INTRODUCTION Indian Currency Rate Fluctuations and Comparison With

INTRODUCTION

Indian currency rate fluctuations and comparison with Japanese yen, Chinese Yuan, British Pound and Euro, are the central issues of this thesis. The study will follow the United State Dollar as a base currency and will find out that which currency is more volatile and which currency is more stable within these more popular currencies which are mostly traded in the currency market. Currencies which we are referring over here are as follows:

 USD  EURO  JAPANESE YEN  GREAT BRITAIN POUND  CHINESE YAUN  INDIAN RUPPE

Most of the presently empirical literature on foreign exchange market follows either the stock market fluctuations or the export –import market analysis. But this thesis directly focused on the currency market volatility in the foreign exchange market, in particular these three key areas for the present research that are-price fluctuation in Indian currency market, Theoretical Economic equilibrium of currency market, INR we will compare with other four currency market volatility that are Japan, British, China and Europe, and lastly find out that which currency market is more stable out of these five markets.

1.1 Indian Foreign Exchange Market-

Sam Y. Gross (1998, Federal Reserve Bank of New York), “Foreign exchange” refers to money denominated in the currency of another nation or group of nations. Any person who exchanges money denominated in his own nation‟s currency for money denominated in another nation‟s currency acquires foreign exchange.” Indian currency is the key part of the Indian Foreign Exchange Market and directly or indirectly the currency market affected to the other part of the foreign exchange market that are stock market and export – import market of India.  Basic information of the target currencies in the present thesis:-

1.2 USD The US Dollar is the currency of United States. The currency code of the Dollars is USD, and the currency symbol is $. The Dollar was officially adopted as the money unit of the United States in 1785. The US Dollar is the largely converted currency in the world and is commonly used as a standard in the Foreign exchange market. Since the governing global reserve currency, it is held by almost every central bank in the world. Additionally, the Dollar is used as the benchmark currency in the global forex market and therefore it has a direct impact on exchange prices.

1.3 The euro (EUR) The central bank in Europe is entitled as the European Central Bank (ECB). At present, 17 EU member states have accepted the Euro. It is the second-most traded currency in the global foreign exchange market. The symbol of euro is € (EURO). From January 1, 1999, the Euro (EUR) launched as an official legal currency, replacing the European Currency Unit at par. The European Currency Unit was a theoretical basket of currencies rather than a physical currency in and of itself.

1.4 The Japanese yen (JPY) The third most traded currency is largely dynamic next to the USD and EUR in the World. The symbol of yen is ¥ (JPY). The Japanese demand USD for the investment purposes, to service USD debt and to import oil, gas and commodities. By the 19th century, Spanish Dollars were being used in Japan, beside with local currencies. In order to make simpler and unify the different coins being used at the time, the Yen (which means 'circle' or 'round object') was adopted in 1871. The „New Currency Act‟ developed a monetary system parallel to the European one, with a decimal account system. The Yen operated under a bimetallic standard of gold and silver until 1897, when it was left under a sole gold standard. After World War II, the Yen lost much of its value and in 1971, fixed the exchange rate to the US Dollar at a rate of 308 JPY to 1 USD. This lasted until 1973 when it switched to a floating exchange rate. 1.5. British pound (GBP) The British Pound is the currency of United Kingdom. The GBP is most weighty operated against the USD and EUR and more than half of these trades are throughout London. The currency code for Pounds is GBP, and the currency symbol is £. The United Kingdom's central bank is the Bank of England. In 1694, the first paper notes were introduced, with their legal basis being exchanged from silver to gold. The Bank of England, one of the first central banks in the world, was established a year later, in 1695. London and the GBP were at the centre of all FX activity before the rise of the USD. Britain and the USA maintain a historic two-way investment relationship, with many US companies investing and operating in the UK and vice versa.

1.6 Indian Rupee (INR) The Indian Rupee is the currency of India. The central bank in India is called the Reserve Bank of India. The INR is a managed float, allowing the market to determine the exchange rate. After gaining its independence in 1947 and becoming a republic in 1950, India's modern Rupee (INR) was changed back to the design of the signature coin. The Indian Rupee was adopted as the country's sole currency, and the use of other domestic coinage was removed from circulation. India adopted a decimalization system in 1957. 1.7 Chinese Yuan Renminbi (CNY) During the command economy, the Chinese Yuan Renminbi was set to unrealistic exchange values and as a result, severe currency guidelines were put in place. When China's economy opened in 1978, the Yuan Renminbi was only used domestically and foreigners used exchange certificates; this led to a powerful black market. From 1997 to 2005, the Chinese government pegged the Chinese Yuan Renminbi to the US Dollar at approximately 8.3 CNY to 1 USD. In 2005, a flexible mechanism of exchange rates was phased in, with the RMB being re-evaluated to 8.1 Renminbi per US dollar.