Sj My Currency

8/8/2019 Sj My Currency

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THE INDIAN INSTITUTE OF PLANNING&

MANAGEMENT

INDIAN RUPEE VSChinese Yuan (CNY)

NAME Shripal jain

ROLL NOS 16

FS-2


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TABLE OF CONTENTS

Serial No Topic Page No

1 Executive Summary 3

2 Indian Economy 4

3 Chinese Economy 5

4Currency tracking

9

5 Currency Movement 11

6 Forex Triggers and Impact 12

7 Purchasing Power Parity 14

8 International Fishers Effect 15

9 16


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Analysis and Conclusion

10 Bibliography and References 17

Executive Summary

Currency Project gains relevance due to the importance of global economy and its

ramifications on the international financial sector. The approach has been to

integrate the theoretical aspects such as PPP Model, International Fisher Effect,

Technical & Fundamental Analysis, and Quantitative applications along with the

practical developments in Multinational Business Finance. The project attempts to

analyses the information and develops an interpretation of the facts which is

characterized by its brevity in representation.

The first part is the snapshot of INR/CNY This is followed by a fundamentaloutlook on India and CNY which includes information and analysis on economic

indicators such as GDP, Interest rates, inflation, Balance of Payment/Trade,

Equity markets. The period for which the currencies CNY & INR have been

tracked ranges from 01th May 2010 to 16th July2010. Analysis has been done on the

possible triggers and impact to/on CNY/ INR over a period of 8 weeks. The

currency rates have been analyzed by involving technical views such as Avg. True

Range, Support & Resistance Levels. The projections have been made by taking

GBP/ INR spot on 16TH July 2010 as the base and by using PPP Model & IFE

Model.


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ECONOMY OF INDIA

The economy of India is the eleventh largest economy in the world by nominalGDP and the fourth largest by purchasing power parity (PPP). Following strongeconomic reforms from the socialist inspired economy of a post-independence Indiannation, the country began to develop a fast-paced economic growth, as free marketactivities started for international competition and investment, in the 1990s. In the 21st

century, India is an emerging economic power with vasthuman and natural resources, anda hugeknowledge base. Economists predict that by 2020, India will be among the leadingeconomies of the world.

India was under social democratic-based policies from 1947 to 1991. Theeconomy was characterised by extensive regulation, protectionism, public ownership,pervasive corruption and slow growth. Since 1991, continuing economic liberalisationhas moved the country towards a market-based economy. A revival of economic reformsand better economic policy in 2000s accelerated India's economic growth rate. In recentyears, Indian cities have continued to liberalize business regulations. By 2008, India hadestablished itself as the world's second-fastest growing major economy. However, the

year 2009 saw a significant slowdown in India's GDP growth rate to 6.8% as well as thereturn of a large projected fiscal deficit of 6.8% of GDP which would be among thehighest in the world.

India's large service industry accounts for 55% of the country's Gross DomesticProduct (GDP) while the industrial and agricultural sector contribute 28% and 17%respectively. Agriculture is the predominant occupation in India, accounting for about52% of employment. The service sector makes up a further 34% and industrial sectoraround 14%. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea,sugarcane,potatoes,cattle,water buffalo, sheep, goats,poultry and fish. Major industriesinclude telecommunications, textiles, chemicals, food processing, steel, transportation

equipment, cement, mining, petroleum, machinery, information technology enabledservices and software.

India'sper capita income (nominal) is $1,030, ranked 139th in the world, while itsper capita (PPP) of US$2,940 is ranked 128th. Previously a closed economy, India's tradehas grown fast. India currently accounts for 1.5% of World trade as of 2007 according tothe WTO. According to the World Trade Statistics of the WTO in 2006, India's totalmerchandise trade (counting exports and imports) was valued at $294 billion in 2006 andIndia's services trade inclusive of export and import was $143 billion. Thus, India's global
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)http://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/Free_markethttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Social_democratichttp://en.wikipedia.org/wiki/License_Rajhttp://en.wikipedia.org/wiki/Protectionismhttp://en.wikipedia.org/wiki/Corruption_in_Indiahttp://en.wikipedia.org/wiki/Hindu_rate_of_growthhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_Indiahttp://en.wikipedia.org/wiki/Market_economyhttp://en.wikipedia.org/wiki/Economic_development_in_Indiahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(real)_growth_ratehttp://en.wikipedia.org/wiki/Agriculture_in_Indiahttp://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Industrial_sectorhttp://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Ricehttp://en.wikipedia.org/wiki/Wheathttp://en.wikipedia.org/wiki/Oilseedhttp://en.wikipedia.org/wiki/Cottonhttp://en.wikipedia.org/wiki/Jutehttp://en.wikipedia.org/wiki/Teahttp://en.wikipedia.org/wiki/Sugarcanehttp://en.wikipedia.org/wiki/Potatohttp://en.wikipedia.org/wiki/Cattlehttp://en.wikipedia.org/wiki/Water_buffalohttp://en.wikipedia.org/wiki/Sheephttp://en.wikipedia.org/wiki/Goatshttp://en.wikipedia.org/wiki/Poultryhttp://en.wikipedia.org/wiki/Fishhttp://en.wikipedia.org/wiki/Telecommunicationshttp://en.wikipedia.org/wiki/Textileshttp://en.wikipedia.org/wiki/Chemicalshttp://en.wikipedia.org/wiki/Food_processinghttp://en.wikipedia.org/wiki/Steelhttp://en.wikipedia.org/wiki/Cementhttp://en.wikipedia.org/wiki/Mininghttp://en.wikipedia.org/wiki/Computer_softwarehttp://en.wikipedia.org/wiki/Per_capita_incomehttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capitahttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/Free_markethttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Social_democratichttp://en.wikipedia.org/wiki/License_Rajhttp://en.wikipedia.org/wiki/Protectionismhttp://en.wikipedia.org/wiki/Corruption_in_Indiahttp://en.wikipedia.org/wiki/Hindu_rate_of_growthhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_Indiahttp://en.wikipedia.org/wiki/Market_economyhttp://en.wikipedia.org/wiki/Economic_development_in_Indiahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(real)_growth_ratehttp://en.wikipedia.org/wiki/Agriculture_in_Indiahttp://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Industrial_sectorhttp://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Ricehttp://en.wikipedia.org/wiki/Wheathttp://en.wikipedia.org/wiki/Oilseedhttp://en.wikipedia.org/wiki/Cottonhttp://en.wikipedia.org/wiki/Jutehttp://en.wikipedia.org/wiki/Teahttp://en.wikipedia.org/wiki/Sugarcanehttp://en.wikipedia.org/wiki/Potatohttp://en.wikipedia.org/wiki/Cattlehttp://en.wikipedia.org/wiki/Water_buffalohttp://en.wikipedia.org/wiki/Sheephttp://en.wikipedia.org/wiki/Goatshttp://en.wikipedia.org/wiki/Poultryhttp://en.wikipedia.org/wiki/Fishhttp://en.wikipedia.org/wiki/Telecommunicationshttp://en.wikipedia.org/wiki/Textileshttp://en.wikipedia.org/wiki/Chemicalshttp://en.wikipedia.org/wiki/Food_processinghttp://en.wikipedia.org/wiki/Steelhttp://en.wikipedia.org/wiki/Cementhttp://en.wikipedia.org/wiki/Mininghttp://en.wikipedia.org/wiki/Computer_softwarehttp://en.wikipedia.org/wiki/Per_capita_incomehttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)


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economic engagement in 2006 covering both merchandise and services trade was of theorder of $437 billion, up by a record 72% from a level of $253 billion in 2004. India'strade has reached a still relatively moderate share 24% of GDP in 2006, up from 6% in1985.

ECONOMY OF CHINA

The economy of the People's Republic of China is the third largest in the world, after

the United States and Japan with a nominal GDP of $4.99 trillion in 2009.[3] It is

the second largest after the U.S. with an economy worth $8.77 trillion when measured

in purchasing power parity. China is the world's fastest-growing major economy, with an

average growth rate of10%for the past 30 years. The country's per capita income is

at $3,677 (nominal, 97th), and $6,567 (PPP, 98th). China is the second largest trading

nation in the world and the largest exporter and second largest importer of goods.
http://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/People's_Republic_of_Chinahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)http://en.wikipedia.org/wiki/Economy_of_the_United_Stateshttp://en.wikipedia.org/wiki/Economy_of_Japanhttp://en.wikipedia.org/wiki/GDPhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/Purchasing_power_parityhttp://en.wikipedia.org/wiki/Economic_growthhttp://en.wikipedia.org/wiki/China's_Historical_GDPhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capitahttp://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/People's_Republic_of_Chinahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)http://en.wikipedia.org/wiki/Economy_of_the_United_Stateshttp://en.wikipedia.org/wiki/Economy_of_Japanhttp://en.wikipedia.org/wiki/GDPhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/Purchasing_power_parityhttp://en.wikipedia.org/wiki/Economic_growthhttp://en.wikipedia.org/wiki/China's_Historical_GDPhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita


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INTEREST RATE

INDIA INTEREST RATEIndia benchmark interest rate stands at 4.00 percent. In India, interest rate decisions are taken by theReserve Bank of India's Central Board of Directors. The official interest rate is the benchmark repurchaserate.

CHINA INTEREST RATEChina benchmark interest rate stands at 5.31 percent. In China, interest rates decisions are

taken by The Peoples's Bank of China Monetary Policy Committee. The PBC administers twodifferent benchmark interest rates, the benchmark lending rate, which is the one year PBClending rate and the benchmark rate of central bank lending that is the rediscount rate. This

page includes:


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GDP GROWTH RATE

India GDP Growth Rate:-The Gross Domestic Product (GDP) in India expanded at an annual rate of 8.60

percent in the last quarter. India Gross Domestic Product is worth 1159 billion

dollars or 1.87% of the world economy, according to the World Bank. India's diverse

economy encompasses traditional village farming, modern agriculture, handicrafts,

a wide range of modern industries, and a multitude of services. Services are the

major source of economic growth, accounting for more than half of India's output

with less than one third of its labor force. The economy has posted an average

growth rate of more than 7% in the decade since 1997, reducing poverty by about

10 percentage points.

CHINA

RATE

The Chinese economy expanded 10.30 percent over the last year, as measured bythe year-over-year change in Gross Domestic Product (GDP YoY). Unlike thecommonly used quarterly GDP growth rate, the annual GDP growth rate takes intoaccount a full year of economic activity, thus avoiding the need to make any type ofseasonal adjustment. The China Gross Domestic Product is worth 4327 billion


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dollars or 6.98% of the world economy, according to the World Bank.

INFLATION RATE

INDIA INFLATION RATEThe inflation rate in India was 13.91 percent in May of 2010. Inflation rate refers to a general rise in pricesmeasured against a standard level of purchasing power. The most well known measures of Inflation arethe CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole ofthe domestic economy

CHINA INFLATION RATE

The inflation rate in China was 2.90 percent in June of 2010. Inflation rate refers to ageneral rise in prices measured against a standard level of purchasing power. Themost well known measures of Inflation are the CPI which measures consumer prices,and the GDP deflator, which measures inflation in the whole of the domesticeconomy.


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CURRENCY TRACKING

Conversion Table: CNY to INR (Interbank rate)

Time period: 06/01/10 to 07/15/10.Daily averages:

06/01/2010 6.80830

06/02/2010 6.89350

06/03/2010 6.88740

06/04/2010 6.8310

06/05/2010 6.8620

06/06/2010 6.97820

06/07/2010 6.9946006/08/2010 6.90450

06/09/2010 6.88160

06/10/2010 6.88720

06/11/2010 6.88080

06/12/2010 6.86280

06/13/2010 6.93460

06/14/2010 6.93580

06/15/2010 6.81670

06/16/2010 6.82160

06/17/2010 6.80720

06/18/2010 6.79710

06/19/2010 6.76470

06/20/2010 6.7452006/21/2010 6.87050

06/22/2010 6.73020

06/23/2010 6.77640

06/24/2010 6.79770

06/25/2010 6.83250

06/26/2010 6.84020

06/27/2010 6.92990

06/28/2010 6.92990

06/29/2010 6.8070

06/30/2010 6.847007/01/2010 6.86620

07/02/2010 6.87650

07/03/2010 6.8980

07/04/2010 6.99540

07/05/2010 6.99970

07/06/2010 6.91130

07/07/2010 6.90780

07/08/2010 6.950

07/09/2010 6.91940

07/10/2010 6.90140

07/11/2010 7.03680

07/12/2010 7.03670

07/13/2010 6.9092007/14/2010 6.91670

07/15/2010 6.90240

Average (45 days): 6.88186

High: 7.03680

Low: 6.73020


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China urges the U.S. to lift export restrictions on 24th May

China urged the United States to lift restrictions on exports to China as early

as possible, Commerce Minister Chen Deming said ahead of talks betweenthe two countries in Beijing. The US wants a change in the valuation of the

Yuan while China has called on Washington to relax its laws on technology

exports to Beijing

China report harms efforts to bolster euro on 26th May

Treasury Secretary Timothy Geithner and Italian Prime Minister Silvio Berlusconi

sought to support the battered euro on Wednesday, but the currency extended its

decline on a report that China was reviewing its euro holdings. Geithner told

Europeans that financial markets want to see euro zone countries put into action

their $1 trillion standby package designed to stabilize the currency, and Berlusconicalled on European partners to follow his lead and impose austerity to help solve

the euro zone debt crisis

China under pressure; will Yuan rise? On 12th June

Like the risk-on, risk-off volatility that has buffeted global markets this year, China'scurrency policy has been subjected to bouts of pressure and criticism from abroadinterspersed with periods of calm.

Beijing is once again facing a pressure-on phase in the cycle, as underscored by USTreasury Secretary Timothy Geithner's harsh words on Thursday about the Yuan.

Here are some questions and answers at the current juncture in the long-runningYuan

China unshackles Yuan, retains final control on 22nd June

Chinas Yuan surged to a five-year peak on Monday, sending stocks higher acrossthe globe as Beijing signaled ahead of this weekends G20 summit that it woulddeliver on pledges of greater currency flexibility. Chinas central bank hasmaintained a de facto peg since the middle of 2008, a controversial policy aimed atsteadying the worlds fastest-growing major economy during the global economicdownturn.

IMF dont expect any rapid revaluation of the Yuan on 28th June

Dominique Strauss-Kahn also says that a CNY revaluation is not a quick fix for all

global economic imbalances.

China makes haste slowly globalizing the Yuan on 6th July

Each journey of a thousand miles begins with a single step. Yet for the trek ofturning the yuan into a global currency, China is only just lacing up its boots.


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According to this skeptical line of thinking, it will take Beijing a generation to makethe yuan a fully convertible currency that can rub shoulders with the dollar and theeuro.

China Q2 slowdown may be faster than expected on 15th July

Reuters are referring to an editorial in an official Chinese newspaper as saying that

the Q2 economic slowdown may be sharper than expected.

THEORIES

CNY INR

INFLATION RATE(CPI) -1.80 9.29

INTEREST RATE(BANK

RATE) 5.31 3.25

PURCHASING POWER PARITY THEORY

Et = [(1+ih) ^t/ (1+if) ^t]*e0

Et = Exchange rate of foreign country

Eo = Exchange rate of home country

ih = Inflation rate of us

if = Inflation rate of Japan

t = Time period

Inflation

Rates


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INR CNY

11.89

%

-

1.80

%

As on 7/17/2009, 1 INR= 0.13991CNY, where INR is

base/home/domestic currency

et = 0.13991 (1+0. 01189) t

(1- 0.018)]^t

et = 0.13991 ( 1 .01189) 1

(0.98)^1

1 INR = 0.1441 CNY

The value as on 7/16/2010 was 0.14485 CNY, whereas according to the

forecast, as per PPP it was expected to be 0.1441 CNY.

1. International Fisher Effect

Et = Eo (1+rh) t / (1+rf) t

Et = Spot Exchange rate in period t

Eo = value of one unit of home currency at the beginning of the period

rh = interest rate of home country

rf = interest rate of foreign country

t = time period

Interest

Rates


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INR CHY

3.25%

5.31

%

As on 7/17/2009, 1 INR= 0.13991CNY, where INR is

base/home/domestic currency

et = 0.13991 (1 + 0.0 325 ) t

(1 + 0.0531)^t

et = 0.13991 ( 1 .0 325 ) 1

(1.0531)^1

1 INR = 0.1370 CNY

The value as on 7/16/2010 was 0.14485 CNY, whereas according to the

forecast, as per IFE was expected to be 0.1370 CNY.

Conclusion

The observations as per:

1. PPP Theory

a. The difference between the forecasted value and the original

value is very minute. Original exchange rate is 0.14485 CNY,

whereas expected was 0.1441 CNY.

b. The reason behind this is the non-robust behaviour of both the

currencies.


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c. Since inflation is considered in this theory, it was observed that

the inflation in both the countries in the last one year has moved

substantially but in a similar ratio i.e. for China form -1.80% to

2.9% and for India from 11.89% to 13.9%.

2. IFE Theory

a. There is an insignificant difference between the forecasted value

and the original value. Original exchange rate is 0.14485 CNY,

whereas expected was 0.1370 CNY.

b. The exchange rates were observed to be quite unwavering.

c. The interest rates in China did not move at all and were recorded

constant at 5.31%. While in India the interest rates fell down by

75 basis points i.e. from 4 to 3.25.

Bibliography

http://inr.cer24.com/cny/history/?q=365

http://tradingeconomics.com/

http://www.xe.com/

http://www.exchange-rates.org/

http://www.fxstreet.com/

http://economictimes.indiatimes.com

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