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Exchange Rate Fluctuation from
25th September 2011 to 14thFebruary 2012
Presented by:Nirmal Bam
MBA (FINANCE)
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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
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Outline
Introduction of Forex market
Function/ Uses of Forex
Forex Instruments
Types of Forex market
NepalIndia 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
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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 countryinto 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
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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
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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.
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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.
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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 ofsome 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
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NepalIndia 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.
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Dollar Fluctuation from 25th September
2011 to 14th February 2012 (Trend
Analysis)
77.4
77.6
77.8
78
78.2
78.4
78.6
78.8
79
79.2
9/25/2011 9/26/2011 9/27/2011 9/28/2011 9/29/2011 9/30/2011
Rs.
$ September 2011
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76.5
77
77.5
78
78.5
79
79.5
80
Rs.
$ October 2011
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74
75
76
77
78
79
80
81
82
83
84
85
11/1/2011
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
Rs.
$ November 2011
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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
Rs.
$ December 2011
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74
76
78
80
82
84
86
1
/1/2012
1
/2/2012
1
/3/2012
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
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
1/30/2012
1/31/2012
Rs
.
$ January 2012
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76.5
77
77.5
78
78.5
79
79.5
Rs
.
$ February 2012
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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
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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
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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
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USD, AUD, AND EURO EXCHANGE
RATE FLUCTUATION
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0
20
40
60
80
100
120
USD
AUD
EURO
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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
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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
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Conclusion
NepalIndia 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
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Thank You!
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