Exchange Rate Fluctuation from th September 2011 to 14th 25 February 2012

Presented by:
Nirmal Bam MBA (FINANCE)

3/10/2012

Objective of Presentation
To know about exchange rate To understand the causes of exchange rate fluctuation To know exchange rate impact on export and import in Nepal

3/10/2012

Outline
Introduction of Forex market Function/ Uses of Forex Forex Instruments Types of Forex market Nepal India pegged exchange rate Dollar Fluctuation from 25th September 2011 to 14th February 2012 (Trend Analysis) Causes of Exchange rate fluctuation Exchange rate impact on export and import in Nepal Flow of Remittance at that time Conclusion
3/10/2012 3

Introduction of Forex Market

Forex or FX Market, or Currency Market is the largest financial market in the world Is a global, worldwide decentralized financial market for trading currencies Is a market for converting the currency of one country into that of another country. Operates continuously 24 hours a day except weekends, i.e. trading from 20:15 GMT on Sunday until 22:00 GMT Friday Average daily turnover in global foreign exchange markets is estimated at $3.98 trillion
3/10/2012 4

Function/ Uses of Forex

Currency conversion To use/consume product or services of particular country by individuals as tourist For making payment in international business For investing in money market instrument denominated in foreign currency For speculation by individuals Insuring against foreign exchange risk Spot Exchange Rate, Forward Exchange Rate and Currency Swaps (against Transaction Risk, Translation Risk and Economic Risk)
3/10/2012 5

Forex Instruments
Spot exchange rate :it is the rate at which foreign exchange dealer s convert one currency into another.

Forward contracts. A standardized contract in which buyer and seller agree on an exchange rate for any date in the future.
Currency Futures : A contract that specify the price at which a currency can be bought or sold at a future date.

3/10/2012

 Currency Option : A derivative where the owner has the right to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date.
Swap: Two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date.

3/10/2012

Types of Foreign exchange

1. Floating exchange rate Exchange rate change as per the market activities in foreign currency. Eg. US dollar with Pound 2. Pegged exchange rate One currency is pegged with another or basket of some currencies. Different rates with currencies in basket. 3. Fixed exchange rate One currency has fixed exchange rate with another. Eg. INR and Rs.
3/10/2012 8

Nepal India Fixed pegged exchange rate

Reasons for Nepalese currency fixed with India:

Nepals 65% of trade with India.

Nepals import exceeding export.

Free flow of factors of production.

Illegal currency speculation may take place.

International investors feel secure.

Inflation control.
3/10/2012 9

Dollar Fluctuation from 25th September 2011 to 14th February 2012 (Trend Analysis)
$ September 2011
79.2 79 78.8 78.6

Rs.

78.4 78.2 78 77.8 77.6 77.4 9/25/2011 9/26/2011 9/27/2011 9/28/2011 9/29/2011 9/30/2011

3/10/2012

10

$ October 2011
80

79.5

79

78.5

Rs.
78 77.5 77 76.5

3/10/2012

11

Rs.
74 75 76 77 78 79 81 82 83 84 85

80

11/2/2011 11/3/2011 11/4/2011 11/5/2011 11/6/2011 11/7/2011 11/8/2011 11/9/2011 11/10/2011 11/11/2011 11/12/2011 11/13/2011 11/14/2011 11/15/2011 11/16/2011 11/17/2011 11/18/2011 11/19/2011 11/20/2011 11/21/2011 11/22/2011 11/23/2011 11/24/2011 11/25/2011 11/26/2011 11/27/2011 11/28/2011 11/29/2011 11/30/2011

3/10/2012

11/1/2011

$ November 2011

12

Rs.
79 80 81 82 83 84 85 86 87 12/1/2011 12/2/2011 12/3/2011

12/4/2011
12/5/2011 12/6/2011 12/7/2011 12/8/2011 12/9/2011 12/10/2011

12/11/2011
12/12/2011 12/13/2011 12/14/2011 12/15/2011 12/16/2011 12/17/2011

12/18/2011
12/19/2011 12/20/2011 12/21/2011 12/22/2011 12/23/2011 12/24/2011

12/25/2011
12/26/2011 12/27/2011 12/28/2011 12/29/2011 12/30/2011 12/31/2011

3/10/2012

$ December 2011

13

Rs.
74 1/1/2012 1/2/2012 1/3/2012 76 78 80 82 84 86

3/10/2012
1/4/2012
1/5/2012 1/6/2012 1/7/2012 1/8/2012 1/9/2012 1/10/2012

1/11/2012
1/12/2012 1/13/2012 1/14/2012 1/15/2012 1/16/2012 1/17/2012

$ January 2012

1/18/2012
1/19/2012 1/20/2012 1/21/2012 1/22/2012 1/23/2012 1/24/2012

1/25/2012
1/26/2012 1/27/2012 1/28/2012 1/29/2012

14

1/30/2012 1/31/2012

$ February 2012
79.5

79

78.5

Rs.

78

77.5

77

76.5

3/10/2012

15

Causes of Exchange rate fluctuation

Casus of dollar rate appreciated at December 2011 Year end presser Foreign investor take out there investment from stock market in India Dollar demand is higher than supply Unstable government policy

3/10/2012

16

3/10/2012

17

Causes of dollar rate depreciated Excess supply of dollar in market due to RBI intervention (every 2-3 week) Attracted in foreign investor in Indian stock market Currency SWAP with Japan RBI circulate the rule about dollar Commercial bank can hold up to 10 million

3/10/2012

18

CAUSES OF FLUCTUATION Demand and Supply Speculative Changes of company board of director Financial Position of the company Trade Cycle Political Factors Government Policies Oil price in the international market

3/10/2012

19

USD, AUD, AND EURO EXCHANGE RATE FLUCTUATION

120 100

80

60

USD AUD EURO

40

20

3/10/2012

20

Exchange rate impact on export and import in Nepal

Increase inflation Increase the imported product price Like Electric, Garment ,Mobile, Computer products Decreased the L/C opening tend at 20% Increase government revenue Country exported Rs.30.06 billion and imported Rs.177.79 billion

3/10/2012

21

Flow of Remittance
Increase remittances by 37.9% i.e. Rs 133.19 billion Increase the forex reserve by 35.4% i.e. Rs.368.63 billion which is higher than previous year at same period

3/10/2012

22

Conclusion
Nepal India fixed pegged exchange rate Nepals 65% of trade with India. Exchange rate fluctuation also impact on export and import in Nepal Increase inflation Increase government revenue Increase remittances

3/10/2012

23

Thank You!

3/10/2012

24