International FinanceUnit 2.4: Impact of Euro Currency, Chinese Yuanand Japanese Yen and US Dollar, EmergingImportance of ...
Agenda• Impact of Euro Currency, Chinese Yuan and JapaneseYen and US Dollar• Emerging Importance of Indian Rupee2Mrs. Char...
Impact of EURO• Origin of Euro: Jan 1999• Economic Size of Countries that have adopted it▫ Second largest economy in the w...
Impact of EURO• Impact:▫ Expected to shield country’s economies from adverseshocks, smooth consumption, and promote non-in...
Impact of Chinese Yuan/Renminbi• China is keeping its currency artificially weak (not allowing the currency to appreciate ...
Impact of USD• Since 1944, when nations around the world ratified the BrettonWoods Agreement, the US dollar has been the m...
Impact of USD (contd.)• Many countries maintain an exchange rate regime thatanchors the value of their home currency to th...
8Mrs. CharuRastogi, Asst.Professor
• Currency of India i.e. Indian rupee is one of well-establishedcurrencies in the world. Importance of Indian rupee in wor...
• ICE Futures U.S. announced that it will launch a new cash-settled currency futures contract based on the Indianrupee/U.S...
• The Indian rupee has grown rapidly to become thesixteenth most traded currency in the world. Withapproximately $70 billi...
• The ICE rupee contract covers 2,000,000 Indian rupees, around$40,000**. The tick size is $.000001 per rupee, or $2.00 a ...
Emerging importance of Indian Rupee• The Indian rupee has grown rapidly to become the sixteenthmost traded currency in the...
14Mrs. CharuRastogi, Asst.Professor
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Unit 2.4 Impact of Euro Currency, Chinese Yuan and Japanese Yen and US Dollar, Emerging Importance of Indian Rupee

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Unit 2.4 Impact of Euro Currency, Chinese Yuan and Japanese Yen and US Dollar, Emerging Importance of Indian Rupee

  1. 1. International FinanceUnit 2.4: Impact of Euro Currency, Chinese Yuanand Japanese Yen and US Dollar, EmergingImportance of Indian Rupee
  2. 2. Agenda• Impact of Euro Currency, Chinese Yuan and JapaneseYen and US Dollar• Emerging Importance of Indian Rupee2Mrs. CharuRastogi, Asst.Professor
  3. 3. Impact of EURO• Origin of Euro: Jan 1999• Economic Size of Countries that have adopted it▫ Second largest economy in the world▫ Fourth most populous; 330 million• Growth in GDP since adoption of Euro▫ Historically, from 1995 until 2012, Euro Area GDPGrowth Rate averaged 0.36 Percent reaching an alltime high of 1.30 Percent in June of 1997 and a recordlow of -2.50 Percent in March of 2009• Thought to the successor to the Dollar3Mrs. CharuRastogi, Asst.Professor
  4. 4. Impact of EURO• Impact:▫ Expected to shield country’s economies from adverseshocks, smooth consumption, and promote non-in ationarygrowth▫ eliminated currency risk within Euro System▫ ―Rose effect‖, i.e. the trade effects of currency union▫ Business cycle synchronization and economic specialization▫ Loss of monetary autonomy by EMU members• Impact on EU if a country pulls out of currency union(Suppose Greece)▫ Devaluation for local currency▫ No credit for greek banks and govt▫ Inflation, unemployment▫ Bank defaults▫ Uncertainty/ capital flight in countries that choose to remain4Mrs. Charu Rastogi,Asst.Professor
  5. 5. Impact of Chinese Yuan/Renminbi• China is keeping its currency artificially weak (not allowing the currency to appreciate againstUSD) to boost its export competitiveness –Impact of that:▫ Creating global imbalances▫ Holds a lot of US debt and has a trade surplus• Potential as an international currency (IMFArticle)5Mrs. Charu Rastogi,Asst.Professor
  6. 6. Impact of USD• Since 1944, when nations around the world ratified the BrettonWoods Agreement, the US dollar has been the most dominantcurrency in the world.• The U.S. dollar is the worlds foremost reserve currency. The dollarremains the dominant currency in foreign exchange reserveaccounts. Foreign governments’ foreign exchange reserve accounts,essentially the governments’ foreign currency savings, can be large.In 2009, dollar assets accounted for about two-thirds of the reserveassets of industrialised and developing countries• It is an international currency as:▫ It accounts for a huge share of the official reserves of central banks;▫ Is used "hand-to-hand" in foreign countries;▫ Is a currency in which a disproportionate share of international trade isdenominated;▫ Is dominant currency in international financial markets6Mrs. Charu Rastogi,Asst.Professor
  7. 7. Impact of USD (contd.)• Many countries maintain an exchange rate regime thatanchors the value of their home currency to that of the dollar.• Dollar holdings make up a large share of official foreignexchange reserves, the foreign currency deposits and bondsmaintained by central banks and monetary authorities.• In international trade, the dollar is widely used for invoicingand settling import and export transactions around the world.• The dollar is a major form of cash currency around the world.▫ The majority of dollar banknotes are estimated to be held outsidethe US. More than 70% of hundred-dollar notes and nearly 60%of twenty- and fifty-dollar notes are held abroad, while two-thirdsof all US banknotes have been in circulation outside the countrysince 1990 (Fed, 2005)• More info7Mrs. CharuRastogi, Asst.Professor
  8. 8. 8Mrs. CharuRastogi, Asst.Professor
  9. 9. • Currency of India i.e. Indian rupee is one of well-establishedcurrencies in the world. Importance of Indian rupee in worldmarket is characterized by the fact that Bhutan and Nepal peg theircurrencies to Indian rupee.• With recent boom in Indian economy & trade and rise in economicgrowth, Indian Rupee has grown stronger. Exchange rate of INR tothat of other currencies is managed by floating system where marketmechanisms of demand and supply determine rate of INR inrelation to other currencies. However Reserve Bank of Indiaintervenes at times by trading INR with other countries to ensurelow volatility in foreign exchange market for INR9Mrs. Charu Rastogi,Asst.Professor
  10. 10. • ICE Futures U.S. announced that it will launch a new cash-settled currency futures contract based on the Indianrupee/U.S. dollar exchange rate on Tuesday, January 22. TheICE rupee contract will be the first futures contract on theIndian currency offered by a U.S. exchange. It offers marketparticipants the ease of doing business in a regulated futuresenvironment for execution and clearing, alongside ICE’s suiteof more than 60 currency contracts, which includes the U.S.Dollar Index.• The listing of the Indian rupee contract recognizes theincreasing importance and integration of India into the worldeconomy and responds to mounting interest in exchange-traded products from institutional and professional tradersand money managers, including CTAs and hedge funds.ICE Launches First Indian Rupee Futures at a U.S.Exchange on Jan 22 -Barbara Richards at ICE | January 06, 201310Mrs. Charu Rastogi,Asst.Professor
  11. 11. • The Indian rupee has grown rapidly to become thesixteenth most traded currency in the world. Withapproximately $70 billion in turnover a day, this isroughly where the Korean won—then the largestemerging market currency—was in turnover in 2010. Therupee ranks among the most actively traded of theemerging market currencies, in the same class with theKorean won, Russian ruble, Chinese renminbi andMexican peso. From the BIS 2010 survey, in theemerging market currency category, the rupee rankedfourth in spot, third in forwards and ninth in swaps. Theoffshore market today is as big as the onshore market, asis the case with other emerging market currencies*.11Mrs. Charu Rastogi,Asst.Professor
  12. 12. • The ICE rupee contract covers 2,000,000 Indian rupees, around$40,000**. The tick size is $.000001 per rupee, or $2.00 a contract. TheExchange symbol for the contract is KIU. Contract listings are monthly foreach of the twelve calendar months for twelve consecutive calendarmonths, for a maturity range out one year. At launch, listed contractmonths will be from the February 2013 expiry to the January 2014 expiry; anew contract month is listed for trading on the business day following thelast trading day of the expiring contract month.• The contract is available for EFP and block trading, with no surcharges forthese transactions beyond the normal emerging market exchange andclearing fee of $0.30/side.• The contract is available on the ICE electronic trading platform that offersstate of the art technology with micro-second transaction times. It is openfor trading Monday through Friday from 8pm ET to 5pm ET. Trading closesfor the weekend at 5pm ET on Friday and opens again at 6pm ET onSunday. The trading platform is open for order entry a half hour before thestart of trading.• Source: http://www.theniba.com/nibajournal/13-01-06/ICE_Launches_First_Indian_Rupee_Futures_at_a_U_S_Exchange_on_Jan_22.aspx12Mrs. Charu Rastogi,Asst.Professor
  13. 13. Emerging importance of Indian Rupee• The Indian rupee has grown rapidly to become the sixteenthmost traded currency in the world.• Approximately $70 billion in turnover a day• The rupee ranks among the most actively traded of theemerging market currencies, in the same class with theKorean won, Russian ruble, Chinese renminbi and Mexicanpeso• ICE Futures U.S. announced that it will launch a new cash-settled currency futures contract based on the Indianrupee/U.S. dollar exchange rate on Tuesday, January 22.• The listing of the Indian rupee contract recognizes theincreasing importance and integration of India into the worldeconomy and responds to mounting interest in exchange-traded products from market participants• Source13Mrs. Charu Rastogi,Asst.Professor
  14. 14. 14Mrs. CharuRastogi, Asst.Professor

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