Foreign exchange exposure is the risk associated with activities involving currencies other than a firm's home currency. It is the risk that foreign currencies may fluctuate in a way that financially harms the firm. There are three main types of foreign exchange exposure: transaction, economic, and translation. Firms can assess and manage their exposures through hedging strategies like financial contracts and operational techniques. Whether to hedge depends on factors like a firm's currency forecasts and focus on its core business versus currency speculation.
The document summarizes the evolution of modern portfolio theory from its origins in Harry Markowitz's mean-variance model to subsequent developments like the Sharpe single-index model and CAPM. It discusses how Markowitz showed investors could maximize returns for a given risk level by holding efficient portfolios on the efficient frontier. The Sharpe model reduced the inputs needed for portfolio risk estimation by correlating assets to a market index rather than each other. CAPM then defined the market portfolio as the efficient portfolio and allowed a risk-free asset, changing the shape of the efficient frontier.
The document discusses portfolio management and outlines the key phases in the portfolio management process. It defines portfolio management as the process of creating and maintaining investment portfolios. The five phases of portfolio management are: 1) security analysis, 2) portfolio analysis, 3) portfolio selection, 4) portfolio revision, and 5) portfolio evaluation. The goal is to optimize investments and make the investment activity more rewarding and less risky.
Derivatives are financial instruments whose value is based on an underlying asset such as stocks, bonds, currencies, or commodities. There are two main types of derivative markets - the exchange traded market where instruments like futures are traded, and the over-the-counter market where forwards, swaps, and options are privately negotiated. Derivatives are used by financial and non-financial firms to hedge risks and increase returns, but there are also concerns that their misuse could destabilize markets, especially if major participants in the over-the-counter interest rate or currency swap markets fail.
This document provides an overview of topics covered in a class on the debt market. It includes an introduction to the debt market and defines it as the market where trading of debt instruments like bonds, commercial papers, treasury bills, and government securities takes place. It then lists the group members and their roll numbers who presented on this topic.
The main topics covered in the presentation are then outlined, including the structure of the financial market, details on government securities, commercial papers, treasury bills, repos, and current news. Descriptions of each of these debt instruments are then provided in the document, along with their key features, guidelines, objectives, investors, and other relevant details.
This presentation discusses hedging as a tool for offsetting exchange rate risk. It covers different types of hedging techniques including forward market hedges, money market hedges, and hedging with swaps. Forward market hedges use forward contracts to lock in exchange rates for expected foreign currency cash flows. Money market hedges involve borrowing and lending in different currencies to lock in home currency values. Swaps allow two companies with foreign currency receivables and payables to exchange them, effectively hedging each other's exchange rate risk. Examples are provided to illustrate how each hedging technique works.
The document discusses various bond valuation concepts like coupon rate, current yield, spot interest rate, yield to maturity, yield to call, and realized yield. It provides examples to calculate these measures and explains how bond prices are determined based on factors like interest rates, time to maturity, and cash flows. Bond duration is introduced as a measure of interest rate risk exposure, and bond risks from default and changes in interest rates are explained.
noorulhadi Lecturer at Govt College of Management Sciences, noorulhadi99@yahoo.com
i have prepared these slides and still using in mylectures, Reference: Portfolio management by S kevin and online sources
Foreign exchange exposure is the risk associated with activities involving currencies other than a firm's home currency. It is the risk that foreign currencies may fluctuate in a way that financially harms the firm. There are three main types of foreign exchange exposure: transaction, economic, and translation. Firms can assess and manage their exposures through hedging strategies like financial contracts and operational techniques. Whether to hedge depends on factors like a firm's currency forecasts and focus on its core business versus currency speculation.
The document summarizes the evolution of modern portfolio theory from its origins in Harry Markowitz's mean-variance model to subsequent developments like the Sharpe single-index model and CAPM. It discusses how Markowitz showed investors could maximize returns for a given risk level by holding efficient portfolios on the efficient frontier. The Sharpe model reduced the inputs needed for portfolio risk estimation by correlating assets to a market index rather than each other. CAPM then defined the market portfolio as the efficient portfolio and allowed a risk-free asset, changing the shape of the efficient frontier.
The document discusses portfolio management and outlines the key phases in the portfolio management process. It defines portfolio management as the process of creating and maintaining investment portfolios. The five phases of portfolio management are: 1) security analysis, 2) portfolio analysis, 3) portfolio selection, 4) portfolio revision, and 5) portfolio evaluation. The goal is to optimize investments and make the investment activity more rewarding and less risky.
Derivatives are financial instruments whose value is based on an underlying asset such as stocks, bonds, currencies, or commodities. There are two main types of derivative markets - the exchange traded market where instruments like futures are traded, and the over-the-counter market where forwards, swaps, and options are privately negotiated. Derivatives are used by financial and non-financial firms to hedge risks and increase returns, but there are also concerns that their misuse could destabilize markets, especially if major participants in the over-the-counter interest rate or currency swap markets fail.
This document provides an overview of topics covered in a class on the debt market. It includes an introduction to the debt market and defines it as the market where trading of debt instruments like bonds, commercial papers, treasury bills, and government securities takes place. It then lists the group members and their roll numbers who presented on this topic.
The main topics covered in the presentation are then outlined, including the structure of the financial market, details on government securities, commercial papers, treasury bills, repos, and current news. Descriptions of each of these debt instruments are then provided in the document, along with their key features, guidelines, objectives, investors, and other relevant details.
This presentation discusses hedging as a tool for offsetting exchange rate risk. It covers different types of hedging techniques including forward market hedges, money market hedges, and hedging with swaps. Forward market hedges use forward contracts to lock in exchange rates for expected foreign currency cash flows. Money market hedges involve borrowing and lending in different currencies to lock in home currency values. Swaps allow two companies with foreign currency receivables and payables to exchange them, effectively hedging each other's exchange rate risk. Examples are provided to illustrate how each hedging technique works.
The document discusses various bond valuation concepts like coupon rate, current yield, spot interest rate, yield to maturity, yield to call, and realized yield. It provides examples to calculate these measures and explains how bond prices are determined based on factors like interest rates, time to maturity, and cash flows. Bond duration is introduced as a measure of interest rate risk exposure, and bond risks from default and changes in interest rates are explained.
noorulhadi Lecturer at Govt College of Management Sciences, noorulhadi99@yahoo.com
i have prepared these slides and still using in mylectures, Reference: Portfolio management by S kevin and online sources
This document discusses foreign exchange risk and its management. It defines foreign exchange risk as the risk of an investment's value changing due to currency fluctuations. It identifies the main types of foreign exchange risk as transaction risk, translation risk, and economic risk. Transaction risk arises from currency movements between the signing and execution of contracts. Translation risk occurs when consolidating financial statements in different currencies. Economic risk affects the long-term expected profits and wealth of a company due to currency changes. The document outlines various hedging strategies to manage these risks, including the use of forwards, futures, and money markets.
This document summarizes critiques of the Capital Asset Pricing Model (CAPM) and presents alternative models. It discusses empirical studies from the 1980s and 1990s that found variables other than beta help explain stock returns, contradicting CAPM. Fama and French's 1992 study found firm size and book-to-market ratio better predict returns than beta. Their three-factor model and the Arbitrage Pricing Theory were proposed as alternatives to CAPM. Overall, the document outlines major empirical challenges to CAPM and influential models that improved on its ability to explain stock returns.
This document discusses interest rate parity theory. It begins by defining spot and forward rates. Spot rates are prices for immediate settlement, while forward rates refer to rates for future currency delivery adjusted for cost of carry. Interest rate parity theory states that interest rate differentials between currencies will be reflected in forward premiums or discounts. The theory prevents arbitrage opportunities by making returns equal whether investing domestically or abroad when measured in the home currency. The document provides an example of covered and uncovered interest rate parity. Covered parity involves hedging exchange rate risk while uncovered parity does not. Empirical evidence shows uncovered parity often fails while covered parity generally holds for major currencies over short time horizons.
The Capital Asset Pricing Model (CAPM) was developed by William Sharpe in 1970 to calculate the expected return of an asset based on its risk. It distinguishes between systematic risk that cannot be diversified away, such as market risk, and unsystematic risk that can be reduced through diversification. The CAPM formula states that the expected return of an asset is equal to the risk-free rate plus a risk premium that is proportional to the asset's systematic risk or beta. Beta measures how volatile an asset's returns are relative to the overall market. The CAPM makes simplifying assumptions about investors and markets. While widely used, some argue it may not perfectly predict returns in practice.
- Portfolio management refers to managing an individual's collection of investments like stocks, bonds, mutual funds, etc. to generate maximum returns within the investor's risk tolerance and time horizon.
- The expected return of a portfolio is calculated as the weighted average of the returns of the individual assets in the portfolio, weighted by their proportion or weighting in the portfolio.
- By adjusting the relative weights of different assets, a portfolio manager can target a desired expected return that lies between the highest and lowest returns of the individual assets.
Merchant banking provides capital to companies through equity investment rather than loans. It offers advisory services on corporate matters and investment banking services like mergers and acquisitions. Merchant banking started in Italy and France in the 17th-18th centuries and modern merchant banking began in London by financing foreign trade through bill acceptance. In India, merchant banking was introduced by Grindlays Bank in 1967 and other Indian and foreign banks subsequently established merchant banking divisions. Merchant banks invest their own capital and provide services primarily to large corporations and high-net-worth individuals rather than retail banking.
International financial-market-instrumentsnileshsen
This document provides an overview of various types of international financial market instruments. It discusses foreign bonds, eurobonds, global bonds, straight bonds, floating rate notes, convertible bonds, cocktail bonds, euro notes, euro commercial paper, medium term euro notes, American depository receipts (ADRs), global depository receipts (GDRs), and the procedures and documentation involved in their issuance. The key instruments covered include bonds, notes, and receipts issued internationally across currencies and jurisdictions.
Forward contracts allow parties to lock in an exchange rate for buying or selling an asset at a future date. There are several types of forward contracts including currency forwards. Currency forwards are used by importers, exporters, investors and borrowers to hedge against currency risk. Forward rates are determined based on interest rate differentials between currencies under the principle of covered interest rate parity.
Interest rates are determined by the interaction of supply and demand in the market for loanable funds. The supply comes from domestic savings, foreign lending, and money creation by banks. The demand comes from consumers, businesses, and governments seeking credit, as well as foreign borrowers. Equilibrium is reached where the supply and demand for loanable funds are equal. Factors such as expected inflation, default risk, liquidity risk, and monetary policy influence the supply and demand curves and thus impact interest rate levels.
The document discusses the cost of capital and various methods for calculating it. It defines cost of capital as the required return on funds provided by creditors and shareholders. It then covers the cost of debt, cost of equity using the dividend growth model and CAPM, weighted average cost of capital (WACC), weighted average cost of equity (WACE), and differences between cost of equity and cost of debt. The cost of capital is important for investment decisions, capital structure, performance evaluation, and dividend policy.
Portfolio Mgt Ch 01 The Investment SettingSalik Sazzad
This document discusses key concepts related to investment analysis and portfolio management. It defines key terms like real rate of return, inflation premium, and risk premium. It also covers topics like measuring historical rates of return using holding period return and equivalent annual return. The document discusses measuring risk using standard deviation and beta. It explains that the required rate of return on an investment is determined by the real risk-free rate, expected inflation, and the risk premium required for the investment's inherent risk.
This document discusses methods for valuing equity shares based on capitalizing dividends and earnings. It describes dividend valuation models including no growth, constant growth, and supernormal growth cases. The constant growth model values shares based on infinite streams of dividends growing at a constant rate. The supernormal growth model accounts for high initial dividend growth transitioning to normal long-term growth.
Interest Rate Parity and Purchasing Power ParityMAJU
The document discusses interest rate parity (IRP) and purchasing power parity (PPP). IRP states that interest rate differences between countries equal the forward exchange rate minus the spot rate. PPP holds that currency exchange rates adjust so goods cost the same across countries when prices are converted to the same currency. Violations of IRP create arbitrage opportunities. Factors like inflation rates, economic conditions, and monetary policies influence IRP and PPP over time. Formulas are provided for calculating IRP and expected future exchange rates under PPP.
This chapter discusses international cash management for multi-national corporations. It covers analyzing cash flows from the perspective of subsidiaries and the parent company. Techniques for optimizing cash flows include accelerating cash inflows, minimizing currency conversion costs, and managing inter-subsidiary transfers. Complications can arise from government restrictions, banking systems, and company characteristics. The chapter also discusses investing excess cash across currencies and managing risks through hedging strategies.
Introduction to Exchange Rate Mechanism: Spot- Forward Rate, Exchange Arithmetic. -- Deriving the Actual Exchange Rate: Forwards, Swaps, Futures and Options. Guarantees in Trade: Performance, Bid Bond etc.
This chapter discusses the major international financial markets known as the Euromarkets. It covers the Eurocurrency markets, Eurobonds, Note Issuance Facilities, and Euro-commercial paper. The Eurocurrency market is composed of eurobanks that accept deposits in foreign currencies, dominated by US dollars. Eurobonds are bonds sold outside the country of the currency's denomination, often US dollars, and have grown substantially due to interest rate swaps. Note Issuance Facilities allow borrowers to issue their own notes placed by banks as a low-cost substitute for loans. Euro-commercial paper are unsecured short-term debt securities denominated in US dollars and issued by corporations and governments.
here we are trying to explain how firms can benefit from forecasting exchange rate, to describe common technique that used to forecast, how to evaluate forecasting performance
Abstract The main purpose of this paper is to investigate whether stock prices and exchange rates are related to each
other or not. Both the short term and the long term association between these variables are discovered. The study applies
monthly and quarterly data on two gulf countries, including Kingdom Saudi Arabia (KSA) and United Arab Emirate (UAE)
for the period January 2008 to December 2009. The results of this study in the short term found that the exchange rate
influence positively on the stock market price index for United Arab Emirate and there is no association between them for
Kingdom Saudi Arabia. Moreover the study in the long term found that the exchange rate influence negatively on stock
market price index for the United Arab Emirate. While no association between these variables in Kingdom Saudi Arabia.
A study on Exchange Rates and its impact on stock pricesDaksh Bhatnagar
This document is a summer training project report submitted by Daksh Bhatnagar, an MBA student, on the topic of a study on currency exchange rates and their impact on stock prices. The report provides details about Daksh Bhatnagar's 6-week summer internship at Bonanza Portfolio Limited, including certificates of completion. It also includes an executive summary of the report and contents listing chapters on the organization and the topic of study.
This document discusses foreign exchange risk and its management. It defines foreign exchange risk as the risk of an investment's value changing due to currency fluctuations. It identifies the main types of foreign exchange risk as transaction risk, translation risk, and economic risk. Transaction risk arises from currency movements between the signing and execution of contracts. Translation risk occurs when consolidating financial statements in different currencies. Economic risk affects the long-term expected profits and wealth of a company due to currency changes. The document outlines various hedging strategies to manage these risks, including the use of forwards, futures, and money markets.
This document summarizes critiques of the Capital Asset Pricing Model (CAPM) and presents alternative models. It discusses empirical studies from the 1980s and 1990s that found variables other than beta help explain stock returns, contradicting CAPM. Fama and French's 1992 study found firm size and book-to-market ratio better predict returns than beta. Their three-factor model and the Arbitrage Pricing Theory were proposed as alternatives to CAPM. Overall, the document outlines major empirical challenges to CAPM and influential models that improved on its ability to explain stock returns.
This document discusses interest rate parity theory. It begins by defining spot and forward rates. Spot rates are prices for immediate settlement, while forward rates refer to rates for future currency delivery adjusted for cost of carry. Interest rate parity theory states that interest rate differentials between currencies will be reflected in forward premiums or discounts. The theory prevents arbitrage opportunities by making returns equal whether investing domestically or abroad when measured in the home currency. The document provides an example of covered and uncovered interest rate parity. Covered parity involves hedging exchange rate risk while uncovered parity does not. Empirical evidence shows uncovered parity often fails while covered parity generally holds for major currencies over short time horizons.
The Capital Asset Pricing Model (CAPM) was developed by William Sharpe in 1970 to calculate the expected return of an asset based on its risk. It distinguishes between systematic risk that cannot be diversified away, such as market risk, and unsystematic risk that can be reduced through diversification. The CAPM formula states that the expected return of an asset is equal to the risk-free rate plus a risk premium that is proportional to the asset's systematic risk or beta. Beta measures how volatile an asset's returns are relative to the overall market. The CAPM makes simplifying assumptions about investors and markets. While widely used, some argue it may not perfectly predict returns in practice.
- Portfolio management refers to managing an individual's collection of investments like stocks, bonds, mutual funds, etc. to generate maximum returns within the investor's risk tolerance and time horizon.
- The expected return of a portfolio is calculated as the weighted average of the returns of the individual assets in the portfolio, weighted by their proportion or weighting in the portfolio.
- By adjusting the relative weights of different assets, a portfolio manager can target a desired expected return that lies between the highest and lowest returns of the individual assets.
Merchant banking provides capital to companies through equity investment rather than loans. It offers advisory services on corporate matters and investment banking services like mergers and acquisitions. Merchant banking started in Italy and France in the 17th-18th centuries and modern merchant banking began in London by financing foreign trade through bill acceptance. In India, merchant banking was introduced by Grindlays Bank in 1967 and other Indian and foreign banks subsequently established merchant banking divisions. Merchant banks invest their own capital and provide services primarily to large corporations and high-net-worth individuals rather than retail banking.
International financial-market-instrumentsnileshsen
This document provides an overview of various types of international financial market instruments. It discusses foreign bonds, eurobonds, global bonds, straight bonds, floating rate notes, convertible bonds, cocktail bonds, euro notes, euro commercial paper, medium term euro notes, American depository receipts (ADRs), global depository receipts (GDRs), and the procedures and documentation involved in their issuance. The key instruments covered include bonds, notes, and receipts issued internationally across currencies and jurisdictions.
Forward contracts allow parties to lock in an exchange rate for buying or selling an asset at a future date. There are several types of forward contracts including currency forwards. Currency forwards are used by importers, exporters, investors and borrowers to hedge against currency risk. Forward rates are determined based on interest rate differentials between currencies under the principle of covered interest rate parity.
Interest rates are determined by the interaction of supply and demand in the market for loanable funds. The supply comes from domestic savings, foreign lending, and money creation by banks. The demand comes from consumers, businesses, and governments seeking credit, as well as foreign borrowers. Equilibrium is reached where the supply and demand for loanable funds are equal. Factors such as expected inflation, default risk, liquidity risk, and monetary policy influence the supply and demand curves and thus impact interest rate levels.
The document discusses the cost of capital and various methods for calculating it. It defines cost of capital as the required return on funds provided by creditors and shareholders. It then covers the cost of debt, cost of equity using the dividend growth model and CAPM, weighted average cost of capital (WACC), weighted average cost of equity (WACE), and differences between cost of equity and cost of debt. The cost of capital is important for investment decisions, capital structure, performance evaluation, and dividend policy.
Portfolio Mgt Ch 01 The Investment SettingSalik Sazzad
This document discusses key concepts related to investment analysis and portfolio management. It defines key terms like real rate of return, inflation premium, and risk premium. It also covers topics like measuring historical rates of return using holding period return and equivalent annual return. The document discusses measuring risk using standard deviation and beta. It explains that the required rate of return on an investment is determined by the real risk-free rate, expected inflation, and the risk premium required for the investment's inherent risk.
This document discusses methods for valuing equity shares based on capitalizing dividends and earnings. It describes dividend valuation models including no growth, constant growth, and supernormal growth cases. The constant growth model values shares based on infinite streams of dividends growing at a constant rate. The supernormal growth model accounts for high initial dividend growth transitioning to normal long-term growth.
Interest Rate Parity and Purchasing Power ParityMAJU
The document discusses interest rate parity (IRP) and purchasing power parity (PPP). IRP states that interest rate differences between countries equal the forward exchange rate minus the spot rate. PPP holds that currency exchange rates adjust so goods cost the same across countries when prices are converted to the same currency. Violations of IRP create arbitrage opportunities. Factors like inflation rates, economic conditions, and monetary policies influence IRP and PPP over time. Formulas are provided for calculating IRP and expected future exchange rates under PPP.
This chapter discusses international cash management for multi-national corporations. It covers analyzing cash flows from the perspective of subsidiaries and the parent company. Techniques for optimizing cash flows include accelerating cash inflows, minimizing currency conversion costs, and managing inter-subsidiary transfers. Complications can arise from government restrictions, banking systems, and company characteristics. The chapter also discusses investing excess cash across currencies and managing risks through hedging strategies.
Introduction to Exchange Rate Mechanism: Spot- Forward Rate, Exchange Arithmetic. -- Deriving the Actual Exchange Rate: Forwards, Swaps, Futures and Options. Guarantees in Trade: Performance, Bid Bond etc.
This chapter discusses the major international financial markets known as the Euromarkets. It covers the Eurocurrency markets, Eurobonds, Note Issuance Facilities, and Euro-commercial paper. The Eurocurrency market is composed of eurobanks that accept deposits in foreign currencies, dominated by US dollars. Eurobonds are bonds sold outside the country of the currency's denomination, often US dollars, and have grown substantially due to interest rate swaps. Note Issuance Facilities allow borrowers to issue their own notes placed by banks as a low-cost substitute for loans. Euro-commercial paper are unsecured short-term debt securities denominated in US dollars and issued by corporations and governments.
here we are trying to explain how firms can benefit from forecasting exchange rate, to describe common technique that used to forecast, how to evaluate forecasting performance
Abstract The main purpose of this paper is to investigate whether stock prices and exchange rates are related to each
other or not. Both the short term and the long term association between these variables are discovered. The study applies
monthly and quarterly data on two gulf countries, including Kingdom Saudi Arabia (KSA) and United Arab Emirate (UAE)
for the period January 2008 to December 2009. The results of this study in the short term found that the exchange rate
influence positively on the stock market price index for United Arab Emirate and there is no association between them for
Kingdom Saudi Arabia. Moreover the study in the long term found that the exchange rate influence negatively on stock
market price index for the United Arab Emirate. While no association between these variables in Kingdom Saudi Arabia.
A study on Exchange Rates and its impact on stock pricesDaksh Bhatnagar
This document is a summer training project report submitted by Daksh Bhatnagar, an MBA student, on the topic of a study on currency exchange rates and their impact on stock prices. The report provides details about Daksh Bhatnagar's 6-week summer internship at Bonanza Portfolio Limited, including certificates of completion. It also includes an executive summary of the report and contents listing chapters on the organization and the topic of study.
Project report on Relationship Of Inflation with Indian Stock MarketRohit Kumar
This document appears to be a cover page and certificate for a project report submitted by Rohit Kumar to fulfill the requirements of a Bachelor of Business Studies degree from Keshav Mahavidyalaya, University of Delhi. The project report is entitled "Relationship of Inflation with Indian Stock Market" and was carried out under the supervision of Kangan Jain. The certificate confirms that the report has not been submitted for any other degree or diploma.
Interest rates & its effects on Investments R VISHWANATHAN
The document discusses regular investment habits and patterns when interest rates increase or decrease. It notes that decreasing interest rates attract loan takers and promote the economy, while increasing rates attract depositors and help control inflation. Major investments discussed include bank term deposits, debt funds, and gold ETFs. Factors that attract investors to banks include reputation, interest rates on deposits, and cross-selling. Bond prices and interest rates are inversely related, so investors buy bonds when rates fall and sell when they rise. The document also examines investors' preferences based on investment tenure and provides percentages of investments in different asset classes from 2011-2013. Smart investors are advised to follow daily news updates on interest rate changes.
The document discusses security analysis of selected power sector securities listed on the Bombay Stock Exchange. It aims to conduct fundamental and technical analysis of leading power sector companies. The study selects six companies - NTPC, RELIANCE, POWERGRID, NHPC, TATAPOWER and ADANI POWER - to analyze their financial strength and future investment prospects through fundamental ratios and technical tools like bar charts and moving averages. The analysis seeks to evaluate company performance, stock movement, and risk-return to identify companies that ensure maximum return with minimum risk for investors in the power sector.
This document presents information about inflation from an economics perspective. It defines inflation as a rise in general price levels over time that reduces purchasing power. Causes include demand-pull and cost-push factors. Effects are on investment, interest rates, exchange rates, unemployment, and purchasing power. Types are based on degree of government control, political conditions, and scope. Controlling inflation involves monetary measures like interest rates and fiscal measures like taxation. The conclusion is that low inflation enables slow economic growth while excess money leads to higher costs.
1) Interest rates affect consumption, investment, and net exports which determines aggregate demand. Higher rates decrease borrowing and demand while lower rates increase borrowing and demand.
2) Interest rates can be used to target inflation levels. Higher rates lead to lower inflation while lower rates lead to higher inflation.
3) Changing interest rates also impacts unemployment levels. Raising rates decreases output and employment while lowering rates increases output and employment.
Stock market and the economy ppt slidesRafik Algeria
The document discusses the relationship between the stock market and economic activity. It begins by introducing the topic and explaining how firms raise funds through debt and equity financing. It then defines what a stock market is, how stocks are traded, and how stock prices are determined by supply and demand. Several factors that can influence stock prices are explained, including economic conditions, firm-specific factors, and market factors. The relationship between the stock market and broader economy is explored, specifically how changes in the stock market can impact aggregate demand and economic growth through wealth and investment effects, and how economic conditions can in turn impact stock prices and investor sentiment. The role of the Federal Reserve in responding to stock market fluctuations is also summarized.
The document defines foreign exchange and foreign exchange markets. It discusses the key participants in foreign exchange markets including individuals, firms, banks, governments, and international agencies. It also outlines some of the main functions and determinants of foreign exchange markets. Long-term determinants include balance of payments, relative economic strength, interest rates, inflation, money supply, and national income. Short-term determinants include central bank intervention, export/import payments and flows, foreign investment flows, political factors, speculation, and capital movements. The document also provides context on the Foreign Exchange Management Act (FEMA) in India.
This document is a presentation on inflation that defines inflation as a rise in prices over time and discusses its measurement and causes. It examines quality and quantity theories of inflation and how inflation is measured using price indices like the consumer price index. The presentation also outlines different types of inflation and explores the effects of inflation on areas like production, income distribution, and foreign trade. It analyzes the negative effects of inflation and costs like money losing value. The presentation concludes by considering measures that can be used to control inflation such as monetary policy, wage and price controls, and cost of living allowances.
This document discusses foreign exchange rates and their determination. It explains that foreign exchange rates are the rates at which one country's currency can be converted into another's. These rates are determined by currency supply and demand in global foreign exchange markets. The key factors that influence supply and demand - and thus exchange rates - include interest rates, inflation rates, government budgets, and political stability. The document also outlines different exchange rate systems like fixed, floating, and managed rates.
This document discusses inflation including its definition, types, causes, effects, measurement, and measures to control it. Inflation is defined as a sustained increase in prices or fall in the value of money. The main types are open, suppressed, galloping, and hyper inflation. Key causes include an increase in money supply and deficit financing. Effects include inefficiencies in markets and uncertainty discouraging investment. Inflation is primarily measured using the Consumer Price Index. Measures to control inflation involve monetary, fiscal, and other policies like increasing production and implementing price controls.
The causal relationship between exchange rates and stock prices in kenyaAlexander Decker
This study examines the causal relationship between exchange rates and stock prices in Kenya from 1993 to 1999. The empirical results show that exchange rates and stock prices are nonstationary and integrated of order one. Tests also show that the two variables are cointegrated. Error-correction models were used instead of Granger causality tests due to the cointegration. The empirical results indicate that exchange rates Granger-cause stock prices in Kenya, meaning that changes in exchange rates lead to changes in stock prices.
This document analyzes the determinants of interest rate spread in the Pakistani banking sector from 2003-2010. It specifies models to examine how bank-specific factors like non-performing loans, liquidity risk, and operational costs, as well as macroeconomic factors like inflation, exchange rates, and money supply, influence interest rate spread. The study finds that most bank-specific and macroeconomic variables have a statistically significant impact on interest rate spread. It concludes that interest rate spread in Pakistan is sensitive to both bank internal conditions and the external macroeconomic environment.
Indian Currency Exchange rate of foreign currency relating to imported and ex...Jhunjhunwalas
In exercise of the powers conferred by Section 14 of the Customs Act, 1962 (52 of 1962), and in super session of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No.47/2014-CUSTOMS (N.T.), dated the 19th June, 2014 vide number S.O.1565(E), dated the 19th June, 2014, except as respects things done or omitted to be done before such supersession, the Central Board of Excise and Customs (CBEC) hereby determines that the rate of exchange of conversion of each of the foreign currency specified in column (2) of each of Schedule I and Schedule II annexed hereto into Indian currency or vice versa shall be with effect from 4th July, 2014 be the rate mentioned against it in the corresponding entry in column (3) thereof, for the purpose of the said section, relating to imported and export goods.
IMPACTS OF EXCHANGE RATE IN STOCK MARKETAnu SebastiaN
The document discusses the impact of exchange rate fluctuations on stock markets. It explains that exchange rates represent the value of one currency relative to another. Exchange rates can be fixed by governments or floating based on market forces of demand and supply. The stock market consists of primary and secondary markets where shares of public companies are issued and traded. Exchange rate volatility affects companies as exporters may see reduced competitiveness and sales when their domestic currency appreciates, while importers' competitiveness and profits increase. Therefore, exchange rate changes directly influence stock prices of net exporters and importers. High exchange rate volatility may lead investors to shift funds to less volatile stock markets.
The document discusses balance of payments (BOP), which measures international economic transactions between residents of a country and foreign residents. It has three main parts: the current account, capital account, and reserves. BOP disequilibrium can occur for various reasons, and countries use methods like devaluation, tariffs, import quotas, and export duties to correct disequilibriums. Equilibrium is achieved when surpluses or deficits are eliminated from the BOP.
The Federal Reserve regulates the money supply in the US economy by raising and lowering the discount interest rate and putting more or less money into circulation. Raising the rate makes consumer credit more expensive and lowers buying, while lowering the rate has the opposite effect. The stock market provides companies a way to issue stock to raise capital and gives investors a place to trade securities like stocks, bonds, and futures. It impacts the economy as rising stock prices in a bull market encourage buying while falling prices in a bear market discourage purchases. E-commerce has expanded choices for consumers while increasing global competition and shifting some retail jobs to fulfillment.
This document discusses exchange rate volatility and its impact on India and China. It notes that exchange rate volatility can decrease international trade by creating uncertainty. For developing countries like India that rely on exports, volatility increases trade costs. The Indian rupee and Chinese yuan both show volatility in their exchange rates. India follows a managed floating exchange rate regime to reduce volatility and stabilize its real effective exchange rate. Devaluations of the yuan have impacted Indian and Chinese trade, giving a boost to Chinese exports but also creating opportunities for other trading partners of China like India.
11.exchange rate volatility and stock market behaviour the nigerian experienceAlexander Decker
The study examines the relationship between exchange rates and stock market performance in Nigeria from 1985 to 2009 using cointegration and causality tests. The results show:
1) Exchange rates and stock market performance are cointegrated, indicating a long-run equilibrium relationship.
2) The long-run relationship between exchange rates and stock market performance is negative - exchange rate fluctuations negatively impact stock market performance.
3) Granger causality tests show exchange rates cause stock market performance in Nigeria, implying exchange rate volatility explains variations in the stock market.
A survey of foreign exchange rate determinants in nigeriaAlexander Decker
The document presents a study that investigates factors that determine foreign exchange rates in Nigeria over the period 1960-2011. Regression analysis was used to analyze the relationship between the foreign exchange rate and several independent macroeconomic variables including GDP, balance of payments, external reserves, inflation, deposit rates, and lending rates. The results of the regression showed no statistically significant relationship between the foreign exchange rate and any of the independent variables over the time period analyzed.
11.the impact of macroeconomic indicators on stock prices in nigeriaAlexander Decker
This document summarizes a study that examines the impact of macroeconomic indicators on stock prices in Nigeria. The study uses secondary data on stock prices of selected firms and six macroeconomic variables between 1985 and 2009. The macroeconomic variables examined are money supply, interest rate, exchange rate, inflation rate, oil price, and gross domestic product. A pooled or panel model is used to analyze the impact of these macroeconomic variables on stock prices at the individual firm level. The empirical findings reveal that macroeconomic variables have varying significant impacts on stock prices, with inflation rate and money supply having no significant impact. The study concludes that trends in macroeconomic variables can predict stock price movements in Nigeria to a great extent.
1.[1 14]the impact of macroeconomic indicators on stock prices in nigeriaAlexander Decker
This document summarizes a study that examines the impact of macroeconomic indicators on stock prices in Nigeria. The study uses secondary data on stock prices of selected firms and six macroeconomic variables between 1985 and 2009. The macroeconomic variables examined are money supply, interest rate, exchange rate, inflation rate, oil price, and gross domestic product. A pooled or panel model is used to analyze the impact of these macroeconomic variables on stock prices at the individual firm level. The empirical findings reveal that macroeconomic variables have varying significant impacts on stock prices, with inflation rate and money supply having no significant impact. The study concludes that trends in macroeconomic variables can predict stock price movements in Nigeria to a great extent.
1.[1 14]the impact of macroeconomic indicators on stock prices in nigeriaAlexander Decker
This document summarizes a study that examines the impact of macroeconomic indicators on stock prices in Nigeria. The study uses secondary data on stock prices of selected firms and six macroeconomic variables between 1985 and 2009. The macroeconomic variables examined are money supply, interest rate, exchange rate, inflation rate, oil price, and gross domestic product. A pooled or panel model is used to analyze the impact of these macroeconomic variables on stock prices at the individual firm level. The empirical findings reveal that macroeconomic variables have varying significant impacts on stock prices, with inflation rate and money supply having no significant impact. The study concludes that trends in macroeconomic variables can predict stock price movements in Nigeria to a great extent.
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11.a causal relationship between stock indices and exchange rates empirical e...Alexander Decker
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Effect of interest rate and exchange rate on
1. The impact of Interest rate and
Exchange rate on Stock Prices. A
Pakistani perspective. (July 2007-
March 2012)
Muhammad Taimur
2. Introduction
• Interest rate and exchange rate are the key
macroeconomic variables of the economy (Ahmed,
Raoof, & Rehman, 2010).
• Changes in these variables can affect the
profitability and returns of the investors.
• Emergence of new capital markets, gradual
abolishment of capital inflow barriers and
adaptation of flexible exchange rate has highlighted
the need (Okpara & Odionye, 2012).
3. Problem Statement
To investigate the impact of Interest rate
and Exchange rate on Stock prices in
Pakistan.
4. Literature Review
Research Title
Stock Prices and Exchange Rates: Are they Related? (Rasheed & Naeem, 2002)
Evidence from South Asian Countries.
Exchange rate and stock price interactions in (Abdalla & Murinde, 1997)
emerging financial markets: evidence on India,
Korea, Pakistan and the Philippines.
Dynamic relationship between stock prices and (Nieha & Leeb, 2001)
exchange rates for G-7 countries.
Linkage between Stock Market Prices and Exchange (Farooq & Keung, 2002)
Rate: A Causality Analysis for Pakistan.
Dollar exchange rate and stock price: evidence (Kim, 2003)
from multivariate cointegration and error
correction model.
5. The determinants of the variability of (Grossman & Shiller, 2001)
stock market prices.
The Exchange-Rate Exposure of U.S. (Jorion, 1990)
Multinationals.
A bivariate causality between stock (Granger, Huang, & Yang, 2000)
prices and exchange rates: evidence
from recent Asian flu
Estimating the effects of Interest Rates (Çifter & Ozun, 2002)
on Share Prices Using Multi-scale
Causality Test in Emerging Markets:
Evidence from Turkey
6. The Relationship between Exchange (Kurihara, 2006)
Rate and Stock Prices during the
Quantitative Easing Policy in Japan
Analysis of the relationship between (okpara & Odionye, 2012)
exchange rate and stock prices :
Evidence from Nigeria
Is exchange rate volatility influenced (Kansas, 2002)
by stock return volatility? Evidence
from the US, the UK and Japan
Relationship between Interest Rate (Alam & Uddin, 2009)
and Stock Price: Empirical Evidence
from Developed and Developing
Countries
8. Hypothesis
H1O : Exchange rate does not effect stock
prices.
H1: Exchange rate effects stock prices.
H2O: Interest rate does not effect stock prices.
H2: Interest rate significantly effects stock
prices.
9. Objective of the Research
This research aims to investigate the effect of
exchange rate on stock prices and interest rate
on stock prices.
10. Significance of the Research
• This research can help SBP to adjust interest
rate to attract local and foreign investors.
• This research can be used by other developing
countries as well.
• It can serve as a base for conducting further
studies and as a secondary data.
11. Scope of the study
• The study is limited only to the financial sector
of KSE 100 however it can be applied to the
financial sector in other countries as well.
12. Methodology
• Population includes the financial services sector
of KSE 100.
• Randomly selected sample including 7 financial
companies.
13. Data Collection
• The study uses monthly data for the period July
2007 – March 2012.
• Stock prices will be observed from KSE 100 .
• 90 days T-Bill rate is selected as a representative
of interest rate (Zafar, Urooj, & Durrani, 2008).
It will be taken from SBP website
http://www.sbp.org.pk
Exchange rate will be taken from SBP website as
well.
15. Referencing
• Abdalla, I., & Murinde, V. (1997). Exchange rate and stock price
interactions in emerging financial markets: evidence on India,
Korea, Pakistan and the Philippines. Applied Financial Economics .
• Ahmed, I., Raoof, A., & Rehman, R. u. (2010). Do Interest Rate,
Exchange Rate effect Stock Returns? A Pakistani perspective.
International Research Journal of Finance and Economics .
• Alam, M., & Uddin, G. (2009). Relationship between Interest Rate
and Stock Price: Empirical evidence from developed and developing
countries. International journal of business and management .
• Çifter, A., & Ozun, A. (2002). Estimating the effects of Interest rates
on share prices using multi-scale causality test in emerging markets:
Evidence from Turkey. The quarterly review of economics and
finance .
16. • Farooq, M. T., & Keung, W. W. (2002). Linkage between stock market
prices and exchange rate: A causality analysis for Pakistan.
• Granger, C., Huang, B. N., & Yang, C. W. (2000). A bivariate causality
between stock prices and exchange rates: evidence from recent Asian
flu. The Quarterly Review of Economics and Finance , 337-354.
• Grossman, S. J., & Shiller, R. J. (2001). The determinants of the
variability of stock market prices. NBER working paper series.
• Jorion, P. (1990). The exchange-rate exposure of U.S. multinationals.
The journal of business , 331-345.
• Kansas, A. (2002). Is exchange rate volatility influenced by stock
return volatility? Evidence from the US, the UK and Japan. Applied
Economics Letters , 501-503.
• Kim, k.-h. (2003). Dollar exchange rate and stock price: evidence from
multivariate cointegration and error correction model. Review of
Financial Economics , 301-313.
17. • Kurihara, Y. (2006). The relationship between exchange rate and
stock prices during the Quantitative Easing Policy in Japan.
INTERNATIONAL JOURNAL OF BUSINESS .
• Nieha, C. C., & Leeb, C. F. (2001). Dynamic relationship between
stock prices and exchange rates for G-7 countries. The quarterly
review of economics and finance , 477-490.
• Okpara, g. c., & Odionye, J. C. (2012). Analysis of the relationship
between exchange rate and stock prices: Evidence from Nigeria.
International Journal of Current Research , 4 (03), 175-183.
• Rasheed, A., & Naeem, M. (2002). Stock Prices and Exchange Rates:
Are they Related? Evidence from South Asian Countries. The
Pakistan Development Review , 535-550.
• Zafar, N., Urooj, f., & Durrani, T. K. (2008). Interest rate volatility
and stock return and volatility. European Journal of Economics,
Finance and Administrative Sciences .
Editor's Notes
Changes in interest rate may influence investors investment decision i.e. whether to invest or to save at bank.Exchange rate changes influence imports and exports level.