exchange rate and economic infrastructture


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exchange rate and economic infrastructture

  1. 1. Exchange rates and Economic Infrastructure <ul><li> By, </li></ul><ul><li> Archana.C.K </li></ul><ul><li>Athishay.N </li></ul><ul><li>Swetha Suvarna </li></ul><ul><li>Sandeep.P.M </li></ul><ul><li>Suhas.R </li></ul>
  2. 2. EXCHANGE RATE <ul><li>The exchange rates between two currencies specifies how much one currency is worth in terms of the other. </li></ul><ul><li>For example an exchange rate of 48 INR (i.e. Rs.49.16 ) to the United States dollar (i.e.,$1) means that Rs.49.16 is worth the same as $ 1. </li></ul>
  3. 3. 1 INR in INR American Dollar 0.0203400 49.16 Australian Dollar 0.0312977 31.9513 Brazilian Real 0.0458774 21.7972 British Pound 0.0135185 73.9725 Canadian Dollar 0.02526 39.5882 Chinese Yuan 0.144328 6.92868 Euro 0.0165687 60.3548 Hong Kong Dollar 0.163844 6.10338 Japanese Yen 2.07104 0.48285 Malaysian Ringgit 0.0749683 13.339 Mexican Peso 0.27093 3.69099 New Zealand Dollar 0.0360104 27.7698 Singapore Dollar 0.0315328 31.713 Sri Lanka Rupee 2.32558 0.43 Swedish Krona 0.165292 6.04991 Taiwan Dollar 0.692812 1.44339
  4. 4. FOREX RESERVES <ul><li>Deposits of foreign currency held by a central bank. It includes currencies, gold holdings, special drawing rates, exchange reserve balances with IMF. </li></ul><ul><li>Holding the currencies of other countries as assets allow govts to keep their currencies stable and reduce the effect of economic shocks. </li></ul>
  5. 5. TYPES OF EXCHANGE RATES <ul><li>Fixed Exchange Rate </li></ul><ul><li>Floating Exchange Rate </li></ul><ul><li>Cross Exchange Rate </li></ul>
  6. 6. <ul><li>1.Fixed Exchange Rates </li></ul><ul><li>: </li></ul><ul><ul><li>The value of a currency fixed in relation to an another currency. </li></ul></ul><ul><ul><li>Fixed, and not vulnerable to any changes or a particular period of time . </li></ul></ul>
  7. 7. <ul><li>2.Floating Exchange Rates: </li></ul><ul><ul><li>Price is determined by demand and supply of the currency. </li></ul></ul><ul><ul><li>No interference by the regulatory bodies unless there is a extremity in appreciation or depreciation. </li></ul></ul>
  8. 8. <ul><li>3.cross exchange rate : </li></ul><ul><li>A cross exchange rate is the value of one foreign currency expressed in another. For example, we can deduce from the above figures that </li></ul><ul><li>1 INR= 0.021141 USD </li></ul><ul><li>1 USD=1.56 AUD </li></ul>
  11. 11. SPOT EXCHANGE RATE <ul><li>The spot price or spot rate of a currency is the price that is quoted for immediate (spot) settlement (payment and delivery). </li></ul><ul><li>Spot settlement is normally one or two business days from trade date. </li></ul>
  13. 13. INSTRUMENTS IN FOREX MARKET <ul><li>FOREIGN EXCHANGE SWAP </li></ul><ul><li>FUTURES </li></ul><ul><li>OPTIONS </li></ul>
  14. 14. FOREIGN EXCHANGE SWAP <ul><li>The most common type of forward transaction is the currency swap . </li></ul><ul><li>In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. </li></ul><ul><li>These are not standardized contracts and are not traded through an exchange. </li></ul>
  15. 15. FUTURES <ul><li>Foreign currency futures are forward transactions with standard contract sizes and maturity dates. For example, 500,000 British pounds for next November at an agreed rate. </li></ul><ul><li>Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. </li></ul><ul><li>Futures contracts are usually inclusive of any interest amounts </li></ul>
  16. 16. OPTIONS <ul><li>A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. </li></ul><ul><li>The FX options market is the deepest, largest and most liquid market for options of any kind in the world. </li></ul>
  17. 17. EXCHANGE RATE <ul><li>Appreciation of the Exchange Rate </li></ul><ul><li>A rise in the value of the Rs in relation to other currencies - each Rs buys more of the foreign currency e.g. </li></ul><ul><li>$1 = Rs.43 to $1 = Rs.38 </li></ul><ul><li>India’s exports appear to be expensive </li></ul><ul><li>( ↓ Xp) </li></ul><ul><li>Imports to the India appear more cheaper ( ↑ Mp) </li></ul>
  18. 18. EXCHANGE RATE <ul><li>Depreciation of the Exchange Rate </li></ul><ul><li>A fall in the value of the Rs in relation to other currencies - each Rs buys less of the foreign currency e.g. </li></ul><ul><li>$1 = Rs.43 $1 = Rs.49 </li></ul><ul><li>India’s exports appear to be cheaper </li></ul><ul><li>( ↑ Xp) </li></ul><ul><li>Imports to the India’s appear more expensive ( ↓ Mp) </li></ul>
  19. 19. DETERMINANTS OF EXCHANGE RATE <ul><li>Purchasing power parity </li></ul><ul><li>Relative interest rates </li></ul><ul><li>The demand for imports (D£) </li></ul><ul><li>The demand for exports (S£) </li></ul><ul><li>Investment opportunities </li></ul><ul><li>Speculative sentiments </li></ul><ul><li>Changes in relative inflation rates </li></ul>
  20. 20. Inflation rates <ul><li>AS THE COUNTRY’S INFLATION RATE INCREASES CURRECY OF THAT COUNTRY DEPRECIATES </li></ul><ul><li>10% </li></ul><ul><li>INFLATION RATE 3% </li></ul><ul><li>CURRENCY (PER USD) Rs.38 </li></ul><ul><li> Rs.48 </li></ul>
  21. 21. Purchasing power parity <ul><li>It is a theory which compares the purchasing capacity of currency with the other </li></ul>
  22. 22. Economic Infrastructure
  23. 23. Definition : <ul><li>Internal facilities of a country that </li></ul><ul><li>make business activity possible, </li></ul><ul><li>such as: </li></ul><ul><li>Communication, </li></ul><ul><li>Transportation, </li></ul><ul><li>Distribution Networks, </li></ul><ul><li>Financial institutions and Markets </li></ul><ul><li>and Energy Supply Systems. </li></ul>
  24. 24. What does Infrastructure include: <ul><li>Communication: Internet, Mass media, Mobile. </li></ul><ul><li>Transportation: Shipping, Railway, Airports and Roads . </li></ul><ul><li>Distribution Networks. </li></ul><ul><li>Financial institutions and Markets: FDI, FII and Banking </li></ul><ul><li>and </li></ul><ul><li>Energy Supply Systems: </li></ul><ul><li>Petrolieum, Biogas, Water gas, Thermal, Hydro, Nuclear, </li></ul><ul><li>Solar, Tidal, Wind. </li></ul>
  25. 28. Factors for better Infrastructure : <ul><li>1) General Education (including </li></ul><ul><li>Related forms of classical culture). </li></ul><ul><li>2) Science and Technology </li></ul><ul><li>(Households, Agriculture, and </li></ul><ul><li>Industry) and </li></ul><ul><li>3) Health-Care delivery systems. </li></ul>
  26. 29. Measuring Infrastructure : <ul><li>Per capita (of the labor force) </li></ul><ul><li>Per household </li></ul><ul><li>Per sq.kilometer of land-area. </li></ul>
  27. 30. Economy of India <ul><li>Diversified Economy. </li></ul><ul><li>Agriculture, Handicrafts, Textiles, Manufacturing and Services. </li></ul><ul><li>GDP of 2007-08 = US $2.965 trillion. </li></ul><ul><li>2 ND fastest growing economy with an estimated GDP growth rate 8.5% . </li></ul><ul><li>7 th largest and the 2 nd most populous country. </li></ul><ul><li>Area:   3.3 Million sq km. </li></ul>
  28. 31. <ul><li>India’s Private sector contributes for more than 75% of its GDP. </li></ul><ul><li>Mixed Economy : Capitalist Market and Socialist Command Economy. </li></ul><ul><li>Bold Judiciary. </li></ul><ul><li>Advanced Legal & Accounting System and </li></ul><ul><li>User-friendly Infrastructure, facilities of Foreign Investments and Warrants Long-term Investors in securities. </li></ul>
  29. 32. Economic Infrastructure of India <ul><li>Transportation : </li></ul><ul><li>AIR: </li></ul><ul><li>Aircraft departures > 214,300 [19th of 155] </li></ul><ul><li>Airports w/paved runways > 914 to 1523 m 74 [7th of 117] </li></ul><ul><li>Airports w/unpaved runways > 914 to 2437 m [27rd of 121] </li></ul><ul><li>LAND/ROAD: </li></ul><ul><li>Highways > Paved 1,517,080 km[1st of 171] </li></ul><ul><li>Highways > Total 3,319,640 km[1st of 181] </li></ul><ul><li>Motor vehicles : 12 motor vehicles /100persons </li></ul><ul><li>[104th of 134] </li></ul>
  30. 33. <ul><li>Roads, total network > km 3,383,344 km ... [1st of 172] </li></ul><ul><li>Roadways > Paved 1,603,705 km [2nd of 205] </li></ul><ul><li>Roadways > Total 3,383,344 km [2nd of 222] </li></ul><ul><li>Roadways > Unpaved 1,779,639 km [2nd of 175] </li></ul><ul><li>Speed limit > Speed limits in specific countries > Within Towns 50-60Kmph </li></ul><ul><li>WATER: Coastline length 7,600 km </li></ul><ul><li>Waterways 14,500 km [9th of 106] </li></ul><ul><li>Waterways 3,631 km navigable by large vessels </li></ul><ul><li>Waterways 5,200 km on major rivers and 485km </li></ul><ul><li>on canals suitable for mechanized vessels. </li></ul>
  31. 34. <ul><li>Ports and harbors : </li></ul><ul><li>Chennai (Madras), Cochin , Jawaharal Nehru, </li></ul><ul><li>Kandla, Kolkata(Calcutta), Mumbai (Bombay), </li></ul><ul><li>Vishakhapatnam. </li></ul><ul><li>RAILWAYS : </li></ul><ul><li>7500 Stations. </li></ul><ul><li>A Fleet of 7800 Locomotives. </li></ul><ul><li>About 14K Trains run on a daily basis. </li></ul><ul><li>Carries 13 Million People. </li></ul>
  32. 35. EI of Karnataka : <ul><li>Economic Activity: </li></ul><ul><li>Manufacturing- 22%; </li></ul><ul><li>Services- 39%; </li></ul><ul><li>Agriculture - 39% </li></ul><ul><li>Investor Profile: </li></ul><ul><li>Govt. 30.3% </li></ul><ul><li>Foreign 27% </li></ul><ul><li>Indian 42.7% </li></ul>
  33. 36. MAJOR INDUSTRIES IN KARNATAKA : <ul><li>AUTOMOBILE INDUSTRY. </li></ul><ul><li>ELECTRONIC AND TELECOMMUNICATIONS. </li></ul><ul><li>AGRO FOOD PROCESSING. </li></ul><ul><li>APPAREL. </li></ul><ul><li>INFORMATION TECHNOLOGY. </li></ul><ul><li>BIO TECHNOLOGY. </li></ul><ul><li>HANDICRAFT. </li></ul><ul><li>TOURISM. </li></ul>
  34. 38. Reason.. <ul><li>India's low spending on power, construction, transportation, telecommunications and real estate , at $31 billion or 6% of GDP in 2002 had prevented India from sustaining higher growth rates. </li></ul>
  35. 39. <ul><li>It is estimated that inadequate infrastructure is responsible for holding back GDP growth by roughly 2% points, or an annual hit of approximately $20 billion to economic progress. </li></ul><ul><li>In contrast, infrastructure is one of the reasons why China enjoys 10+% GDP growth. China spends five times as much on infrastructure compared to India. Ports in China handle 5.6 billion tons of cargo compared to India’s 650 million tons. </li></ul>
  36. 40. <ul><li>This had prompted the government to partially open up infrastructure to the private sector allowing foreign investment which has helped in a sustained growth rate of close to 9% for the past six quarters </li></ul>
  37. 41. Benefits of infrastructure <ul><li>The benefits of infrastructure need no elaboration. Put simply, infrastructure reduces the cost of doing business, thereby expanding trade. The impact can be felt even at the grassroots level. </li></ul><ul><li>For example, a farmer who used to be dependent on the nearest market to sell his produce (for lack of information and transportation), can now ascertain the prevailing prices in multiple markets and access the one that offers the best price. </li></ul>
  38. 42. Bringing in the Money <ul><li>The importance of infrastructure sector also follows from the fact that foreign investors are now looking at infrastructural development as a yardstick for directing their investments. </li></ul><ul><li>In fact infrastructural development had taken precedence over wage levels in assessing the investment potential in developing countries. </li></ul><ul><li>In India infrastructure sector itself is becoming an attractive investment area for FDIs. </li></ul>
  39. 43. In contrast with China <ul><li>Chinese industries pay less than half of what their Indian counterparts pay for power . </li></ul><ul><li>Logistics costs in India are among the highest in the world at 13% of GDP. </li></ul><ul><li>Internet users in India: More than 16 million </li></ul><ul><li>Internet users in China: 78million. </li></ul><ul><li>Broadband users in China:17.4 million. </li></ul><ul><li>Broadband users in India: Quiet Low </li></ul><ul><li>It is no surprise then that Indian companies find it hard to compete with China in large-scale manufacturing . </li></ul>
  40. 44. Present situation <ul><li>India holds second position in the world in roadways' construction, more than twice that of China. </li></ul><ul><li>As of 2005 the electricity production was at 661.6 billion kWh with oil production standing at 785,000 bbl/day. </li></ul><ul><li>As of January 15, 2007, there were 2.10 million broadband lines in India. </li></ul><ul><li>Over 76% of the broadband lines were via DSL and the rest via cable modems. </li></ul>
  41. 45. In an ideal scenario…… <ul><li>Better infrastructure would lead to stronger economic growth, which in turn, would be able to fund and support additional investments in infrastructure, creating a virtuous cycle. </li></ul>
  42. 46. Future plans : <ul><li>The Indian government regards infrastructure as a critical constraint to its target of achieving 9% growth over the next five years </li></ul><ul><li>The current expenditure on infrastructure is 5% of GDP annually, which must be taken to 9% by 2011-2012 </li></ul><ul><li>In monetary terms, he said India is looking to spend US$ 500 billion over five years, of which the private sector must contribute US$ 150 billion. </li></ul>
  43. 56. Always there is a hope……….!
  44. 57. <ul><li>Hope for the best………! </li></ul><ul><li>Thank you </li></ul>