr

Era Business School AJ/ Ajay K Raina; PGDM 12’14

1980- 1990

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 19900.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

GDPd India%GDPd US%ER% incrM1 growth % ₹M1 growth% $

Era Business School AJ/ Ajay K Raina; PGDM 12’14

1980- 1990

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

-3000.00

-2500.00

-2000.00

-1500.00

-1000.00

-500.00

0.00

500.00

1000.00

BOP Million $

BOP Million $

Era Business School AJ/ Ajay K Raina; PGDM 12’14

1980- 1990

Overall Equations Year Inflation %

IndiaInflation % USA

M1 India Bn ₹

M1 USA Bn $

ER 1$=….₹

BOP Mn $

1980 11.51 9.12 200 465 7.88 -1140

1990 10.67 3.79 810.10 907 17.50 -2492

Era Business School AJ/ Ajay K Raina; PGDM 12’14

COMPARATIVE INFLATIONARY TRENDS1991- 2000

1991 1992 1993 1994 1995 1996 1997 1998 1999 20000.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

GDPd India%GDPd US%

Era Business School AJ/ Ajay K Raina; PGDM 12’14

1991- 2000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

GDPd India%GDPd US%ER% incr

Era Business School AJ/ Ajay K Raina; PGDM 12’14

1991- 2000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

GDPd India%GDPd US%ER% incrM1 growth% $M1 growth % ₹

Era Business School AJ/ Ajay K Raina; PGDM 12’14

1991- 2000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

-2000.00

0.00

2000.00

4000.00

6000.00

8000.00

10000.00

BOP Million $

BOP Million $

Era Business School AJ/ Ajay K Raina; PGDM 12’14

1991- 2000

Overall Equations Year Inflation %

IndiaInflation % USA

M1 India Bn ₹

M1 USA Bn $

ER 1$=….₹

BOP Mn $

1991 13.75 3.40 929 985.80 22.69 2599

2000 3.65 2.16 2678.44 1211.51 41.27 4222

Era Business School AJ/ Ajay K Raina; PGDM 12’14

COMPARATIVE INFLATIONARY TRENDS2001- 2012

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

GDPd India%GDPd US%

Era Business School AJ/ Ajay K Raina; PGDM 12’14

2001- 2012

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-10.00

-5.00

0.00

5.00

10.00

15.00

GDPd India%GDPd US%ER% incr

Era Business School AJ/ Ajay K Raina; PGDM 12’14

2001- 2012

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

GDPd India%GDPd US%ER% incrM1 growth% $M1 growth % ₹

Era Business School AJ/ Ajay K Raina; PGDM 12’14

2001- 2012

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-40000.00

-20000.00

0.00

20000.00

40000.00

60000.00

80000.00

100000.00

BOP Million $

BOP Million $

Era Business School AJ/ Ajay K Raina; PGDM 12’14

2001- 2012

Overall Equations Year Inflation %

IndiaInflation % USA

M1 India Bn ₹

M1 USA Bn $

ER 1$=….₹

BOP Mn $

2001 3.18 2.27 3794.33 1213.52 7.88 11757

2011/12

7.75 1.72 17342.34 2323.95 17.50 -12832

Era Business School AJ/ Ajay K Raina; PGDM 12’14

1980- 2012

19801981

19821983

19841985

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

20120.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

GDPd India%GDPd US%

INFLATION

Era Business School AJ/ Ajay K Raina; PGDM 12’14

1980- 2012 INFLATION+ ER

19801981

19821983

19841985

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

2012

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

GDPd India% GDPd US%

ER% incr

Era Business School AJ/ Ajay K Raina; PGDM 12’14

1980- 2012 INFLATION+ ER+ MS

19801981

19821983

19841985

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

ER% incrGDPd India%GDPd US%M1 growth% $M1 growth % ₹

Era Business School AJ/ Ajay K Raina; PGDM 12’14

And once we add Forex and Foreign Debts (all in % YoY).…..

This is where we had started from

19801981

19821983

19841985

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

2012

-60.00

-40.00

-20.00

0.00

20.00

40.00

60.00

80.00

100.00

120.00

ER% incrGDPd India%GDPd US%M1 growth% $M1 growth % ₹Foreign Debt %Forex%

Era Business School AJ/ Ajay K Raina; PGDM 12’14

Methodology• Guidance : Our gratitude to Prof JS Dahiya

• Secondary research based on the following websites:-– http://www.imf.org IMF – http://dbie.rbi.org.in Reserve Bank of India– http://commerce.nic.in/ Ministry of Commerce– http://databank.worldbank.org World Bank– http://www.inflation.eu EU– http://mospi.nic.inMinistry of Stat and Pgme Implementation– www.IndianJournals.com Publisher– http://labourbureau.nic.in/indnum.htm Labour Bureau– http://oldfraser.lexi.net/publications/ Publisher– http://fxtop.com/en/currency-converter-past.php Historical Currency

rates.– http://www.federalreserveonline.org/ Fed Res

Era Business School AJ/ Ajay K Raina; PGDM 12’14

Comparison with Article….• The article, “Solving the Riddle” (Cato Institute;

published in Business India) simplistically explains the change in currency value.

• The main factors that influence ER, as per the article, are as under:-– Inflationary Pressure;– Money Supply; and– BoP/ Forex.

• Our research has highlighted the above linkages too and yet do believe that there are certain hidden forces that have a role, big or small, to play in such fluctuations.

Era Business School AJ/ Ajay K Raina; PGDM 12’14

• Differential in interest rates, foreign debts and perception about country’s political and economic performance are some of the key factors that have a role to play. These being out of the purview of today’s presentation, same have been left out.

THANK YOU!

……Comparison with Article