A study on Exchange Rates and its impact on stock prices

SUMMER TRAINING PROJECT REPORT
(MBA - 035)
ON
“A study on Currency Exchange Rates and its impact on stock
prices”
AT
Bonanza Portfolio Limited, Delhi
Submitted in Partial Fulfillment of
Master of Business Administration (MBA)
Programme: 2012-14
of
Gautam Buddh Technical University, Lucknow
SUBMITTED BY
DAKSH BHATNAGAR
MBA - 3rd Semester
ROLL NO. - 1201470010
Faculty of Management Science
Shri Ram Murti Smarak College of Engineering& Technology,Bareilly
(014)

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A STUDY ON CURRENCY EXCHANGE RATES AND ITS IMPACT ON STOCK PRICES Page 2
To Whomsoever It May Concern
Date: - 25/11/2013
This is to certify that Mr. Daksh Bhatnagar, student of Shri Ram Murti Smarak College
of Engineering & Technology, M.B.A. (Marketing & Finance) (2012-14) batch, has
successfully completed his Summer Internship in Bonanza Human Resource Pvt. Ltd.
from 5th June 2013 to 25th July 2013 on the topic:
"A study on Currency Exchange rates and its impact on stock prices”
During the training, I found him very sincere, hardworking and creative.
I wish success in his future endeavors.
Authorized Signatory
For Bonanza Human Resource Pvt. Ltd.
Asst. Manager - HR
(Ms. Charu Srivastava)

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Shri Ram Murti Smarak College of Engineering & Technology,
Bareilly (U.P.)
Faculty of Management Science
Certificate
This is to certify that Mr. Daksh Bhatnagar, a regular student of MBA 2012 Batch has
undergone Summer Training in Bonanza Portfolio Limited, Daryaganj on the topic of A
Study on Currency Exchange Rates and its impact on stock prices for a period of 6
weeks commencing from 10 June 2013 to 26 July 2013.
This Summer Training Project Report embodies the facts and figure collected and
interpreted by him/her during the course of Training.
This Certificate is issued by the undersigned on the basis of the Summer Training
Certificate of the organization in which the student completed the Summer Training
during above period.
(Dr. Anant Kumar Srivastava) Date:
Head - MBA Place: Bareilly

DAKSH BHATNAGAR
DECLARATION
I, Daksh Bhatnagar, Roll No: 1201470010, declare that I have completed my summer
internship at Bonanza Portfolio Limited, Delhi and submitted this project titled “A Study
on Currency Exchange Rates and its impact on stock prices” towards partial
fulfilment of the requirements for the award of the Post Graduate Diploma in
Management from SRMSCET, Bareilly.
This report is the result of my own work and to the best of my knowledge no part of it has
earlier comprised any other report, monograph, and dissertation.
Daksh Bhatnagar
1201470010

DAKSH BHATNAGAR
ACKNOWLEDGEMENT
I, Daksh Bhatnagar, a student of MBA IIIrd Semester, sincerely thank Mr. Dev
Murti, the Chairman of Shri Ram Murti Smarak College of Engineering and Technology,
Bareilly for being associated with this reputed Institute for my M B A studies.
I am grateful and wish to place on record my sincere thanks to Dr. Anant K. Srivastava,
Head of Management Department, for the leadership and guidance and Dr. Deepesh
Tiwari (Faculty Mentor) for the moral, academic and problem solving support without
which this project report would not have come up to its present form. At this point of
time I would not forget Mr. Gaurav Sahni, Branch Manager, Bonanza Portfolio Limited,
New Delhi and would like to thank him and the employees of Bonanza Portfolio Limited,
New Delhi for everything they have done for me.
Last but not the least, I would also like to thank my colleagues and staff of the
MBA department and employees of this elite Institute for whatever they have done for
helping me out every time in completion of this project report,
I would also like to extend a vote of thanks to all those people and the websites
who guided or directed me in bringing this project to the reality. Without their guidance
and proper support this project report would not have been possible for me to prepare.
Daksh Bhatnagar

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EXECUTIVE SUMMARY
This project report gives its readers the insight about an 18 year old broking firm
named Bonanza Portfolio Limited located in Daryaganj, New Delhi. The project can be a
source of providing information about contact details, organizational structure and
hierarchy of Bonanza, its group companies, its working, what are the Business processes
the firm has adopted in order to deliver the services in ways that satisfy their clients to
maximum, what the firm’s achievements, strengths, weaknesses, opportunities and
threats are, what are the marketing strategies adopted by the firm, how the firm has
grown since its inception in 1994, what kind of financial services Bonanza provides to
their clients
The project report also mentions Currency exchange rates and its impact on stock
prices of Indian market. In the global scenario, each currency has its own value against
other currencies and when that value changes there is an effect on two currencies under
consideration. When comparing two currencies, value of one depreciates as the value of
other appreciates. The researcher, by this project report, has tried to throw some light on
how and why currency came into the existence. Earlier there was Barter system but why
the need of currency was felt, the report mentions the need. In Indian scenario, RBI is the
body which maintains the rate of inflation and plays a pertinent role in governing the
exchange rate of Indian currency.
This report also discusses how the Indian rupee evolved over the years i.e. how it
was at the time of kings and when India was ruled by East India Company and how it has

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changed its face. Some light over the symbol of Indian rupee, NIFTY, Bombay stock
Exchange, import & export, factors affecting import & export has also been thrown
The researcher has tried to bring out the factors that determine the value of
exchange rates and how exchange rates govern prices of a stock of a listed company.
Some graphs and tables showing the fluctuations in value of Indian Rupee against US
Dollar, Britain’s Pound, Japan’s Yen over the months or years have also been attached
for better understanding and for supporting the analysis and interpretation done after the
facts and figures.

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CONTENTS
PART A - ABOUT THE ORGANIZATION
S. No. Particulars Page No.
1. Origin, vision and mission 13
2. Business profile 4
3.
4.
5.
Functional areas
Organizational structure
Product/ Service ranges
6
9
11
6. Achievements/recognitions 18
7. Comparative performance of the organization 19
8. SWOT Analysis 21
9.
10.
1.
2.
3.
Marketing strategies
Business processes
PART B - ABOUT THE STUDY/PROBLEM
Introduction of the topic
Scope and objectives of the study
Research design
3.1 Need of Currency
3.2 History Of Indian Rupee
3.3 Indian Rupee’s symbol
3.4 Types of Currency
24
26
31
32
33
33
35
36
37

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4.
5.
6.
7.
3.5 Production and Control of Currency
3.6 Currency Convertibility
3.7 Import and Export
3.8 Factors affecting Import-Export
3.9 History of Forex in India
3.10 The effect of fluctuating exchange rates on currency
3.11 Reasons of Rupee appreciation or depreciation in the
global market
3.13 Impact of rupee appreciation or depreciation on the
economy
3.14 Determinants of Exchange rate
3.15 National Stock Exchange
3.16 Bombay Stock Exchange
Data analysis and interpretation
Findings, recommendations and limitations
Bibliography
Annexure
40
46
47
55
56
61
63
64
66
70
75
81
82
85
86

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LIST OF TABLES
Table No. Particulars Of The Table Page Number
1.
2.
Business Profile Of Bonanza Portfolio Limited
SEBI Registration Codes And Dates
11
17
3. Various Sessions And Timings Of Trade In Share
Market
82
4. Exchange Rate Fluctuations Over The Years 84

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LIST OF FIGURES
Figure No. Particulars Page No.
1. Bonanza’s logo
2. Hierarchy of Bonanza Portfolio Limited 23
3.
4.
Chart showing the number of clients of Bonanza since the
year 2007
Bonanza’s market share in various exchanges
32
33
5. Diagrammatic representation of the impact of rupee
appreciation or depreciation on several industries
79
6.
7.
Graph of exchange rates of Indian rupee (INR) per 1 USD, 1
GBP, 1 EUR, 100 JPY averaged over the month, from
September 1998 to September 2012.
Graph representing fluctuations in INR over the years against
US Dollar
91
91
8. Fluctuations in Indian Rupee against US Dollar from Dec
2012 to July 2013
93

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Part A
ABOUT THE ORGANIZATION

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Chapter 1
ORIGIN, MISSION AND VISION
Products and services are offeredby the manufacturers and providers to satisfy want and
demands. Financial services are the services offeredby a service provider to assist the
investors in minimizing risk and getting good returns out of their investment at the same
time and protect them from facing any loss. Bonanza Portfolio Limited is also one of the
financial service providers operating in India. An organization has some vision and
values which are followed and keeping which in mind an organization runs its business.
So let’s go through Bonanza’s origin, vision and values,
1.1 ORIGIN
Established in the year 1994, Bonanza developed into one of the largest financial
services and broking house in India within a short span of time. Today, Bonanza is the
fastest growing financial service with 5 mega group companies under it. With diligent
effort, acknowledged industry leadership and experience, Bonanza has spread its
trustworthy expertise all over the country with pan-India presence across more than 1784
outlets spread across 560 cities.
Fig. 1: Bonanza’s logo

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Bonanza offers the perfect blend of financial services right from equity broking,
advisory services that cover Portfolio management services, Mutual Fund investments,
Insurance to exceptional Depository services.
Bonanza is affiliated with the best in the industry –NSE, BSE, MCX, MCX-SX to
CDSL, NSDL, ICEX, USE etc. - making them a strong competitor, prove their worth in
the market and justify the reason of their survival since their inception. Following are
Bonanza’s group companies:-
 Bonanza Portfolio Ltd.
 Bonanza Commodity Brokers (P) Ltd.
 Bonanza Insurance Brokers (P) Ltd.
 Bonanza Global DMCC, Dubai
 Sunglow Fininvest Pvt. Ltd
 Bonanza Corporate Solution Pvt. Ltd.
 Bonanza Medical Tourism Pvt. Ltd.
 Bonanza Buildtech Pvt. Ltd.
 Bonanza Bullion Pvt. Ltd.
1.2 VISION
To be one of the most trusted and globally reputed financial distribution companies

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1.3 VALUES
Following are the values in which Bonanza Portfolio Limited strongly believes in:-
a. CUSTOMER CENTRIC APPROACH
At Bonanza, customers come first. Just like any other well-established broking house
like SMC, Religare or Indiabulls, Bonanza also puts their customers first and their
satisfaction is one of the top most goals to achieve by the employees at the organization
b. TRANSPARENCY
Honesty is Bonanza’s forte. The organization believes in thoroughly ethical grounds,
being fair and transparency in the dealings with customers. They highly condemn any
unfair practices (if found being practiced) by any of the employee
c. MERITOCRACY
At Bonanza Portfolio Limited, efforts put in by the employees are recognized and
appreciated. Even the employees are rewarded and are distinguished endlessly
d. SOLIDARITY
The firm believes in sharing a forthright and respectful relationship with their business
partners and employees. They consider them both as their team associates, who work
together and succeed together.

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Chapter 2
BUSINESS PROFILE
Business profile means the profile of a business, like which Industry does an organization
falls under, how much revenue is being generated, what is the type of business entity and
so on. Business profile needs to have clear objectives.
There are two types of business profile; one type is for the business to put on the website
or other publications. This type of business file will help your potential clients to quickly
understand the business. Another business profile is for the marketing and sales
professionals, the objective is to understanding the particulars of their clients and thus
anticipating their needs.
Table 1: Business Profile of Bonanza Portfolio Limited
Type Privately owned
Industry Service
Founded 1993
Services Financial Services
Clients (as on March 2013) 440,000
Employees 1800-2000

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Table 2: SEBI Registration codes and dates on which Bonanza was registered with the
exchanges
NSE BSE MCX-SX USE
Cash
Market
INB230637836-
03-11-1984
INB011110237-
06-07-2000
------ -------
Derivative
Segment
INF230637386-
11-07-2000
INF011110237-
31-08-2001
------ --------
Currency
Segment
Derivative
INE230637386-
29-08-2008
------- INE260637836-
07-10-2008
INE270637833-
16-09-2010
Depository
Services
NSDL
IN-DP-NSDL-
128-2000
27-08-2010
CDSL
IN-DP-CDSL-
240-2004
01-06-2009
------ -------
PMS INP000000985-
30-04-2010

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Chapter 3
FUNCTIONAL AREAS
An organization could be small, medium or of large size. For small enterprises, we might
not need various departments but for large firms like Sony, Reliance etc., a problem of
handling the work and responsibility creeps in. So for every different SBU, we separate
the organization into various departments like Accounts Dept. for taking care of the
accounting work, HR Dept. for managing the human resources of the organization and so
on and so forth. These various departments are known as Functional areas as each
department performs a separate function. Now let’s have a look over the functional areas
of Bonanza Portfolio Limited, Daryaganj.
3.1 HUMAN RESOURCE DEPARTMENT
Bonanza has a young dynamic team of 1800 professionals & 6000 off roll employee as
on 31st December 2012. Recruitment is totally done on the basis of interview. Firstly the
candidate will go through the interview conducted by HR Dept., if he/she passes it then
he has to face Branch Manager in an interview. Mostly people get selected after the
approval of Branch Manager. However if Branch Manager is in a dilemma of selecting
the person, then at the final stage he/she will be judged by Vice-President. On the basis of
candidate’s performance, he/she is rated on scale of 10 in an interview evaluation sheet.

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3.2 MARKETING & SALES DEPARTMENT
Marketing by Bonanza is done through Hoardings, Banners, Seminar, Pamphlets,
Newspaper, Electronic Media and CNBC Awaaz
3.3 ACCOUNTS DEPARTMENT
Bonanza has an accounts department where Chartered Accountants handle their accounts
3.4 COMPLIANCE DEPARTMENT
This department makes sure that all the rules and laws laid down by the government are
complied with or not.
3.5 INFORMATION TECHNOLOGY DEPARTMENT
Since Bonanza is a broking firm, it cannot afford to trade manually which is why they
need to have computer systems of good working condition with high speed internet
connection. If any discrepancy with the system or internet connection creeps in, then the
problem is taken care by the IT department
3.6 RISK MANAGEMENT SYSTEM DEPARTMENT
With investment, two terms are attached with it i.e. Risk and Return. Risk refers to
uncertainty that the actual outcome will be different than the expected outcome in an
investment. In share market, many types of risks are involved. These risks can be for

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investors as well as for brokers. So this particular department gets an over watch of the
risk and tries to manage the risk.

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Chapter 4
ORGANIZATION STRUCTURE AND HIERARCHIES
An organizational structure consists of activities such as task allocation, coordination and
supervision, which are directed towards the achievement of organizational aims. It can
also be considered as the viewing glass or perspective through which individuals see their
organization and its environment. An organization can be structured in many different
ways, depending on their objectives. The structure of an organization will determine the
modes in which it operates and performs.
Organizational structure allows the expressed allocation of responsibilities for different
functions and processes to different entities such as the branch, department, workgroup
and individual. Organizational structure affects organizational action in two big ways.
First, it provides the foundation on which standard operating procedures and routines rest.
Second, it determines which individuals get to participate in which decision-making
processes, and thus to what extent their views shape the organization’s actions
The organizational structure of Bonanza Portfolio Limited is discussed below:-

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Fig 2: Hierarchy in Bonanza Portfolio Limited, Daryaganj
DIRECTOR
VICEPRESIDENT
BRANCH
MANAGER
RELATIONSHIP
MANAGER
ASSTRM &
DEALER

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Chapter 5
PRODUCTS/ SERVICES’ RANGE
Bonanza Portfolio Limited doesn’t manufacture anything; they provide financial
assistance to their clients. Following are the areas in which Bonanza Portfolio Limited
render services and satisfies its investors and clients:-
5.1 PORTFOLIO MANAGEMENT SERVICES
Portfolio is none other than Basket of Stocks. Portfolio Management is the professional
management of various securities (shares, bonds and other securities) and assets (e.g.,
real estate) in order to meet specifiedinvestment goals for the benefit of the investors.
a. Equity
b. Mutual Fund
5.2 CURRENCY DERIVATIVES
Currency Derivatives are Future and Options contracts which you can buy or sell specific
quantity of a particular currency pair at a future date. It is similar to the Stock Futures and
Options but the underlying happens to be currency pair (i.e. USDINR, EURINR, JPYINR
OR GBPINR) instead of Stocks. A future contract of USDINR of expiry 27th Jan, 2012
will be represented by symbol ‘FUTCUR-USDINR-27JAN2012’. A call option contract
of USDINR of expiry 27th Jan, 2012 for Strike Price ‘46’ will be represented by symbol
‘OPTCUR-USDINR-27JAN2012-46-CE’.

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1. INVESTMENT BANKING - Bonanza Corporate Solutions Pvt. Ltd. (BCS) is a
member of Bonanza Group focused on providing financial & strategic business
advisory services for Indian Small and Medium Enterprises (SMEs) & middle
market Corporate with the primary objective of enhancing our client’s
competitiveness & value.
The Customer centric & research based approach enables them to design
services to meet the clients’ specific needs with high level of customization at
every stage of the transaction, making them valued partners for growth.
BCS specializes in providing advisory services towards strategic Business
Advisory, Venture Capital / Private Equity Fund Raising, Debt Syndication,
Strategic Investments, and Mergers & Acquisitions. BCS is also engaged in
advisory for domestic as well as foreign private equity / venture capital investors
for deal flow generation, pre-investment due diligence, valuation, post-investment
monitoring and exit strategy.
2. DISTRIBUTION
a. Insurance- Bonanza also provides insurance. These are of two types
i. LIFE INSURANCE - Life is full of unexpected surprises. Unpredictable
events can strike without warning and disrupt the smooth rhythm of life
at any time. Therefore, one must always ensure the financial security of
his/her family! Here are some of the plans Bonanza offers:
o Traditional Insurance Solutions
o Investment Linked Plans (ULIPs)

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o Guaranteed Return Plans
o Monthly Income Schemes
ii. GENERAL INSURANCE - Bonanza not only helps manage life covers
but also individual’s life in general. They believe in taking precautions
and staying protected from mishaps which can occur at any time, any
place. That’s why Bonanza offers you some of the best plans available
in General Insurance segment:
o Motor Insurance
o Health Insurance Program
o Fire Insurance
o Burglary Insurance
o Travel Insurance
b. IPO (Initial Public Offer) – When shares are being offered by any company to
public for purchasing in market for the first time, then it is known as IPO. An
IPO has a certain opening and closing date. An IPO must be atleast 90%
subscribed of what the firm has offered to the public before the closing date
otherwise the whole IPO gets cancelled and the money so collected must be
returned back to the public.
c. Mutual Funds - A Mutual Fund is a trust that pools together the savings of a
number of investors who share a common financial goal. The collected money
is then invested in capital market instruments such as shares, debentures and

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other securities. Each mutual fund has a pre-defined objective, so you can
choose a fund that is more suitable to your requirements.
The income earned through these investments and the capital appreciation
realized is shared by its unit holders in proportion to the number of units owned by
them. Thus a Mutual Fund is the most appropriate investment option for the
common man as it offers an opportunity to invest in a diversified and
professionally managed basket of securities at a relatively low cost.
d. Fixed Deposit - A fixed deposit (FD) is a financial instrument provided by
Indian banks which provides investors with a higher rate of interest than a
regular savings account, until the given maturity date. It may or may not
require the creation of a separate account. It is known as a term deposit or time
deposit in Canada, Australia, New Zealand, and the US, and as a bond in the
United Kingdom. They are considered to be very safe investments. The
defining criterion for a fixed deposit is that the money cannot be withdrawn
from the FD as compared to a recurring deposit or a demand deposit before
maturity. It's important to note that banks may offer lesser interest rates under
uncertain economic conditions. The interest rate varies between 4 and 11
percent. Company Fixed Deposits are the fixed deposits schemes offered by a
company and it earns a fixed rate of return over a period of time. Such deposits
are also accepted by Financial Institutions and Non-Banking Finance

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Companies (NBFCs). Company Deposits offer higher rate of interests than
normal Fixed Deposits.
1. Equity & Derivatives – The firm deals in equity shares and derivatives. Shares
are a share in a company’s share capital. It is the smallest unit of an
organization’s share capital. Public buy shares and get dividends according to
market conditions and dividend policy of the organization.
Derivatives are a contract between two parties that specify conditions
(especially the dates, resulting values and definitions of the underlying
variables, the parties' contractual obligations, and the notional amount) under
which payments are to be made between the parties. The most common
underlying assets include commodities, stocks, bonds, interest rates and
currencies. Derivative transactions include a variety of financial contracts,
including structured debt obligations and deposits, swaps, futures, options, caps,
floors, collars, forwards, and various combinations of these.
3. DEPOSITORY - In India, a Depository Participant (DP) is described as
an agent of the depository. They are the intermediaries between the depository and
the investors. The relationship between the DPs and the depository is governed by
an agreement made between the two under the Depositories Act. In a strictly legal
sense, a DP is an entity who is registered as such with SEBI under the sub section
1A of Section 12 of the SEBI Act. As per the provisions of this Act, a DP can
offer depository-related services only after obtaining a certificate of registration

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from SEBI. Depository is an institution or a kind of organization which holds
securities with it, in which trading is done among shares, debentures, mutual
funds, derivatives, F&O and commodities. The intermediaries perform their
actions in variety of securities at Depository on behalf of their clients. These
intermediaries are known as Depositories Participants. Fundamentally, there are
two sorts of depositories in India and are enlisted below:-
a. National Securities Depository Limited (NSDL)
b. Central Depository Service (India) Limited (CDSL).
Every Depository Participant (DP) needs to be registered under this Depository
before it commences its operation or trade in the market.
Bonanza is offering a multitude of services under one roof also includes
unparalleled Depository Services. Bonanza Portfolio Ltd. is a registered member /
Depository Participant of both CDSL (Central Depository Services Ltd.) and
NSDL (National Securities Depository Ltd.), thus giving the clients an option to
not only choose their depository services but also the opportunity of trading at one
place.
4. COMMODITY - In economics, a commodity is a marketable item produced to
satisfy wants or needs. Economic commodities comprise goods and services.
Commodities like Gold, Silver, Copper, Jwar, Chana etc. which are used in day-
to-day life are also traded through a broking house. Actually SEBI defines a lot

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size of these commodities and that much quantity must be bought by an investor or
in multiple of the lot size defined in order to purchase a commodity. Let’s say
SEBI has defined a lot size of 100grams for Gold. This implies that an investor
must at least buy 100g or in a multiple of 100.
5. INSTITUTIONAL BROKING - Bonanza also cater to the investment needs of
leading corporate houses and institutions. Their specialized services consist of the
most experienced market professionals and the Institutional Broking Services are
backed by an insightful research team who provide the most in-depth reports on
the markets. Bonanza live to serve their clients every exclusive need through their
extensive knowledge repository and perfect blend of counseling, guidance and
management. At Bonanza, employees blend caution with aggression in the desired
proportion for the benefit of our clients.
6. E-BROKING - Bonanza believes in being up-to-date with the latest in markets and
technology. Keeping that in mind, we bring our customers the Online Trading
feature so that they can trade from anywhere, anytime, anyplace at their own
convenience. Clients can now keep track of their trading accounts, receive advice
during trading hours and keep an eye on the market all through online broking. It’s
tremendously fast, gives you freedom from paperwork and the necessary
statements are available to you all the time. Internet has changed the way you do
trading.

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Chapter 6
ACHIEVEMENTS/ RECOGNITIONS
Following are the achievements and recognitions of Bonanza:-
 Awarded by BSE Major Volume Driver 04-05,06-07,07-08
 Top Equity Broking House in terms of branch expansion for 2008*
 Nominated among the Top 3 for the "Best Financial Advisor Awards 08" In The
Category Of National Distributors – Retail Instituted By CNBC-TV18 And
Optimix”*
 Ranked 2nd by UTI MF & CNBC TV 18 Financial Awards 2009 in the category
Best Financial Advisor- Retail
 5th largest in terms of no. of offices for the year 2010-2011
 4th in terms of Trading terminals for the year 2010-2011*
 6th in terms of Sub Brokers for the year 2010-2011*
 India's No. 1 Valuable Financial Advisory & Stock Broking Company - as per
Business Leadership Award 2012 organized by the India Leadership Conclave and
Indian Affairs Magazines.
 Top 4 in Commodity Segment in Bloomberg UTV
*As per the survey by DUN & BRADSTREET

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Chapter 7
COMPARATIVE PERFORMANCE OF THE ORGANIZATION
Following are some of the important indicators on the basis of which we can compare the
performance of Bonanza Portfolio Limited:-
Fig 3: Number of clients of Bonanza since 2007 to 2013
0
50000
100000
150000
200000
250000
300000
350000
400000
450000
500000
FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY '13
Clients
Clients

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Fig 4: Bonanza’s Market share in various exchanges

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Chapter 8
SWOT ANALYSIS
SWOT Analysis means analysis of internal environment and external environment. The
internal environment comprises of SW where S stands for Strengths while W for
Weaknesses. The external environment comprises of OT where O stands for
Opportunities while T is for Threats. This analysis is done in order to locate and identify
those areas where an organization is strong or weak. By doing SWOT analysis, an
organization can also formulate various strategies to sustain the cut throat competition.
Now let’s have a look at various strengths, weaknesses, opportunities and threats of
Bonanza Portfolio Limited.
STRENGTHS
1. For any broking house, research dept. is must. Bonanza has its research dept. in
Bombay from where advices regarding sale and purchase of stock are pro vided to the
employees so that they can suggest the clients. These advices are also flashed on
screen if a person is using the software named ODIN Diet client.
2. Bonanza has over 1782 outlets in more than 575 cities in India (as on 31st December
2012)
3. Bonanza has more than 4,40,000 clients comprising of Corporate Financial
Institutions & Investors, Mutual Funds, High Net-worth Individuals and Retail
Investors

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4. Bonanza has a young dynamic team of 1800 professionals & 6000 off roll employee.
(as on 31st December 2012)
5. Strong infrastructure supporting over 5000 trading terminals to support geographic
reach and servicing capabilities.
6. 24x7 service and support via federal support system.
7. Infoline (one of the competitors of Bonanza Portfolio Limited) has H.O in Bombay
while Bonanza has H.O in Delhi/NCR region. It is because of this reason clients have
to wait
WEAKNESSES
1. Do not focus much on advertising
2. Since Bonanza Portfolio Ltd. sell its services across many sectors, it may not have the
flexibility of some of its more focused competitors
OPPORTUNITIES
1. Still there are people who have money in their pockets but they are unaware about
how market works or what are the complications
2. Tapping the untapped markets
THREATS
1. SMC, Angel Broking and ShareKhan are the some of the threats to the firm.

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2. Competitors are charging comparatively less rate of brokerage which snatches
away the potential clients from Bonanza’s hands

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Chapter 9
MARKETING STRATEGIES
Marketing strategy is made up of two words i.e., marketing (which means satisfying the
customers by providing quality goods and services to him as per their demands) and
strategy (which means a long term planning that helps us survive the competition
sustainably). It serves as the fundamental underpinning of marketing plans designed to
fill market needs and reach marketing objectives. Commonly, marketing strategies are
developed as multi-year plans, with a tactical plan detailing specific actions to be
accomplished in the current year. Time horizons covered by the marketing plan vary by
company, by industry, and by nation, however, time horizons are becoming shorter as the
speed of change in the environment increases. Marketing strategies are dynamic and
interactive. They are partially planned and partially unplanned. See strategy dynamics.
Marketing strategy needs to take a long term view, and tools such as customer lifetime
value models can be very powerful in helping to simulate the effects of strategy on
acquisition, revenue per customer and churn rate.
Marketing strategy involves careful scanning of the internal and external
environments. Internal environmental factors include the marketing mix and marketing
mix modeling, plus performance analysis and strategic constraints. External
environmental factors include customer analysis, competitor analysis, target
market analysis, as well as evaluation of any elements of the technological, economic,
cultural or political/legal environment likely to impact success. A key component of

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marketing strategy is often to keep marketing in line with a company's
overarching mission statement.
Once a thorough environmental scan is complete, a strategic plan can be constructed to
identify business alternatives, establish challenging goals, determine the optimal
marketing mix to attain these goals, and detail implementation. A final step in developing
a marketing strategy is to create a plan to monitor progress and a set of contingencies if
problems arise in the implementation of the plan.
Marketing Mix Modeling is often used to help determine the optimal marketing budget
and how to allocate across the marketing mix to achieve these strategic goals. Moreover,
such models can help allocate spend across a portfolio of brands and manage brands to
create value.
Though Bonanza also follows the basic process of Marketing Strategy but, as mentioned
earlier, it doesn’t focus much on marketing. Bonanza adopts various strategies like giving
advertisements in newspapers, electronic media, press releases, hoardings and banner, by
conducting and participating in seminar, by printing and distributing pamphlets.

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Chapter 10
BUSINESS PROCESSES
A business process is a collection of related, structured activities or tasks that produce a
specific service or product (serve a particular goal) for a particular customer or
customers. It often can be visualized with a flowchart as a sequence of activities with
interleaving decision points or with a Process Matrix as a sequence of activities with
relevance rules based on the data in the process. There are three types of business
processes:
1. Management processes, the processes that govern the operation of a system.
Typical management processes include "corporate governance" and "strategic
management".
2. Operational processes, the processes that constitute the core business and create
the primary value stream. Typical operational processes are purchasing,
manufacturing, advertising and marketing, and sales.
3. Supporting processes, which support the core processes. Examples include
accounting, recruitment, call center, technical support.
Talking about the recruitment, it is totally done on the basis of interview. Firstly the
candidate will go through the interview conducted by HR Dept.; if he/she passes it then
he has to face Branch Manager in an interview. Mostly people get selected after the
approval of Branch Manager. However if Branch Manager is in a dilemma of selecting

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the person, then at the final stage he/she will be judged by Vice-President. On the basis of
candidate’s performance, he/she is rated on scale of 10 in an interview evaluation sheet.
There is a proper process for sale. Sales executive approaches potential clients
(through door to door marketing) and try to convince them to open a trading account with
Bonanza Portfolio Limited. This can be convincingly through phone calls also. People
sitting at the office dials up the number of potential clients and follow up those clients. If
they are convinced, then a venue and time for a meeting (by mutual consent) is agreed
upon for clarifications about how to trade and what all is necessarily required to trade. A
Know Your Customer (KYC) form is given to the client, the form is filled up by the
client and is submitted along with account opening fee to the representative of the
Bonanza Portfolio Limited. The form is taken from the client and trading account is
opened up
Since Bonanza Portfolio Limited is also a depository participant, it also opens up
DEMAT account. At Bonanza Portfolio Limited, there are two ways of opening up a
DEMAT account.
 By paying Rupees 333 - No Annual Maintenance charges shall be charged for the
first year from date of opening the account. Thereafter, Rupees 270 per year will
be charged.
 By paying Rupees 999 – Client doesn’t have to pay any Annual maintenance
charges for the whole lifetime

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At Bonanza, deals are made after call recording. Since dealers have targets they tend to
buy or sell stocks at their own choice not after getting confirmation from client. In this
process, client might face some loss although he didn’t even intend to buy or sell stocks.
So, in order to protect the investors from running into any issues as to why the dealer
touched the securities, calls are recorded. If such issue arises at a later date, the firm has a
proof that dealer is clean and did nothing with the clients’ stocks.
As far as payment is concerned, it is done through cheque. Either client can submit the
cheque in the office or if the client is unable to do the same, a relationship manager meets
the clients at a place both the parties agreed upon and collects the cheque from him/her.
Bonanza provides limit for ‘A’ category shares as per SEBI guidelines. This means that
there are 3 types of shares available in the market i.e., A, B and C. Bonanza don’t provide
any limit to either B or C category shares. Sometimes, buyers or sellers of a security do
not exist. Those shares are of no use. Such shares fall under B or C category shares.
Whenever buyers for a security are not available, then it is known as DOWN FREEZE
and when sellers for a security are not available, then it is known as UPPER FREEZE
People might pretend as if they own shares, which actually they don’t, and sell it
off to others. This becomes a problem for a buyer as he has paid money and in return, got
nothing. So, SEBI arranges shares and transfers share of the same worth in his/her
DEMAT account. Being a malpractice, SEBI also keeps a check over such activities.

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Part B
ABOUT THE STUDY/ PROBLEM

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Chapter 1
INTRODUCTION OF THE TOPIC
Daily we come across news like Rupees’ value slides to 59. We see levels of
Indian Rupee going up or falling down against US Dollar. On August 28, 2013, its value
came down as low as 68.80 Rupees (an all-time low) which indeed is a subject of big
concern. Have you ever wondered what happens when value of a currency appreciate or
depreciate? Well, in this era of globalization where a slightest change in one aspect can
affect the nations related to that aspect, we cannot overlook the frequent fluctuations of
exchange rates which puts a huge impact on an economy of a nation. The problem area
deals with the same.
The effort has been made to dig out what a currency is, its types, how the
exchange rates gets affected and how exchange rates affect stock prices of various listed
companies. Here one thing is of great relevance that why and how paper notes and coins
came into being and how it evolved over the years and came to the form it is in.

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Chapter 2
SCOPE AND OBJECTIVE(S) OF THE STUDY
The scope of the study is that it can be helpful for those who want to conduct a detailed
study on the topic. It can be helpful in further research on the same.
The objective of the study is to understand those factors which affect foreign exchange
rates and how the exchange rates impact prices of shares of various listed companies. The
problem study deals with the various types of currencies like Dollar of US, Pound of
Britain, Yen of Japan and Indian Rupee. It also deals with how Indian Rupee’s value has
depreciated over the years against all the currencies mentioned earlier.

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Chapter 3
RESEARCH DESIGN
According to Philips “Research Design is the blueprint for the collection, measurement
and analysis of data”. Since, in today’s era each organization is in the extreme need of
research. Research proves to be quite helpful in gaining a competitive advantage over the
competitors. Basically, research design is a framework that gives the answers of what,
where, when, how much and by what means will a research study be conducted.
The research used here is CAUSAL RESEARCH as it tries to find out the cause and
effect relationship between exchange rates and stock prices. It tries to find out what are
the reasons due to which exchange rates fluctuates and what are its impact on the stock
prices of the stocks listed in a stock exchange. The data for carrying out the study has
been from the various websites, brochures and pamphlets printed by the organization.
3.1 NEED OF CURRENCY
For survival, an individual has to consume many goods and take services of
various people and since, one individual cannot produce or render all services all by
himself, he has to take help from others. If he/she doesn’t have something, then the
person in need can borrow or purchase it from the one who has the same thing in plenty
of amount. This concept laid the foundation of Barter System. People used to purchase
goods in return for goods. This is known as BARTER SYSTEM

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But there were certain limitations of this system which are jotted down as follows:-
a. HEAVY GOODS: Let’s say if an individual is in need of any commodity the
movement of which is next to impossible, then in that case it might prove to be a
tough job to move goods from the point of selling to the place where the buyer
wants to take the commodity.
b. DIVISIBILITY: Divisibility of goods can be a problem when it comes to barter
system. Because there are things like Camels, goats or cows which are of no use, if
divided. So, divisibility was also an issue of greater concern in Barter System
c. LACK OF STORE OF VALUE: In a barter economy, the store of value could be
done only in the form of commodities. However, we all know that commodities
are perishable and they cannot be kept for a long time in the store. Because of this
difficulty, the accumulation of capital or store of value was very difficult and
without the accumulation of capital, economic progress could not be made. It is
because of this reason that as long as barter system continued, significant progress
was not made in the world anywhere.
d. LACK OF DOUBLE COINCIDENCE OF WANTS: For instance if Ram wants a
fruit which Shyam has. So, in order to complete the exchange, Ram also must
have the commodity which Shyam desires. Otherwise there won’t be any
exchange

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All the above reasons forced the government to think hard and come up with something
that can eliminate the limitations of Barter System. That’s how money/coins came into
Indian scenario.
3.2 HISTORY OF INDIAN RUPEE
The Hindi word rūpiya is derived from Sanskrit word rūpya, which means
"wrought silver, a coin of silver" in origin an adjective meaning "shapely", with a more
specific meaning of "stamped, impressed", whence "coin". It is derived from the
noun rūpa. The word rūpa is being further identified as having sprung from
the Dravidian.
During his five year rule from 1540 to 1545, he set up a new civic and military
administration, Afghan king Sher Shah Suri issued a coin of silver, weighing 178 grains,
which was termed the Rupiya. The silver coin remained in use during the Mughal
period, Maratha era as well as in British India. Among the earliest issues of paper
rupees include; the Bank of Hindustan (1770–1832), the General Bank of Bengal and
Bihar (1773–75, established by Warren Hastings), and the Bengal Bank (1784–91).
The Indian rupee was a silver based currency during much of the 19th century;
which had severe consequences on the standard value of the currency, as stronger
economies at that time were on the gold standard. During British rule, and the first
decade of independence, the rupee was subdivided into 16 annas. Each anna was
subdivided into either 4 paisas, or 12 pies. So One rupee was equal to 16 Annas, 64

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Paises of 192 Pies. In 1957, decimalization occurred and the rupee was divided into 100
Naye Paise (Hindi/Urdu for new paisas). After a few years, the initial "Naye" was
dropped.
For many years in the early and mid-20th century, the Indian rupee was the
official currency in several areas that were controlled by the British and governed from
India; areas such as East Africa, Southern Arabia and the Persian Gulf.
3.3 INDIAN RUPEE’s SYMBOL
The Indian rupee is the official currency of the Republic of India. The issuance of
the currency is controlled by the Reserve Bank of India. The modern rupee is subdivided
into 100 paise (singular paisa), though as of 2011 only 50-paise coins are legal
tender. Banknotes in circulation come in denominations of Rs.5, Rs.10, Rs.20, Rs.50,
Rs.100, Rs.500 and Rs.1000. Rupee coins are available in denominations of Rs.1, Rs.2,
Rs.5, Rs.10, Rs.100 and Rs.1000; of these, the Rs.100 and Rs.1000 coins are for
commemorative purposes only; the only other rupee coin has a nominal value of 50 paise,
since lower denominations have been officially withdrawn.
The Indian rupee symbol, officially adopted in 2010, is derived from
the Devanagari consonant "र" (Ra) with an added horizontal bar. The symbol can also be
derived from the Latin consonant "R" by removing the vertical line, and adding two
horizontal bars (like the symbols for the Japanese yen and the euro). The first series of
coins with the rupee symbol was launched on 8 July 2011.

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The Reserve Bank manages currency in India. The Reserve Bank derives its role
in currency management on the basis of the Reserve Bank of India Act, 1934. Recently
RBI launched a website Paisa-Bolta-Hai to raise awareness of counterfeit currency
among users of the INR
3.4 TYPES OF CURRENCY
In an economy, there can be various forms of one currency which are mentioned below:-
a) PAPER MONEY
A banknote (often known as a bill, paper money or simply a note) is a type
of negotiable instrument known as a promissory note, made by a bank, payable to the
bearer on demand. When banknotes were first introduced, they were, in effect, a promise
to pay the bearer in coins, but gradually became a substitute for the coins and a form
of money in their own right. Banknotes were originally issued by commercial banks, but
since their general acceptance as a form of money, most countries have assigned the
responsibility for issuing national banknotes to a central bank
The idea of a using durable light-weight substance as evidence of a promise to pay a
bearer on demand originated in China during the Han Dynasty in 118 BC, and was made
of leather. The first known banknote was first developed in China during
the Tang and Song dynasties, starting in the 7th century. Its roots were in
merchant receipts of deposit during the Tang Dynasty (618–907), as merchants
and wholesalers desired to avoid the heavy bulk of copper coinage in large commercial

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transactions. During the Yuan Dynasty, banknotes were adopted by the Mongol Empire.
In Europe, the concept of banknotes was first introduced during the 13th century by
travelers such as Marco Polo, with proper banknotes appearing in 17th century Sweden.
b) COINS
Coins are pieces of hard material used primarily as a medium of exchange or legal
tender. They are standardized in weight, and produced in large quantities in order to
facilitate trade. They are most often issued by a government. Coins are usually metal
or alloy metal, or sometimes made of synthetic materials. They are usually disc shaped.
Coins made of valuable metal are stored in large quantities as bullion coins. Other coins
are used as money in everyday transactions, circulating alongside banknotes: these coins
are usually worth less than banknotes: usually the highest value coin in circulation (ie
excluding bullion coins) is worth less than the lowest-value note. In the last hundred
years, the face value of circulation coins has occasionally been lower than the value of
the metal they contain, for example due to inflation. If the difference becomes significant,
the issuing authority may decide to with draw these coins from circulation or the general
public may decide to melt the coins down or hoard them.
c) TOKENS
Tokens are coin-like objects used instead of coins. Tokens are used in place of coins
and either has a denomination shown or implied by size, color or shape. "Tokens" are

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often made of cheaper metals: copper, pewter, aluminum, brass and tin were commonly
used, while bakelite, leather, porcelain, and other less durable materials are also known.
The key point of difference between a token and a coin is that a coin is issued by a
governmental local or national authority and is freely exchangeable for goods or
other coins, whereas a token has a much more limited use and is often (but not always)
issued by a private company, group, association or individual.
d) PLASTIC MONEY
It is a generic name used for credit cards, debit cards, ATM cards. Now-a-days it’s not
safe to carry huge amount of cash with ourselves plus plastic money is compact as it fits
in a pocket and can be carried along easily. So, no one has to fear their money being lost
or stolen by any thief. Moreover, there are some other advantages of plastic money
written down as under:-
a) Purchasing Power: Credit or Debit cards made it easier to purchase things. Now
we don’t have any need to carry hard cash in a large amount. Plastic money is
accepted everywhere, anytime.
b) Time Saving: Through a credit card or debit card you can purchase anything from
anywhere without spend money on fare or cash transition. Just provide your card
details to seller store or companies and finalize your order. Now you don’t have
need to worry about time wastes. Use internet for minimum time consuming.
c) Extra Safety: While you are not carrying cash, how can it be lost? But if your
card has lost, just contact your bank or financial institution, which provide you

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cards. It will block the account and nobody can draw a single penny. So it is 100%
safe and tension free.
d) Credit Limits: You get an extra amount to spend with your card. This extra spent
money you can return before a fix time schedule or you will have to pay a little
interest. So there is no problem to having less money. Just use money without any
tension and
e) A need of emergencies: Think, that you have no time to go to bank or someone to
get money, what will you do? Definitely you will use your credit or debit card
which will give you confidence for your difficult time. We can say it a true friend
which help us in need.
f) Additional features: Mostly credit card offer additional benefits, as discount from
some particular stores, bonus in airline fare, free insurance policies and much
more. This discounts and bonus encourages you to purchase more things as it is
good for us.
3.5 PRODUCTION AND CONTROLOF CURRENCY
In India, the responsibility for production and the control of movement of currency
is given to the central bank i.e. RESERVE BANK OF INDIA (RBI). The present
governor of RBI is Mr. Raghuram Rajan. RBI prints all the currency notes of
denomination above than Rupee 1 (which is not a legal tender). A one-rupee note and all
coins are printed and minted, respectively by the Finance Ministry of Indian Government.
RBI frames policies through which it controls inflation as well as the flow of the currency

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in Indian economy. If RBI realizes that economy is unstable, measures are adopted which
are revised over a period of time to curb the inflation. The measure adopted through
which RBI tries to control the money in circulation is:-
1. MONETARY POLICY
It is the policy of the central bank of the country, which is the supreme monetary
and banking authority in a country. The central bank may use such methods as the bank
rate, open market operations, the reserve ratio and selective controls in order to control
the credit creation operation of commercial banks and thus restrict the amounts of bank
deposits in the country. This is known as tight money policy. Monetary policy to control
inflation is based on the assumption that a rise in prices is due to a larger demand for
goods and services, which is the direct result of expansion of bank credit. To the extent
this is true; the central bank’s policy will be successful. The tools of monetary policy
are:-
 REPO RATE: -A repurchase agreement, also known as a repo, RP, or sale and
repurchase agreement, is the sale of securities together with an agreement for the
seller to buy back the securities at a later date. The repurchase price should be
greater than the original sale price, the difference effectively representing interest,
sometimes called the REPO RATE. The party that originally buys the securities
effectively acts as a lender. The original seller is effectively acting as a borrower,
using their security as collateral for a secured cash loan at a fixed rate of interest.

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In other words, it is that rate at which RBI disseminates funds to commercial
banks of India. The present repo rate is 7.5%.
 REVERSE REPO RATE:- A reverse repo is simply the same repurchase
agreement from the buyer's viewpoint, not the seller's. Hence, the seller executing
the transaction would describe it as a "repo", while the buyer in the same
transaction would describe it a "reverse repo". So "repo" and "reverse repo" are
exactly the same kind of transaction, just being described from opposite
viewpoints.
The term "reverse repo and sale" is commonly used to describe the creation
of a short position in a debt instrument where the buyer in the repo transaction
immediately sells the security provided by the seller on the open market. On the
settlement date of the repo, the buyer acquires the relevant security on the open
market and delivers it to the seller. In such a short transaction the seller is
wagering that the relevant security will decline in value between the date of the
repo and the settlement date. In India, RBI uses repo and Reverse Repo techniques
to increase or decrease the liquidity in the market. To increase liquidity, RBI buys
government securities from banks under REPO; to decrease liquidity, RBI sells the
government securities to banks. The repo rate in India as of 18th Feb '13 was
7.75% and the reverse repo rate which is 100 bit/s below the repo rate stood at
6.75%.

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 CASH RESERVE RATIO (CRR):- It is the specific rate at which commercial
banks have to keeps funds with RBI at any given point of time. So, if the CRR
increases, purchasing power of people lowers down thus reducing demand which
will force the prices of commodity to fall down. On the other hand, if it increases
purchasing power of people will increase which in turn increases demand and
increases the prices of commodities as well
 STATUTORY LIQUIDITY RATIO (SLR):- It is the rate at which commercial
banks in India have to have funds with themselves in the liquid form (e.g. Cash,
Gold etc.) at any given point of time
2. FISCAL POLICY –
It is the policy of a government with regard to taxation, expenditure and public
borrowing. It has a very important influence on business and economic activity. Taxes
determine the size or the volume of disposable income in the hands of the public. The
proper tax policy to control inflation will avoid tax cuts, introduce new taxes and raise the
rates of existing taxes. The purpose being to reduce the volume of purchasing power in
the hands of the public and thus reduces their demand. A precisely similar effect will be
achieved if voluntary or compulsory savings are increased. Savings will reduce current
demand for goods and thus reduce the inflationary rise in prices.
As an anti-inflationary measure, government expenditure should be reduced.
This indicates that demand for goods and services will be further reduced. This policy of
increasing public revenue through taxation and decreasing public expenditure is known

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as surplus budgeting. However, there is one important difficulty is this policy. It may be
easy to increase revenue in times of inflation when people have more money income, but
difficult to reduce public expenditure. During war times as well as during a period of
development, it is absolutely impossible to reduce the planned expenditure. If the
government has already taken up a scheme or a group of schemes, it is ruinous to give
them up in the middle. Therefore, public expenditure cannot be used as an anti-
inflationary measure. Lastly, public debt, i.e., the debt of the government may be
managed in such a way that the supply of money in the country may be controlled. The
government should avoid paying back any of its previous loans during inflation so as to
prevent an increase in the circulation of money. Moreover, if the government manages to
get a surplus budget, it should be used to cancel public debt held by the central bank. The
result will be anti-inflationary since money taken from the public and commercial banks
is being cancelled out and is removed from circulation. But the problem is how to get a
budget surplus, which is extremely difficult.
3. PRICE CONTROL AND RATIONING
This is the most important and effective method available during war and
other critical times particularly because both monetary and fiscal policies are more or less
useless during this period. Price control implies the establishment to legal upper limits
beyond which prices of particular goods should not rise. The purpose of rationing, on the
other hand, is to distribute the goods in short supply in an equitable manner among all
people, irrespective of their wealth and social status. Price control and rationing generally

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go together. The chief objection behind use of this method to fight inflation is that they
restrict the freedom of the consumers and thus limit their welfare. Besides, its success
depends on administrative efficiency, which in many underdeveloped countries is very
low.
4. OTHER METHODS
Another important anti-inflationary device is to increase the supply of goods either
through increased production or imports. Production may be increased by shifting factors
of production from the production of less inflation sensitive goods, which are in
comparative abundance to the production of those goods which are in short supply and
which are inflation-sensitive. Moreover, shortage of goods internally may be relieved
through imports of inflation sensitive goods, either on credit or in exchange for export of
luxury goods and other non-essentials.
A word may be added about the measures to control cost-push inflation. It is
suggested that wages, salaries and profit margins should be controlled and fixed through
a system of income freeze. Business units may particularly welcome wage freeze.
However, wage freeze is not so easy or just, unless trade unions agree to the proposal and
there is also freezing of prices. At the same time, the Government should not raise the
rates of commodity taxes. Thus, it is difficult to control cost push inflation through
controlling wages and other incomes. The best method is to bring a rapid increase in
production, which will automatically check prices and wages also.

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3.6 CURRENCYCONVERTIBILITY
The ease with which a country's currency can be converted into gold or another
currency is called Currency Convertibility. Convertibility is extremely important for
international commerce. When a currency in inconvertible, it poses a risk and barrier to
trade with foreigners who have no need for the domestic currency. Convertibility of a
currency determines the ability of an individual, corporate or government to convert its
local currency to another currency or vice versa with or without central bank/gover nment
intervention. Based on the above restrictions or free and readily conversion features
currencies are classified as:
 FULLY CONVERTIBLE – When there are no restrictions or limitations on the
amount of currency that can be traded on the international market, and the
government does not artificially impose a fixed value or minimum value on the
currency in international trade. The US dollar is an example of a fully convertible
currency and for this reason; US dollars are one of the major currencies traded in
the FOREX market.
 PARTIALLY CONVERTIBLE – Central Banks control international investments
flowing in and out of the country, while most domestic trade transactions are handled
without any special requirements, there are significant restrictions on international
investing and special approval is often required in order to convert into other
currencies. The Indian Rupee is an example of a partially convertible currency.

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 NON CONVERTIBLE – Neither participates in the international FOREX market nor
allows conversion of these currencies by individuals or companies. As a result, these
currencies are known as blocked currencies. e.g.: North Korean Won and the Cuban
Peso
3.7 IMPORT AND EXPORT
IMPORT
Import is derived from the conceptual meaning as the goods and services into the
port of a country. The buyer of such goods and services is referred to an "importer" who
is based in the country of import where the overseas based seller is referred to as an
"exporter". Thus an import is any good (e.g. a commodity) or service brought in from one
country to another country in a legitimate fashion, typically for use in trade. It is a good
that is brought in from another country for sale. Imported goods or services are provided
to domestic consumers by foreign producers. An import in the receiving country is
an export to the sending country.
Imports, along with exports, form the basics of international trade. Import of goods
normally requires involvement of the customs authorities in both the country of import
and the country of export and are often subject to import quotas, tariffs and trade
agreements. When the "imports" are the set of goods and services imported, "Imports"
also means the economic value of all goods and services that are imported.
The macroeconomic variable I usually stand for the value of these imports over a given
period of time, usually one year.

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BALANCE OF TRADE represents a difference in value for import and export for a
country. A country has demand for an import when domestic quantity demanded exceeds
domestic quantity supplied, or when the price of the good (or service) on the world
market is less than the price on the domestic market.
A trade deficit occurs when imports are large relative to exports. Imports are impacted
principally by a country's income and its productive resources. For example,
the US imports oil from Canada even though the US has oil and Canada uses oil.
However, consumers in the US are willing to pay more for the marginal barrel of oil than
Canadian consumers are, because there is more oil demanded in the US than there is oil
produced.
There are two basic types of import:
1. Industrial and consumer goods
2. Intermediate goods and services
Companies import goods and services to supply to the domestic market at a cheaper price
and better quality than competing goods manufactured in the domestic market.
Companies import products that are not available in the local market.
There are three broad types of importers:
1. Looking for any product around the world to import and sell.
2. Looking for foreign sourcing to get their products at the cheapest price.
3. Using foreign sourcing as part of their global supply chain.

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Direct-import refers to a type of business importation involving a major retailer
(e.g. Wal-Mart) and an overseas manufacturer. A retailer typically purchases products
designed by local companies that can be manufactured overseas. In a direct-import
program, the retailer bypasses the local supplier (colloquial middle-man) and buys the
final product directly from the manufacturer, possibly saving in added cost data on the
value of imports and their quantities often broken down by detailed lists of products are
available in statistical collections on international trade published by the statistical
services of intergovernmental organizations (e.g. UNSTAT, FAOSTAT, OECD),
supranational statistical institutes (e.g. Eurostat) and national statistical institutes,
Industrial and consumer goods.
EXPORT
This term export derives from the conceptual meaning as to ship the goods and services
out of the port of a country. The seller of such goods and services is referred to as an
"exporter" who is based in the country of export whereas the overseas based buyer is
referred to as an "importer". In International Trade, "exports" refers to selling goods and
services produced in the home country to other markets.
Export of commercial quantities of goods normally requires involvement of the customs
authorities in both the country of export and the country of import. The advent of small
trades over the internet such as through Amazon and eBay has largely bypassed the
involvement of Customs in many countries because of the low individual values of these

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trades. Nonetheless, these small exports are still subject to legal restrictions applied by
the country of export. An export's counterpart is an import.
The theory of international trade and commercial policy is one of the oldest branches of
economic thought. Exporting is a major component of international trade, and the
macroeconomic risks and benefits of exporting are regularly discussed and disputed by
economists and others. Two views concerning international trade present different
perspectives. The first recognizes the benefits of international trade. The second concerns
itself with the possibly that certain domestic industries (or laborers, or culture) could be
harmed by foreign competition.
TRADE BARRIERS
Trade barriers are generally defined as government laws, regulations, policy, or practices
that either protect domestic products from foreign competition or artificially stimulate
exports of particular domestic products. While restrictive business practices sometimes
have a similar effect, they are not usually regarded as trade barriers. The most common
foreign trade barriers are government-imposed measures and policies that restrict,
prevent, or impede the international exchange of goods and services.
STRATEGIC TRADE BARRIERS
International agreements limit trade in, and the transfer of, certain types of goods and
information e.g. goods associated with weapons of mass destruction, advanced
telecommunications, arms and torture, and also some art and archaeological artifacts.
Examples include Nuclear Suppliers Group - limiting trade in nuclear weapons and

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associated goods (currently only 45 countries participate), The Australia Group - limiting
trade in chemical & biological weapons and associated goods (currently only 39
countries), Missile Technology Control Regime - limiting trade in the means of
delivering weapons of mass destruction (currently only 34 countries) and The Wassenaar
Arrangement - limiting trade in conventional arms and technological developments
(currently only 40 countries).
TARIFFS
A tariff is a tax placed on a specific good or set of goods exported from or imported to a
country, creating an economic barrier to trade. Usually the tactic is used when a
country's domestic output of the good is falling and imports from foreign competitors are
rising, particularly if there exists strategic reasons for retaining a domestic production
capability. Secondly, some failing industries receive a protection with an effect similar
to subsidize in that by placing the tariff on the industry, the industry is less enticed to
produce goods in a quicker, cheaper, and more productive fashion.
The third reason for a tariff involves addressing the issue of dumping. Dumping involves
a country producing highly excessive amounts of goods and dumping the goods on
another foreign country, producing the effect of prices that are "too low". Too low can
refer to either pricing the good from the foreign market at a price lower than charged in
the domestic market of the country of origin. The other reference to dumping relates or
refers to the producer selling the product at a price in which there is no profit or a

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loss. The purpose (and expected outcome) of the tariff is to encourage spending on
domestic goods and services.
Protective tariffs sometimes protect what are known as infant industries that are in the
phase of expansive growth. A tariff is used temporarily to allow the industry to succeed
in spite of strong competition. Protective tariffs are considered valid if the resources are
more productive in their new use than they would be if the industry had not been started.
The infant industry eventually must incorporate itself into a market without the protection
of government subsidies.
Tariffs can create tension between countries. Examples include the United States steel
tariff of 2002 and when China placed a 14% tariff on imported auto parts. Such tariffs
usually lead to filing a complaint with the World Trade Organization (WTO) and, if that
fails, could eventually head toward the country placing a tariff against the other nation in
spite, to impress pressure to remove the tariff.
SUBSIDIES
To subsidize an industry or company refers to, in this instance, a governmental providing
supplemental financial support to manipulate the price below market value. Subsidies are
generally used for failing industries that need a boost in domestic spending. Subsidizing
encourages greater demand for a good or service because of the slashed price.
The effect of subsidies deters other countries that are able to produce a specific product
or service at a faster, cheaper, and more productive rate. With the lowered price, these

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efficient producers cannot compete. The life of a subsidy is generally short-lived, but
sometimes can be implemented on a more permanent basis.
The agricultural industry is commonly subsidized, both in the United States, and in other
countries including Japan and nations located in the European Union (EU).
Critics argue such subsidies cost developing nations $24 billion annually in lost income
according to a study by the International Food Policy Research Institute, a D.C. group
funded partly by the World Bank. However, other nations are not the only economic
'losers'. Subsidies in the U.S. heavily depend upon taxpayer dollars. In 2000, the U.S.
spent an all-time record $32.3 billion for the agricultural industry. The EU spends about
$50 billion annually, nearly half its annual budget on its common agricultural policy and
rural development.
ADVANTAGES OF EXPORTING
Ownership advantages are the firm's specific assets, international experience, and the
ability to develop either low-cost or differentiated products within the contacts of
its value chain. The locational advantages of a particular market are a combination
of market potential and investment risk. Internationalization advantages are the benefits
of retaining a core competence within the company and threading it though the value
chain rather than obtain to license, outsource, or sell it. In relation to the Eclectic
paradigm, companies that have low levels of ownership advantages either do not enter
foreign markets.

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If the company and its products are equipped with ownership
advantage and internalization advantage, they enter through low-risk modes such as
exporting. Exporting requires significantly lower level of investment than other modes of
international expansion, such as FDI. As you might expect, the lower risk of export
typically results in a lower rate of return on sales than possible though other modes
of international business. In other words, the usual return on export sales may not be
tremendous, but neither is the risk. Exporting allows managers to exercise operation
control but does not provide them the option to exercise as much marketing control. An
exporter usually resides far from the end consumer and often enlists various
intermediaries to manage marketing activities.
DISADVANTAGES OF EXPORTING
For Small-and-Medium Enterprises (SME) with less than 250 employees, selling goods
and services to foreign markets seems to be more difficult than serving the domestic
market. The lack of knowledge for trade regulations, cultural differences, different
languages and foreign-exchange situations as well as the strain of resources and staff
interact like a block for exporting. Indeed there are some SME's which are exporting, but
nearly two-third of them sell in only to one foreign market. The following assumption
shows the main disadvantages:
1. FINANCIAL MANAGEMENT EFFORT: To minimize the risk of exchange-
rate fluctuation and transactions processes of export activity the
financial management needs more capacity to cope the major effort

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2. CUSTOMER DEMAND: International customers demand more services from their
vendor like installation and startup of equipment, maintenance or more delivery
services.
3. COMMUNICATION TECHNOLOGIES IMPROVEMENT: The improvement of
communication technologies in recent years enable the customer to interact with more
suppliers while receiving more information and cheaper communications cost at the
same time like 20 years ago. This leads to more transparency. The vendor is in duty to
follow the real-time demand and to submit all transaction details.
4. MANAGEMENT MISTAKES: The management might tap in some of the
organizational pitfalls, like poor selection of oversea agents or distributors or chaotic
global organization.
3.8 FACTORS AFFECTING IMPORTEXPORT
Some of the important factors that affect the import export business are:-
a) MARKETING - A lot of businessmen may not be aware of the great impact of
marketing on businesses. This is probably why not many businesses invest on
marketing that much. Unfortunately for these people, they have actually missed out on
the most important factor in any business- and that is marketing. The logic of
marketing is just very simple and basic. If you want people to patronize your products
and services; you must make them aware of these products and services. After all,
how could someone possibly buy something that he has not heard of? Marketing is

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indeed a crucial aspect in businesses, most especially in the import export business. In
starting up an import export business therefore, you should acknowledge the
importance of marketing and invest time, effort, and money for the facilitation of
marketing strategies.
b) LOGISTICS - In the import export business, the delivery of products is one of the
utmost important considerations, most especially if the products imported or exported
are perishable. Definitely, with these types of products, time is very important. There
are many logistics services that you can choose from. Naturally, for faster delivery of
goods, the service charge is more expensive than the slower delivery services. Thus, it
is important to consider the logistics requirements of your products in order to predict
the costs that you will have to incur in the business.
c) GOVERNMENT RULES - Whether you like it or not, an import export business will
always be dictated by the various rules imposed by the government with which you
are doing trading with. With this reality, to avoid trading restrictions, it is very
important to strictly comply with government rules at all times. If you are therefore
doing trading business with many countries, you will have to consider the fact that
these rules may vary from country to country.
3.9 HISTORYOF FOREXMARKET IN INDIA
Until the early seventies, given the fixed rate regime, the foreign exchange
market was perceived as a mechanism merely to put through merchant transactions. With
the collapse of the Breton Woods agreement and the floatation of major currencies, the

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conduct of exchange rate policy posed a great challenge to central banks as currency
fluctuations opened up tremendous opportunities for market players to trade in currency
volatilities in a borderless market
The market in Indian, however, remained insulated as exchange rate controls
inhibited capital movements and the banks were required to undertake cover operations
and maintain a square position at all times.
Slowly a demand began to build up that banks in India be permitted to trade in
FOREX. In response to this demand the RBI, as a first step, permitted banks to undertake
intra-day trade in FOREX in 1978. As a consequence, the stipulation of maintaining
square or near square position was to be complied with only at close of business each
day. The extent of position which conduct be left uncovered overnight (the open position)
as well as the limit up to which dealers conduct trade during the day was to be decided by
the management of the banks.
As opportunities to make profit began to emerge, the major banks started quoting
two-way prices against the Rupee as well as in cross-currencies (Non-rupee) and
gradually, trading volumes began to increase. This was enabled by a major change in the
exchange rate regime in 1975 whereby the Rupee was delinked from the Pound Sterling
and under a managed floating arrangement; the external value of the rupee was
determined by the RBI in terms of a weighted basket of currencies of India’s major
trading partners. Given the RBI’s obligation to buy and sell unlimited amounts of Pound

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Sterling (the intervention currency), arising from the bank’s merchant trades, its quotes
for buying/selling effectively became the fulcrum around which the market moved.
As volumes increased, the appetite for profits was found to lead to the observance
of widely different practices (some of which were irregular) dictated largely by the size
of the players, their location, expertise of the dealing staff, and availability of
communications facilities, it was thought necessary to draw up a comprehensive set of
guidelines covering the entire gamut of dealing operations to be observed by banks
engaged in FOREX business. Accordingly, in 1981 the “Guidelines for Internal Control
over Foreign Exchange Business” was framed for adoption by banks.
During the eighties, deterioration in the macro-economic situation set in,
ultimately warranting a structural change in the exchange rate regime, which in turn had
an impact on the FOREX market. Large and persistent external imbalances were reflected
in rising level of internal indebtedness. The graduated depreciation of the rupee could not
compensate for the widening inflation differentials between India and the rest of the
world and the exchange rate of the Rupee was getting increasingly overvalued. The Gulf
problems of August 1990, given the fragile state of the economy, triggered off an
unprecedented crisis of liquidity and confidence. This unprecedented crisis called for the
adoption of exceptional corrective steps. The country simultaneously embarked upon
measures of adjustment to stabilize the economy and got in motion structural reforms to
generate renewed impetus for stable growth.

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As a first step in this direction, the RBI effected a two-step downward adjustment
of the Rupee in July 1991. Simultaneously, in order to provide a closer alignment
between exports and imports, the EXIM scrip scheme was introduced. The scheme
provide a boost to exports and with the experience gained in the working of the scheme,
it was thought prudent to institutionalize the incentive component and convey it through
the price mechanism, while simultaneously insulating essential imports from currency
fluctuations. Therefore, with effect from March 1, 1992, RBI instituted a system of dual
exchange rates under the Liberalized Exchange Rate Management System (LERMS).
Under this, 40% of the exchange earnings had to be surrendered at a rate determined by
the RBI and the RBI was obliged to sell foreign exchange only for imports of essential
commodities such as oil, fertilizers, lifesaving drugs etc., besides the government’s debt
servicing. The balance 60% could be converted at rates determined by the market. The
scheme worked satisfactorily preparing the market for its emerging role and the Rupee
remained fairly stable with the spread between the official and market rate hovering
around 17%.
Even through the dual exchange rate system worked well, it however, implied an
implicit tax on exporters and remittances. Moreover it distorted the efficient allocation of
resources. The LERMS was essentially a transitional mechanism and in March 1993, the
two legs of the exchange rates were unified and christened Modified LERMS. It
stipulated that form March 2nd 1993, all FOREX receipt could be converted at market
determined rates of exchange. Over the next eighteen months restrictions on a number of

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other current account transactions were relaxed and on August 20th 1994, the Rupee was
made fully convertible for all current account transactions and the country formally
accepted obligations under Article VIII of the IMF’s Article of Agreement.
 1966 - The Rupee was devalued by 57.5% against USD on June 6
 1967 - Rupee-Sterling parity change as a result of devaluation of the sterling
 1971 - Bretton Woods system broke down in August. Rupee briefly pegged to the USD
@ Rs 7.50 before reneging to Sterling at Rs. 18.8672 with a 2.25% margin on either side
 1972 - Sterling floated on June 23. Rupee sterling parity revalued to Rs 18.95 and the in
October to Rs 18.80
 1975 - Rupee pegged to an undisclosed basket with a margin of 2.25%on either side.
Sterling the intervention currency with a central bank rate of Rs 18.3084
 1979 - Margins around basket parity widened to 5% on each side in January
 1991 - Rupee devalued by 22% July 1st and 3rd. Rupee dollar rate depreciated from 21.20
to 25.80. A version of dual exchange rate introduced through EXIM scrip scheme, given
exporters freely tradable import entitlements equivalent to 30-40% of export earnings.
 1992 - LERMS introduced with a 40-60 dual rate converting export proceeds, market
determined rate for all but specified imports and market rate for approved capital
transaction. US Dollar became the intervention currency from March 4th. EXIM scrip
scheme abolished.

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 1993 - Unified market determined exchange rate introduced for all transactions. RBI
would buy/sell US Dollars for specified purposes. It will not buy or sell forward Dollars
though it will enter into Dollar swaps.
 1994 - Rupee made fully convertible on current account from August 20th.
 1998 - Foreign Exchange Management Act – FEM Bill 1998, which was placed in the
Parliament to replace FERA.
 1999 - Implication of FEMA starts.
In currency market, 1 year futures are available and the lot size in currency market
is 1000. This lot size is defined by Securities and Exchange Board of India (SEBI)
3.10 THE EFFECT OF FLUCTUATING EXCHANGE RATES ON
CURRENCY
In simple words, exchange rate means how much one currency is worth in terms of
another currency. If we can buy $ 1 with Rs. 46, the exchange rate of the two
currencies would be $1 = Rs. 46.
There are two types of exchange rate:-
 Fixed
 Floating

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Some countries have fixed exchange rate systems while some have floating. As the name
suggests, the fixed exchange rate doesn’t fluctuate because of government intervention.
The floating exchange rate, on the other hand, keeps on changing continuously just like
the stock market. Thus the government intervention is almost negligible. So, which type
of exchange rate system does India have? In India, we have a Managed Floating
Exchange Rate System. This means that the Indian government intervenes only if the
exchange rate seems to go out of hand by increasing or reducing the money supply as the
situation demands.
When rupee is said to be appreciating it means that our currency is gaining
strength and its value is increasing with respect to dollar. However, when rupee
depreciates it means our currency is getting weaker & its value is falling with respect
to dollar. One can understand this with the help of an example.
Suppose, currently, the exchange rate is Rs. 55 = $1. 2 months later, either of the
following two cases can happen:-
Case 1: The exchange rate is say Rs. 50 = $1. This means rupee has appreciated or gotten
stronger by approx. 11% and you would be paying less to for a dollar
Case 2: The exchange rate is at Rs. 60 = $1. This means rupee has depreciated or gotten
weaker by approx. 11% and you end up paying more for a dollar.

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3.11 REASONS OF RUPEE APPRECIATION OR DEPRECIATION IN
THE GLOBAL MARKET
Rupee’s appreciation or depreciation against the dollar depends on the change in demand
and supply for both the currencies. If the demand for rupee is comparatively high, rupee
appreciates; if low, it depreciates. The important question here is ‘What factors drive
the demand for a currency?’ They are:
1. Interest Rate: A demand for a currency is hugely dependent on the interest rate
differential between two countries. A country like India where interest rate is
around 7-8% experiences greater capital inflow as investors get better return than
what they might get in US. (With Interest rates of 2-3%). This results into rupee
appreciation.
2. Inflation Rate: The demand for a country’s goods & services by the foreign
buyers would be more if the inflation rate is lower in that country compared to
other countries. Higher demand for goods & services would mean higher demand
for that currency resulting in the appreciation of that currency. For instance if
India’s inflation rate is lower than that of Zimbabwe then the demand for our
goods, services and currency would be higher than that for Zimbabwe’s.
3. Export-Import: If a country is exporting more than its imports from other
countries, then this would mean higher demand for that currency, causing
appreciation of that currency against others.

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4. Trading in currencies in the Forex market: The exchange rate fluctuates minute
by minute because of speculative trading in the Forex market
In a manage floating exchange rate system like India the government purchases rupee in
exchange for the foreign currency to increase money supply in the economy which leads
to depreciation of the home currency. Conversely, it purchases foreign currency in
exchange for rupee to reduce the money supply in the economy leading to appreciation of
the home currency
3.12 IMPACT OF RUPEE APPRECIATION / DEPRECIATION
a) Impact on economy: Exchange rate fluctuation has a significant impact on the overall
economy of a country. Rupee appreciation against US dollar is an indication of the
strengthening of Indian economy with respect to US economy.
b) Impact on foreign investors: If a foreign investor invests in Indian stock market and
even if its value doesn’t change in 1 year, he’ll earn profit if rupee appreciates and make
a loss if it depreciates. Let’s understand this with an example:
Suppose a Foreign Institutional Investor invests Re. 1 Cr. in the Indian stock market and
at an exchange rate of $1 = Rs. 50. So, the amount invested is $200,000.
Suppose, after 1 year, even if the value of investment doesn’t appreciate the foreign
investor can earn a profit if the exchange rate has changed to $1 = Rs. 40 (Rupee
appreciation)

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If the investor sells his investment and converts the currency, he would get $ 250,000
(dividing Rupees 1 crore by the new exchange rate i.e. Rupees 40). So, he would earn $
50,000 as a profit thanks to a change in the exchange rate i.e. rupee appreciation. So, a
continuously appreciating rupee would lead to greater investment by the FIIs.
c) Impact on industry/companies: Appreciation of the rupee makes imports cheaper and
exports expensive. So, it can spell good news for companies who rely on import of
goods like heavy machinery, technology, microchips etc. According to reports by
Associated Chambers of Commerce and Industry of India (ASSOCHAM) sectors like
Petro & Petro Products, Drugs & Pharma and Engineering Goods which have import
inputs of as much as 77%, 19% and 21% respectively would stand to gain the most if
rupee appreciates. They would have to pay less for the imported raw materials which
would increase their profit margins.
Similarly, a depreciating rupee makes exports cheaper and imports
expensive. So, it is welcome news for sectors like IT, Textiles, Hotel & Tourism etc.
which generates revenue mainly from exporting their products or services. Rupee
depreciation makes Indian goods & services cheaper for the foreign buyers thus leading
to increase in demand and higher revenue generation. The foreign tourist would find it
cheaper to come to India thus increasing the business of hotel, tours & travel companies

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Fig. 5: A diagrammatic representation depicting the impact of rupee appreciation or
depreciation on several industries
. Now let’s see how these currency rates are affected. Before we look at these forces
that determine exchange rates, we should sketch out how exchange rate movements affect
a nation's trading relationships with other nations. A higher currency makes a
country's exports more expensive and imports cheaper in foreign markets; a lower
currency makes a country's exports cheaper and its imports more expensive in foreign
markets. A higher exchange rate can be expected to lower the country's balance of trade,
while a lower exchange rate would increase it.
3.13 DETERMINANTSOF EXCHANGE RATES
Various factors determine exchange rates, and all are related to the trading relationship
between two countries. Remember, exchange rates are relative, and are expressed as a

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comparison of the currencies of two countries. The following are some of the principal
determinants of the exchange rate between two countries. Note that these factors are in no
particular order; like many aspects of economics, the relative importance of these factors
is subject to much debate.
a. Differentials in Inflation
As a general rule, a country with a consistently lower inflation rate exhibit a rising
currency value, as its purchasing power increases relative to other currencies. During the
last half of the twentieth century, the countries with low inflation included Japan,
Germany and Switzerland, while the U.S. and Canada achieved low inflation only later.
Those countries with higher inflation typically see depreciation in their currency in
relation to the currencies of their trading partners. This is also usually accompanied by
higher interest rates.
b. Differentials in Interest Rates
Interest rates, inflation and exchange rates are all highly correlated. By manipulating
interest rates, central banks exert influence over both inflation and exchange rates, and
changing interest rates impact inflation and currency values. Higher interest rates offer
lenders in an economy a higher return relative to other countries. Therefore, higher
interest rates attract foreign capital and cause the exchange rate to rise. The impact of
higher interest rates is mitigated, however, if inflation in the country is much higher than
in others, or if additional factors serve to drive the currency down. The opposite
relationship exists for decreasing interest rates - that is, lower interest rates tend to

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decrease exchange rates.
c. Current-Account Deficits
The current account is the balance of trade between a country and its trading partners,
reflecting all payments between countries for goods, services, interest and dividends.
A deficit in the current account shows the country is spending more on foreign trade than
it is earning, and that it is borrowing capital from foreign sources to make up the deficit.
In other words, the country requires more foreign currency than it receives through sales
of exports, and it supplies more of its own currency than foreigners demand for its
products. The excess demand for foreign currency lowers the country's exchange rate
until domestic goods and services are cheap enough for foreigners, and foreign assets are
too expensive to generate sales for domestic interests.
d. Public Debt
Countries will engage in large-scale deficit financing to pay for public sector projects and
governmental funding. While such activity stimulates the domestic economy, nations
with large public deficits and debts are less attractive to foreign investors. The reason? A
large debt encourages inflation, and if inflation is high, the debt will be serviced and
ultimately paid off with cheaper real dollars in the future.
In the worst case scenario, a government may print money to pay part of a large debt, but
increasing the money supply inevitably causes inflation. Moreover, if a government is not

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