Techniques of Foreign Exchange Exposure used in Banks and in Trading Firms by Sanjay Gupta

“Foreign Exchange Exposure”

EXECUTIVE SUMMARY “Techniques

of Foreign Exchange Exposure used in Banks and in Trading Firms”

In a floating exchange rate regime, the value of a currency changes frequently. Such changes influence the value of those firms that are involved in international transactions. Foreign exchange exposure is into 2 classes. One is known as accounting or translation exposure, while the other is known as economic exposure. The economic exposure is further divided into transaction exposure and real operating exposure. If such exposure results in loss to a firm, it needs to manage these exposures. For this purpose they use some techniques like: ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦

Forward Market Hedges Hedging through currency futures Hedging through currency options. Money Market Hedge. Leads and Lags Cross Hedging Currency diversification Risk Sharing Pricing of transaction

If such exposure arises, then firms use some documents for reducing these exposures through banks like: ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦

Letter of Credit Draft Bill of Exchange Pre-Shipment Credit Post-Shipment Credit Medium-term Credit Credit under duty draw-back scheme Factoring Forfeiting

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Sub Objectives: 1. What are the techniques available to reduce the exposure involved in foreign market? 2. What are the procedures for forecasting the future currency rates? 3. What are the procedures, banks are following in foreign currency market? 4. What are the practical issues used in Banks and in firms i.e., who are actual traders? 5. What traders are expecting from banks, other than their regular Forex trading? 6. What restrictions are involved in foreign currency market by government or other concerns? Data Collection for the Study: Primary Data: Questionnaire Bank Officials in the Forex Department Secondary Data: Internet Newspaper Magazine

Significance of the Study The objectives of the project is two-fold A)

To provide the guidelines/help lines to traders through the banks for avoiding and minimizing the exposure.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

"The government is concerned over the rapid appreciation of the rupee against the US dollar and the central bank may have to intervene if there is disorderly movement in the exchange rate."3 - P Chidambaram, Finance Minister of India, in September, 2007 "The objective of the exchange rate management has been to ensure that the external value of the rupee is realistic and credible as evidenced by a sustainable current account deficit and manageable foreign exchange situation. Subject to this predominant objective, the exchange rate policy is guided by the need to reduce excess volatility, prevent the emergence of destabilizing speculation activities, help maintain adequate level of reserves, and develop an orderly foreign exchange market."4 - RBI's Policy in the Foreign Exchange Market "I expect the rupee to appreciate vis-a-vis the dollar through 2008. However, the appreciation will be gradual and perhaps, not as rapid as it has been in the last few months," ABN AMRO Bank's newly-appointed India chief Meera H Sanyal told media here on Thursday. IN 1975, about 80% of foreign exchange transactions (where one national currency is exchanged for another) were to conduct business in the real economy. For instance, currencies change hands to import oil, export cars, buy corporations, invest in portfolios, or build factories. Real transactions actually produce or trade goods and services. The remaining 20% of transactions in 1975 were speculative, which means that the sole purpose was an expected profit from buying and selling currencies themselves, based on their changing values. So, even in the days when the real economy was dominant, some currency speculation was going on. There had always been that little bit of frosting on the cake. 'Foreign exchange risk' In considering the viewpoint of so-called real businesses (those that make cars, mine, produce electronics, etc.), the 'foreign exchange risk' has by far become the largest risk in international business today, often larger than political or market risk. For example, if a German chemical company invests in a plant in India, it makes the investment in deutschmarks. The chemical products sold locally from that plant are paid in rupees, India's currency. If the value of the rupee then drops in terms of the deutschmark, the return on the original investment will drop as well. In short, the biggest risk of such investments is not whether Indians will buy the chemicals (market risk) or whether the Indian government will nationalise the plant (political risk), but the changes in the values of the currencies involved (foreign exchange risk).

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

COMPANY PROFILE

Late Sri. Ammembal Subba Rao Pai Our beloved Founder Founded as 'Canara Bank Hindu Permanent Fund' in 1906, by late Sri. Ammembal Subba Rao Pai, a philanthropist, this small seed blossomed into a limited company as 'Canara Bank Ltd.' in 1910 and became Canara Bank in 1969 after nationalisation.

"A good bank is not only the financial heart of the community, but also one with an obligation of helping in every possible manner to improve the economic conditions of the common people" - A. Subba Rao Pai. Founding Principles 1. 2. 3. 4.

To remove Superstition and ignorance. To spread education among all to sub-serve the first principle. To inculcate the habit of thrift and savings. To transform the financial institution not only as the financial heart of the community but the social heart as well. 5. To assist the needy. 6. To work with sense of service and dedication. 7. To develop a concern for fellow human being and sensitivity to the surroundings with a view to make changes/remove hardships and sufferings.

Sound founding principles, enlightened leadership, unique work culture and remarkable adaptability to changing banking environment have enabled Canara Bank to be a frontline banking institution of global standards.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Vision To emerge as a ‘Best Practices Bank’ by pursuing global benchmarks in profitability, operational efficiency, asset quality, risk management and expanding the global reach. Mission To provide quality-banking services with enhanced customer orientation, higher value creation for stakeholders and to continue as a responsive corporate social citizen by effectively blending commercial pursuits with social banking.

BRAND STORY

The new brand identity for Canara Bank is based on the idea of a bond and is a representation of the close ties between the Bank and its many stakeholders – from customers and employees to investors, institutions and society at large. With its rich heritage of banking expertise, dedicated customer service and corporate social responsibility, Canara Bank is a powerful enabler who helps its stakeholders achieve their goals. The two seamlessly connected links capture the essence of this partnership. Canara Bank has more than 45,800 employees and serves over 31 million customers through a network of over 2600 branches spread across the country. The simple, memorable symbol can be easily recalled and decoded by all of the Bank’s diverse audiences. The colour palette and typography have been carefully chosen. The rich blue represents stability, scale and depth. This contrasts with accents of bright yellow that evoke optimism, warmth and energy. The Canara Bank logotype has been hand-crafted. Its classic, serif letterforms communicate heritage and stature.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Significant Milestones 1st July 1906

Canara Hindu Permanent Fund Ltd. formally registered with a capital of 2000 shares of Rs.50/- each, with 4 employees.

1910

Canara Hindu Permanent Fund renamed as Canara Bank Limited

1969

14 major banks in the country, including Canara Bank, nationalized on July 19

1976

1000th branch inaugurated

1983

Overseas branch at London inaugurated Cancard (the Bank’s credit card) launched

1984

Merger with the Laksmi Commercial Bank Limited

1985

Commissioning of Indo Hong Kong International Finance Limited

1987

Canbank Mutual Fund & Canfin Homes, launched

1989

Canbank Venture Capital Fund started

1989-90

Canbank Factors Limited, the factoring subsidiary launched

1992-93

Became the first Bank to articulate and adopt the directive principles of “Good Banking”.

1995-96

Became the first Bank to be conferred with ISO 9002 certification for one of its branches in Bangalore

2001-02

Opened a 'Mahila Banking Branch', first of its kind at Bangalore, for catering exclusively to the financial requirements of women clientele.

2002-03

Maiden IPO of the Bank

2003-04

Launched Internet & Mobile Banking Services

2004-05

100% Branch computerization

2005-06

Entered 100th Year in Banking Service Launched Core Banking Solution in select branches Number One Position in Aggregate Business among Nationalized Banks

2006-07

Notched up the highest ever net profit since its inception Retained Number One Position in Aggregate Business among Nationalized Banks Singed MoUs for Commissioning Two JVs in Insurance and Asset Management with international majors.

As at march 2007 the total business of the bank was over Rs.2,40,000 crores.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

AWARDS & ACHIEVEMENTS

•

Canara Bank was awarded the "First National Award" instituted by the Ministry of Micro, Small & Medium Enterprises, Govt. of India for excellence in "Micro & Small Enterprises (MSE) Lending" for 2006-07.

•

Adjudged the 'Best Public Sector Bank' in India under the 'Best Banks Survey' conducted by 'Financial Express-Ernst and Young' for 2005-06. Conferred with 'Employer Branding Awards 2007' by Indiatimes Mindscape and ITM Business School, for excellence in human resources. Canara Bank was the first Public sector Bank to bag this award. Won the maiden award of 'Best Performing Bank' under solar water heater finance for the year 2005-06, instituted by the Ministry of New and Renewable Energy, Govt. of India. Received Niryat Bandhu Gold Trophy for outstanding performance under export finance.

•

As a premier commercial bank in India, Canara Bank's track record in the service of the nation for over 100 years is both striking and impressive. Today, Canara Bank has a strong pan India presence with over 2600 branches and 1500 ATMs, catering to all CHAIRMAN'S MESSAGE segments of an ever growing clientele base of exceeding 31 million. Canara Bank is recognized as a leading financial conglomerate in India, with as many as nine subsidiaries/sponsored institutions/joint ventures in India and abroad. As the Bank steps into the second century, it aspires to emerge as a Global Bank with Best Practices in its endeavour to become a 'Speciality Financial Supermarket'.

Introduction to Topic

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” The foreign exchange (also known as "forex" or "FX") market is the place where currencies are traded. The overall forex market is the largest, most liquid market in the world with an average traded value that exceeds $1.9 trillion per day and includes all of the currencies in the world. There is no central marketplace for currency exchange, rather, trade is conducted over-the-counter. The forex market is open 24 hours a day, five days a week, with currencies being traded worldwide among the major financial centers of London, New York, Tokyo, Zürich, Frankfurt, Hong Kong, Singapore, Paris and Sydney - spanning most time zones. The forex is the largest market in the world in terms of the total cash value traded, and any person, firm, or country may participate in this market. Meaning of Foreign Exchange Market (Forex Market): The foreign exchange market is the "place" where currencies are traded. Currencies are important to most people around the world, whether they realize it or not, because currencies need to be exchanged in order to conduct foreign trade and business Foreign Exchange as a Financial Market Currency exchange is very attractive for both the corporate and individual traders who make money on the Forex - a special financial market assigned for the foreign exchange. The following features make this market different in compare to all other sectors of the world financial system: Heightened sensibility to a large and continuously changing number of factors; • Accessibility to all traders in the major currencies; • Guaranteed quantity and liquidity of the major currencies; • Increased consideration for several currencies, round-the clock business hours which enable traders to deal after normal hours or during national holidays in their country finding markets abroad open and • Extremely high efficiency relative to other financial markets. This goal of this manual is to introduce beginning traders to all the essential aspects of foreign exchange in a practical manner and to be a source of best answers on the typical questions as why are currencies being traded, who are the traders, what currencies do they trade, what makes rates move, what instruments are used for the trade, how a currency behavior can be forecasted and where the pertinent information may be obtained from. Mastering the content of an appropriate section the user will be able to make his/her own decisions, test them, and ultimately use recommended tools and approaches for his/her own benefit.

Foreign Exchange in a Historical Perspective

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” Currency trading has a long history and can be traced back to the ancient Middle East and Middle Ages when foreign exchange started to take shape after the international merchant bankers devised bills of exchange, which were transferable third-party payments that allowed flexibility and growth in foreign exchange dealings. The modern foreign exchange market characterized by the consequent periods of increased volatility and relative stability formed itself in the twentieth century. By the mid-1930s London became to be the leading center for foreign exchange and the British pound served as the currency to trade and to keep as a reserve currency. Because in the old times foreign exchange was traded on the telex machines, or cable, the pound has generally the nickname “cable”. In 1930, the Bank for International Settlements was established in Basel, Switzerland, to oversee the financial efforts of the newly independent countries, emerged after the World War I, and to provide monetary relief to countries experiencing temporary balance of payments difficulties. After the World War II, where the British economy was destroyed and the United States was the only country unscarred by war, U.S. dollar became the prominent currency of the entire globe. Nowadays, currencies all over the world are generally quoted against the U.S. dollar. Reading a Quote When a currency is quoted, it is done in relation to another currency, so that the value of one is reflected through the value of another. Therefore, if you are trying to determine the exchange rate between the U.S. dollar (USD) and the Japanese yen (JPY), the quote would look like this:

USD/JPY = 119.50

This is referred to as a currency pair. The currency to the left of the slash is the base currency, while the currency on the right is called the quote or counter currency. The base currency (in this case, the U.S. dollar) is always equal to one unit (in this case, US$1), and the quoted currency (in this case, the Japanese yen) is what that one base unit is equivalent to in the other currency. The quote means that US$1 = 119.50 Japanese yen. In other words, US$1 can buy 119.50 Japanese yen.

Direct Quote vs. Indirect Quote

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” There are two ways to quote a currency pair, either directly

or indirectly. A direct quote is simply a currency pair in which the domestic currency is the base currency; while an indirect quote, is a currency pair where the domestic currency is the quoted currency. So if you were looking at the Canadian dollar as the domestic currency and U.S. dollar as the foreign currency, a direct quote would be CAD/USD, while an indirect quote would be USD/CAD. The direct quote varies the foreign currency, and the quoted, or domestic currency, remains fixed at one unit. In the indirect quote, on the other hand, the domestic currency is variable and the foreign currency is fixed at one unit.

For example, if Canada is the domestic currency, a direct quote would be 0.85 CAD/USD, which means with C$1, you can purchase US$0.85. The indirect quote for this would be the inverse (1/0.85), which is 1.18 USD/CAD and means that USD$1 will purchase C$1.18. In the forex spot market, most currencies are traded against the U.S. dollar, and the U.S. dollar is frequently the base currency in the currency pair. In these cases, it is called a direct quote. This would apply to the above USD/JPY currency pair, which indicates that US$1 is equal to 119.50 Japanese yen. However, not all currencies have the U.S. dollar as the base. The Queen's currencies those currencies that historically have had a tie with Britain, such as the British pound, Australian Dollar and New Zealand dollar - are all quoted as the base currency against the U.S. dollar. The euro, which is relatively new, is quoted the same way as well. In these cases, the U.S. dollar is the counter currency, and the exchange rate is referred to as an indirect quote. This is why the EUR/USD quote is given as 1.25, for example, because it means that one euro is the equivalent of 1.25 U.S. dollars. Most currency exchange rates are quoted out to four digits after the decimal place, with the exception of the Japanese yen (JPY), which is quoted out to two decimal places. Cross Currency When a currency quote is given without the U.S. dollar as one of its components, this is called a cross currency. The most common cross currency pairs are the EUR/GBP, EUR/CHF and EUR/JPY. These currency pairs expand the trading possibilities in the forex market, but it is important to note that they do not have as much of a following (for example, not as actively traded) as pairs that include the U.S. dollar, which also are called the majors.

Bid and Ask As with most trading in the financial markets, when you are trading a currency pair there is a bid price (buy) and an ask price (sell). Again, these are in relation to the base currency. When buying a currency pair (going long), the ask price refers to the amount of quoted currency that has to be paid in order to buy one unit of the base currency, or how much the market will sell one unit of the base currency for in relation to the quoted currency.

The bid price is used when selling a currency pair (going short) and reflects how much of the MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” quoted currency will be obtained when selling one unit of the base currency, or how much the market will pay for the quoted currency in relation to the base currency.

The quote before the slash is the bid price, and the two digits after the slash represent the ask price (only the last two digits of the full price are typically quoted). Note that the bid price is always smaller than the ask price. Let's look at an example: USD/CAD = 1.2000/05 Bid = 1.2000 Ask= 1.2005 If you want to buy this currency pair, this means that you intend to buy the base currency and are therefore looking at the ask price to see how much (in Canadian dollars) the market will charge for U.S. dollars. According to the ask price, you can buy one U.S. dollar with 1.2005 Canadian dollars. However, in order to sell this currency pair, or sell the base currency in exchange for the quoted currency, you would look at the bid price. It tells you that the market will buy US$1 base currency (you will be selling the market the base currency) for a price equivalent to 1.2000 Canadian dollars, which is the quoted currency. Whichever currency is quoted first (the base currency) is always the one in which the transaction is being conducted. You either buy or sell the base currency. Depending on what currency you want to use to buy or sell the base with, you refer to the corresponding currency pair spot exchange rate to determine the price. Spreads and Pips The difference between the bid price and the ask price is called a spread. If we were to look at the following quote: EUR/USD = 1.2500/03, the spread would be 0.0003 or 3 pips, also known as points. Although these movements may seem insignificant, even the smallest point change can result in thousands of dollars being made or lost due to leverage. Again, this is one of the reasons that speculators are so attracted to the forex market; even the tiniest price movement can result in huge profit.

The pip is the smallest amount a price can move in any currency quote. In the case of the U.S. dollar, euro, British pound or Swiss franc, one pip would be 0.0001. With the Japanese yen, one pip would be 0.01, because this currency is quoted to two decimal places. So, in a forex quote of USD/CHF, the pip would be 0.0001 Swiss francs. Most currencies trade within a range of 100 to 150 pips a day. Currency Quote Overview USD/CAD = 1.2232/37

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” Base Currency

Currency to the left (USD)

Quote/Counter Currency

Currency to the right (CAD)

Bid Price

1.2232

Price for which the market maker will buy the base currency. Bid is always smaller than ask.

Ask Price

1.2237

Price for which the market maker will sell the base currency.

Pip

One point move, in USD/CAD it is . The pip/point is the smallest 0001 and 1 point change would be movement a price can make. from 1.2231 to 1.2232

Spread

Spread in this case is 5 pips/points; difference between bid and ask price (1.2237-1.2232).

Spot Market and the Forwards and Futures Markets There are actually three ways that institutions, corporations and individuals trade forex: the spot market, the forwards market and the futures market. The spot market always has been the largest market because it is the "underlying" real asset that the forwards and futures markets are based on. In the past, the futures market was the most popular venue for traders because it was available to individual investors for a longer period of time. However, with the advent of electronic trading, the spot market has witnessed a huge surge in activity and now surpasses the futures market as the preferred trading market for individual investors and speculators. When people refer to the forex market, they usually are referring to the spot market. The forwards and futures markets tend to be more popular with companies that need to hedge their foreign exchange risks out to a specific date in the future. Spot Market More specifically, the spot market is where currencies are bought and sold according to the current price. That price, determined by supply and demand, is a reflection of many things, including current interest rates, economic performance, sentiment towards ongoing political situations (both locally and internationally), as well as the perception of the future performance of one currency against another. When a deal is finalized, this is known as a "spot deal". It is a bilateral transaction by which one party delivers an agreedupon currency amount to the counter party and receives a specified amount of another currency at the agreed-upon exchange rate value. After a position is closed, the settlement is in cash. Although the spot market is commonly known as one that deals with transactions in the present (rather than the future), these trades actually take two days for settlement. Forwards and Futures Markets

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” Unlike the spot market, the forwards and futures markets do not trade actual currencies. Instead they deal in contracts that represent claims to a certain currency type, a specific price per unit and a future date for settlement. In the forwards market, contracts are bought and sold OTC between two parties, who determine the terms of the agreement between themselves. In the futures market, futures contracts are bought and sold based upon a standard size and settlement date on public commodities markets, such as the Chicago Mercantile Exchange. In the U.S., the National Futures Association regulates the futures market. Futures contracts have specific details, including the number of units being traded, delivery and settlement dates, and minimum price increments that cannot be customized. The exchange acts as a counterpart to the trader, providing clearance and settlement. Both types of contracts are binding and are typically settled for cash for the exchange in question upon expiry, although contracts can also be bought and sold before they expire. The forwards and futures markets can offer protection against risk when trading currencies. Usually, big international corporations use these markets in order to hedge against future exchange rate fluctuations, but speculators take part in these markets as well. Two types of analysis are used for the market movements forecasting: fundamental, and technical (the chart study of past behavior of commodity prices). The fundamental one focuses on the theoretical models of exchange rate determination and on the major economic factors and their likelihood of affecting the foreign exchange rates. The main economic theories found in the foreign exchange deal with parity conditions. A parity condition is an economic explanation of the price at which two currencies should be exchanged, based on factors such as inflation and interest rates. The economic theories suggest that when the parity condition does not hold, an arbitrage opportunity exists for market participants. However, arbitrage opportunities, as in many other markets, are quickly discovered and eliminated before even giving the individual investor an opportunity to capitalize on them. Other theories are based on economic factors such as trade, capital flows and the way a country runs its operations. We review each of them briefly below.

Major Theories: Purchasing Power Parity Purchasing Power Parity (PPP) is the economic theory that price levels between two countries should be equivalent to one another after exchange-rate adjustment. The basis of this theory is the law of one price, where the cost of an identical good should be the same around the world. Based on the theory, if there is a large difference in price between two countries for the same product after exchange rate adjustment, an arbitrage opportunity is created, because the product can be obtained from the country that sells it for the lowest price

Interest Rate Parity The concept of Interest Rate Parity (IRP) is similar to PPP, in that it suggests that for there to be no arbitrage opportunities, two assets in two different countries should have similar interest rates, as long as the risk for each is the same. The basis for this parity is also the law of one price, in that the purchase of one

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” investment asset in one country should yield the same return as the exact same asset in another country; otherwise exchange rates would have to adjust to make up for the difference.

Balance of Payments Theory A country's balance of payments is comprised of two segments - the current account and the capital account - which measure the inflows and outflows of goods and capital for a country. The balance of payments theory looks at the current account, which is the account dealing with trade of tangible goods, to get an idea of exchange-rate directions.

If a country is running a large current account surplus

or deficit, it is a sign that a country's exchange rate is out of equilibrium. To bring the current account back into equilibrium, the exchange rate will need to adjust over time. If a country is running a large deficit (more imports than exports), the domestic currency will depreciate. On the other hand, a surplus would lead to currency appreciation.

Real Interest Rate Differentiation Model The Real Interest Rate Differential Model simply suggests that countries with higher real interest rates will see their currencies appreciate against countries with lower interest rates. The reason for this is that investors around the world will move their money to countries with higher real rates to earn higher returns, which bids up the price of the higher real rate currency.

Asset Market Model The Asset Market Model looks at the inflow of money into a country by foreign investors for the purpose of purchasing assets such as stocks, bonds and other financial instruments. If a country is seeing large inflows by foreign investors, the price of its currency is expected to increase, as the domestic currency needs to be purchased by these foreign investors. This theory considers the capital account of the balance of trade compared to the current account in the prior theory. This model has gained more acceptance as the capital accounts of countries are starting to greatly outpace the current account as international money flow increases. Monetary Model The Monetary Model focuses on a country's monetary policy to help determine the exchange rate. A country's monetary policy deals with the money supply of that country, which is determined by both the interest rate set by central banks and the amount of money printed by the treasury. Countries that adopt a monetary policy that rapidly grows its monetary supply will see inflationary pressure due to the increased amount of money in circulation. This leads to a devaluation of the currency. These economic theories, which are based on assumptions and perfect situations, help to illustrate the basic fundamentals of currencies and how they are impacted by economic factors. However, the fact that there are so many conflicting theories indicates the difficulty in any one of them being 100% accurate in predicting currency fluctuations. Their importance will likely vary by the different market environment, but it is still important to know the fundamental basis behind each of the theories. Economic Data Economic theories may move currencies in the long term, but on a shorter-term, day-today or week-to-week basis, economic data has a more significant impact. It is often said the biggest companies in the world are actually countries and that their currency is MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” essentially shares in that country. Economic data, such as the latest gross domestic product (GDP) numbers, are often considered to be like a company's latest earnings data. In the same way that financial news and current events can affect a company's stock price, news and information about a country can have a major impact on the direction of that country's currency. Changes in interest rates, inflation, unemployment, consumer confidence, GDP, political stability etc. can all lead to extremely large gains/losses depending on the nature of the announcement and the current state of the country. The number of economic announcements made each day from around the world can be intimidating, but as one spends more time learning about the forex market it becomes clear which announcements have the greatest influence. Listed below are a number of economic indicators that are generally considered to have the greatest influence regardless of which country the announcement comes from. Employment Data Most countries release data about the number of people that currently are employed within that economy. In the U.S., this data is known as non-farm payrolls and is released the first Friday of the month by the Bureau of Labor Statistics. In most cases, strong increases in employment signal that a country enjoys a prosperous economy, while decreases are a sign of potential contraction. If a country has gone recently through economic troubles, strong employment data could send the currency higher because it is a sign of economic health and recovery. On the other hand, high employment can also lead to inflation, so this data could send the currency downward. In other words, economic data and the movement of currency will often depend on the circumstances that exist when the data is released. Interest Rates As was seen with some of the economic theories, interest rates are a major focus in the forex market. The most focus by market participants, in terms of interest rates, is placed on the country's central bank changes of its bank rate, which is used to adjust monetary supply and institute the country's monetary policy. In the U.S., the Federal Open Market Committee (FOMC) determines the bank rate, or the rate at which commercial banks can borrow and lend to the U.S. Treasury. The FOMC meets eight times a year to make decisions on whether to raise, lower or leave the bank rate the same; and each meeting, along with the minutes, is a point of focus. Inflation Inflation data measures the increases and decreases of price levels over a period of time. Due to the sheer amount of goods and services within an economy, a basket of goods and services is used to measure changes in prices. Price increases are a sign of inflation, which suggests that the country will see its currency depreciate. In the U.S., inflation data is shown in the Consumer Price Index, which is released on a monthly basis by the Bureau of Labor Statistics. Gross Domestic Product

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” The gross domestic product of a country is a measure of all of the finished goods and services that a country generated during a given period. The GDP calculation is split into four categories: private consumption, government spending, business spending and total net exports. GDP is considered the best overall measure of the health of a country's economy, with GDP increases signaling economic growth. The healthier a country's economy is, the more attractive it is to foreign investors, which in turn can often lead to increases in the value of its currency, as money moves into the country. In the U.S., this data is released by the Bureau of Economic Analysis once a month in the third or fourth quarter of the month. Retail Sales Retail sales data measures the amount of sales that retailers make during the period, reflecting consumer spending. The measure itself doesn't look at all stores, but, similar to GDP, uses a group of stores of varying types to get an idea of consumer spending. This measure also gives market participants an idea of the strength of the economy, where increased spending signals a strong economy. In the U.S., the Department of Commerce releases data on retail sales around the middle of the month.

Technical analysis A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analyst does not attempt to measure a security’s intrinsic value, but instead use charts to identify patterns that can suggest future activity. Technical analysts believe that the historical performance of stocks and markets are indications of future performance. Technical analysis has become increasingly popular over the past several years, as more and more people believe that the historical performance of a stock is a strong indication of future performance. People using fundamental analysis have always looked at the past performance of companies by comparing fiscal data from previous quarters and years to determine future growth. The deference lies in the technical analyst’s beliefs that securities move according to very predictable trends and patterns. These trends continue until something happens to change the trend, and until this change occurs, price levels are predictable. TECHNICAL ANALYSIS

• • •

Identification of the current trend i.e. the direction of price movement and spotting any trend reversal as early as possible. Historical price and volume data analyzed with the help of charts. For currencies, shares and commodities traded on exchanges, such data is usually available but in the case of interbank currency market, volume data is not available and the analyst makes use of different indicators, which are derived

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” from the price data. Many of these indicators have become so popular that they are used extensively even for financial assets and instruments traded on exchanges. •

Applicable only when prices fluctuate freely in response to market forces of demand and supply for the underlying assets. Obviously not applicable for say a pegged exchange rate like USD/HKD. Our focus hereafter will be on floating exchange rates though the principles of technical analysis apply to other assets such as commodities, stock market indices, certain heavily traded stocks, etc.

•

More reliable in case of broad and very liquid markets than thin and shallow markets.

•

Helps to judge the emotional state of the market. The market has its own collective consciousness distinct from the individual consciousness of the participants.

Technical Analysis in Contrast with Fundamental Analysis •

Fundamental analysis is concerned with all the fundamental factors. In the case of an exchange rate, the concerned factors are the present and expected interest rates, inflation rates, GDP growth rates, international trade and current account balance, exchange rate policies of the two countries in question, state of capital markets, etc. After analysis of all these factors, the fundamental analyst attempts to ascertain whether a currency is undervalued or overvalued and consequently whether it is likely to appreciate or depreciate.

•

Technical analysis, on the other hand, assumes that the price at any given time is the result of not only the fundamental factors but also the market’s collective response to all the factors. At the extreme, technical analysts don’t even want to read newspapers lest the popular news bias their chart analysis! For the same reasons. some even don’t want to know the identity of the underlying asset!! Often, economists focus on certain fundamentals and ‘prescribe’ how the market ought to behave when the market behaviour is linked to some other factors. A classic example is the euro’s persistent decline since its launch. The market is labelled as crazy when it doesn’t behave in the prescribed manner. However, those who are exposed to risk can’t afford to go against the market even if they think it is crazy. Hence, the importance of technical analysis or proper understanding of market psychology.

•

Assumptions in technical analysis •

MBA IV Sem

The market discounts everything – All known information about a market is reflected in the price. In other words, all the present political, 17

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

•

economic, psychological and any other type of information pertinent to the market price, is already discounted or priced in. In electronic age, information travels at the speed of light and any new information gets disseminated and discounted quickly whereafter it ceases to be of further relevance to the process of forecasting. Prices move in trends - When a price moves in a particular direction, be it up or down, it will continue to trend in that direction till some news changes market perception of future direction and reverses the trend itself. To sum up the markets move in the path of least resistance. History repeats itself - This assumption arises from the fact that mass psychology does not change. Markets overextend because of the herd instinct leading to panic and euphoria time and again.

Some of the Important terms used in the Technical Analysis Support and resistance are price levels at which movement should stop and reverse direction. Think of support/resistance as levels that act as a floor or a ceiling to future price movements.

Supports-

A price level below the current market price, at which buying interest should be able to overcome selling pressure and thus keep the price from going any lower.

Resistance - A price level above the current market price, at which selling pressure should be strong enough to overcome buying pressure and thus keep the price from going any higher.

Concepts of trend Trend is nothing but the direction of movement of price. Logically the share price can ether be rising or falling or moving narrowly (flat). Thus there are three directions in which the price can move these three directions give rise to the three types of trend when prices are moving upwards, the trend is said to be rising. When prices are moving downwards it is called a falling trend. And when prices are moving in a narrow range, the trend can be said to be flat or choppy. Thus, the trend itself has three directions. Upward Trend

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” If the market makes a high and then comes down and after that cuts the previous high makes a new high, it means that the market is in an uptrend and it is making a higher bottom higher top. Downward Trend If the market is falling and making a lower bottom lower top it is said to be a downtrend Sideways Trend (flat) If the market is just drifting and has no clear move it is laid to be a sideways trend.

Trend line Trend lines are straight lines drawn by connecting either the tops or bottoms. To draw a straight line, one requires two points. Similarly to draw trend lines, one requires at least tow tops or bottoms. This however, does not mean that there cannot be more than tow tops or bottoms that can be connected to draw a trend line, infect the more the number of tops or bottoms that are touched or connected by the trend line, the better or more powerful the trend line. Trend lines are the simplest, yet the most effective way of riding the trend. Just as trend has three directions rising, falling and flat, there are three types of trend lines to represent each of the directions of trend Up ward trend line

An uptrend line has a positive slope and is formed by connecting two or more low points. The second low must be higher than the first for the line to have a positive slope. Uptrend line act as support and indicate that net-demand (demand less supply) is increasing even as the price rises. A rising price combined with increasing demand is bullish.

Down trend lines A downtrend line has a negative slope and is formed by connecting two or more high points. The second high must be lower than the first for the line to have a negative slope. Downtrend lines act as resistance, and indicate that net-supply (supply less demand) is increasing even as the price declines. A declining price combined with increasing supply is very bearish, and shows the strong resolve of the sellers. As long as prices remain below the downtrend line, the downtrend is solid and intact. A break above the downtrend line indicates that net-supply is decreasing and that a change of trend could be imminent.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Moving Averages Moving averages are one of the most popular and easy to use tools available to the technical analyst. They smooth a data series and make it easier to spot trends, something that is especially helpful in volatile markets. They also form the building blocks for many other technical indicators and overlays. There are three types of moving averages, namely simple moving average, exponential moving average and weighted moving average. But the most popular types of moving averages are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA). They are described in more detail below.

Simple Moving Average A simple moving average is formed by computing the average (mean) price of a security over a specified number of periods. While it is possible to create moving averages from the Open, the High, and the Low data points, most moving averages are created using the closing price. For example: a 5-day simple moving average is calculated by adding the closing prices for the last 5 days and dividing the total by 5. Ex: if the closing prices are as follows: 10, 11, 12, 13, 14, 17, 12…………… 10+11+12+13+14=60 (60/5)=12 Here 12 is a first moving average obtained from the given closing prices, next moving average can be calculated by deducting first cl price i.e 10 and adding next cl. Price i.e 17 and again dividing it by 5.

Exponential Moving Average (EMA) In order to reduce the lag in SMA, technicians often use EMA. EMA's reduce the lag by applying more weight to recent prices relative to older prices. The weighting applied to the most recent price depends on the specified period of the moving average. The shorter the EMA's period, the more weight that will be applied to the most recent price. For example: a 10-period EMA weighs the most recent price 18.18% while a 20-period EMA weighs the most recent price 9.52%. As such, it will react quicker to recent price changes than a SMA. Here's the calculation formula

EMA (current) = ((price (current)-EMA (prev)) x multiplier+ EMA(prev) Where, Multiplier – 2/n+1

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” n- Number of days for which EMA is calculated If we take the same example of SMA 5 day EMA is calculated as follows. EMA= (12-11) X 0.666 + 11 = 11.66 Where multiplier = 2/ (5 +1) = 0.666 For next EMA 11.66 acts as previous EMA and so on A comparison of a 50-day EMA and a 50-day SMA for a script shows that the EMA picks up on the trend quicker than the SMA. The blue arrows mark points when the stock started a strong trend. By giving more weight to recent prices, the EMA reacted quicker than the SMA and remained closer to the actual price.

Uses of moving averages

There are many uses for moving averages, but three basic uses stand out: 1. Trend identification/confirmation 2. Support and Resistance level identification/confirmation 3. Trading Systems

Moving Average Convergence and Divergence In this system analyst uses a combination of two moving averages one is a short term averages and other is long term averages. Also combination of SMA and EMA of same period is frequently used for identification of selling and buying points in the graph.

Elliot wave theory R. N. Elliott believed markets had well-define wave that could be used to predict market direction. In 1939, Elliott detailed the Elliott Wave Theory, which states that stock prices are governed by cycles founded upon the Fibonacci series (1-2-3-5-8-13-21...). According to the Elliott Wave Theory, stock prices tend to move in a predetermined number of waves consistent with the Fibonacci series. Specifically, Elliott believed the

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” market moved in five distinct wave on the upside and three distinct on the downside. The basic shape of the wave is shown below.

waves one, three and five represent the 'impulse', or minor up-wave in a major bull move. Waves two and four represent the 'corrective,' or minor down-waves in the major bull move. The waves lettered A and C represents the minor down-wave in a major bear move, while B represents the one up-wave in a minor bear wave Elliott proposed that the waves existed at many levels, meaning there could be waves within waves. To clarify, this means that the chart above not only represents the primary wave pattern, but it could also represent what occurs just between points 2 and 4.

Elliott wave theory ascribes names to the waves in order of descending size: 1. 2. 3. 4. 5. 6. 7. 8. 9.

Grand Supercycle Supercycle Cycle Primary Intermediate Minor Minute Minuette Sub-Minuette

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

The major waves determine the major trend of the market, and minor waves determine minor trends. This is similar to the Dow theory postulates primary and secondary trends. Elliott provided numerous variations on the main wave, and placed particular importance on the golden mean, 0.618, as a significant percentage for retracement. Trading using Elliott wave patterns is quite simple. The trader identifies the main wave or Supercycle, enters long, and then sells or shorts, as the reversal is determined. This continues in progressively shorter cycles until the cycle completes and the main wave resurfaces. The caution to this is that much of the wave identification is taken in hindsight and disagreements arise between Elliott wave technicians as to which cycle the market is in.

Chart Patterns The vast majority of chart patterns fall into two main groups: reversal and continuation. Reversal patterns indicate a change of trend and can be broken down into top and bottom formations. Continuation patterns indicate a pause in trend and indicate that the previous direction will resume after a period of time. Just because a pattern forms after a significant advance or decline does not mean it is a reversal pattern. Many patterns, such as a rectangle, can be classified as either reversal or continuation. Much depends on the previous price action, volume and other indicators as the pattern evolves. This is where the science of technical analysis becomes the art of technical analysis.

Below is a list of common chart patterns that can be useful in Technical Analysis.  Double Top (Reversal)  Double Bottom (Reversal)  Head and Shoulders Top (Reversal)  Head and Shoulders Bottom (Reversal)  Falling Wedge (Reversal)  Rising Wedge (Reversal)  Rounding Bottom (Reversal)  Triple Top (Reversal)  Triple Bottom (Reversal)  Bump and Run Reversal (Reversal)  Flag, Pennant (Continuation) MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”        

Symmetrical Triangle (Continuation) Ascending Triangle (Continuation) Descending Triangle (Continuation) Rectangle (Continuation) Price Channel (Continuation) Measured Move - Bullish (Continuation) Measured Move - Bearish (Continuation) Cup with Handle (Continuation)

We shall discus some of these patterns

Double top (reversal) The double top is a major reversal pattern that forms after an extended uptrend. As its name implies, the pattern is made up of two consecutive peaks that are roughly equal, with a moderate trough in-between. The double top looks like the letter "M". The twice touched high is considered a resistance level. Although there can be variations, the classic double top marks at least an intermediate change, if not long-term change, in trend from bullish to bearish. Many potential double tops can form along the way up, but until key support is broken, a reversal cannot be confirmed.

Double bottom (reversal) The double bottom is a major reversal pattern that forms after an extended downtrend. As its name implies, the pattern is made up of two consecutive troughs that are roughly equal, with a moderate peak in-between. The double bottom looks like the letter "W". The twice touched low is considered a support level. Most technical analysts believe that the advance off of the first bottom should be 10-20%. The second bottom should form within 3-4% of the previous low, and volume on the ensuing advance should increase. Although there can be variations, the classic double bottom usually marks an intermediate or long-term change in trend. Many potential double bottoms can form along the way down, but until key resistance is broken, a reversal cannot be confirmed.

Head and sholder top (reversal) MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” A Head and Shoulders reversal pattern forms after an uptrend, and its completion marks a trend reversal. The pattern contains three successive peaks with the middle peak (head) being the highest and the two outside peaks (shoulders) being low and roughly equal. The reaction lows of each peak can be connected to form support, or a neckline. As its name implies, the Head and Shoulders reversal pattern is made up of a left shoulder, a head, a right shoulder, and a neckline. Other parts playing a role in the pattern are volume, the breakout, price target and support turned resistance.

Important words used in Technical Market: The Bulls: A bull market is when everything in the economy is great, people are finding jobs, GDP is growing, and stocks are rising. Pecking stocks during the bull market is easier because everything is going up. Bull market cannot last forever, sometime they can lead to dangerous situations if stocks become overvalued. If a person is optimistic, believing that stocks will go up, he or she is called a “bull” and said to have a “bullish outlook.” The Bears: A bear market I when the economy is bad, recession is looming, and stock prices are falling. Bear market make it though for investors to pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling. Another strategy is to wait on until you feel that the bear market is over, and to buy again in anticipation of a bull market. If a person is pessimistic, believing that stocks are going to drop, he or she is called a “bear” and said to have a “bearish outlook.”

Other animal on the farm- chickens and pigs Chickens are afraid to lose anything. Their fear overrides their need to make profits and so they turn only to money market securities or get out of the markets altogether. Pigs are high-risk investors looking for the one big score in a short period of time. Pigs buy on hot tips and invest in hot companies without doing their due diligence. They get impatient, greedy, and emotional about their investments, and they are drawn to high risk securities without putting in the proper time or money to learn about these investment vehicles. Professional traders love the pigs. As it’s often from their losses that the bulls and bears reap their profits. Short Selling The selling of a security that the seller does not own, Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” Bear An investor who believes that a particular security or market is headed downward. Bears attempt to profit from a decline in prices. Bears are generally pessimistic about the state of a given market. Intraday Another way of saying "within the day". Intraday price movements are particularly important to short-term traders looking to make many trades over the course of a single trading session. The term intraday is occasionally used to describe securities that trade on the markets during regular business hours, such as stocks and ETFs, as opposed to mutual funds, which must be bought from a dealer. Day Trader A stock trader who holds positions for a very short time (from minutes to hours) and makes numerous trades each day. Most trades are entered and closed out within the same day Speculator A person who trades with a higher-than-average risk, in return for a higher-thanaverage profit potential. Speculators take large risks, especially with respect to anticipating future price movements, or gambling, in the hopes of making quick, large gains. Going Long Holding the security for an extended period of time. Depending on the type of security, a long-term asset can be held for as little as one year or more.

Going short Selling the existing security immediately to protect the profit made or to minimizing the lose. Short Covering The act of purchasing securities in order to close an open short position. This is done by buying the same type and number of securities that were sold short. Most often, traders cover their shorts whenever they speculate that the securities will rise. In order to make a profit, a short seller must cover the shorts by purchasing the security below the original selling price. Squaring off It’s an intra day trading where in the trader first sells or buys the shares and then reverse the process (buying/selling) within the closing of market on the same day and pays off difference amount if he has lost or gains profit. So by doing so at the end of the day he owns no shares in his account.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

ANALYSIS PART Structure of Forex Market Transaction in India

RBI NOSTRO

Authorized Dealer (AD)

“A” Category VOSTRO

Designated Branch (D-Branch)

“B” Category

Money Change (MC)

“C” Category

AD’s are fully pledge AD’s, means these AD’s are having Accounts in their own name. Vostro in the sense Foreign Bank opens its Account in Indian Bank. Whereas Nostro means our Indian Bank opens Account in any Foreign Banks. So Canara Bank is having both types of accounts. Details about Canara Bank we will see in further pages. Designated Branches are those branches, where these branches will not trade in the name of their own account, but in the name of AD’s. They can act individually, even though they don’t have accounts in their own name. Money Change (MC)s, are comes under “C” category. This category people are neither having accounts in their own name nor fully authorized to act individually. So these are comes reports to D-Branches or otherwise they directly related to AD’s. We can see in Mangalore or in Goa or in Mumbai small export agencies all these agencies are comes under “C” category.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Foreign Exchange Operations of Station Road Branch of Canara Bank: First we will see the Hierarchy of Foreign Exchange Operations in Canara Bank. First it starts with International Foreign Exchange. Under this International Foreign Exchange, Forex Department (FD) has existing. FD is having its own Account in their name. So they do not dependent on any other. In India around 13 departments are situated. In Karnataka there are only 2 FD’s one is situated in Bangalore and another one is in Mangalore. Under this FD, Foreign Exchange Cell comes. There are 22 Foreign Exchange Cells situated in India. These Foreign Exchange Cells should report the daily report of foreign exchange operations to Foreign Department. Under this FD another branch also existed called it as Designated Branch (DBranch). This D-Branch is not like a Foreign Exchange Cell. This branch is not dependent on any other Foreign Exchange Cells, but they have their own Account. For instance, for foreign exchange transaction purpose a customer approaches Avenue Branch of Bangalore. Avenue Branch is a D-Branch, so will not send this transaction to any other Foreign Exchange Cells but it operates in their own account under the name of Foreign Department. In Karnataka especially in Bangalore these D-Branches are situated viz., in Avenue Road Branch, Malleshwaram Branch etc., Apart from all these, still another branch is there, it is called Overseas Branch. These Overseas Branches are Operate as branches or subsidiaries of the parent Bank. These branches are to seek deposits and grant loans in currencies other than the currency of the host government.

Diagrammatic way of Hierarchy of Foreign Exchange Operations in Canara Bank INTERNATIONAL FOREIGN EXCHANGE

Designated Branch

Foreign Department

Foreign Exchange Cell MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Now Let us see particularly of Hubli Branch: For entire North Karnataka there is only one Foreign Exchange Transaction Cell, is situated in Hubli. Hubli Foreign Exchange Transaction is a Foreign Exchange Cell. This is comes under Foreign Department from previous diagram we can clarify it. This Hubli Foreign Exchange Cell has been operating since from 1991. Till 2005 Hubli Foreign Exchange Cell was under Mangaloe Foreign Department. But now it is shifted to Mumbai Foreign Department. This Hubli Foreign Exchange Cell reports daily foreign exchange operations to Mumbai Foreign Department. So for this reporting purpose it is having a new computer technology, by this they only press a key to submit or to send the report at the end of the day. So for this technology they have separate computer. Hubli Foreign Exchange Cell covers especially almost all Districts of North Karnataka (expect Hyderabad Karnataka). Viz., Districts of Dharwad, Belgaum, Bijapur, Baglkot, Gadag, Koppal, Haveri etc.,

Services has been Providing by Hubli Forex Cell

IMPORT

SERVICES

EXPORT

REMITTANCE

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

EXPORT

Collection of Bills Finance Pre & Post Shipment

Purchase Discount Negotiation

Cash in Advance Hubli Forex Cell gives service to Exporter in the name of Export Service. Here they have made 3 types of categories, as in the above figure. Collection of Bills: Every document should be send through banks only. It is compulsion made by RBI and also FEMA. Here exporter must submit some documents are as follows: Invoice, Packing List, Bill of Lading (in case of Sea) / Airway Bill (in case of Air), Certificate of Origin, Test Certificate etc., Statutory Declaration Form (SDF) and Shipping Bill are very important documents where bank will check these documents very thoroughly. And combining these important documents, and they call it as GR Form. Exporter or consignor prepares SDF. It is a document where exporter declares the Type of goods he is exporting, Quantity (Kg & No.’s), Name of Importer, Name of Shipping Agency etc., This is made in 3 copies. One is sent to RBI, another one is to any commercial Forex traded Bank and remaining is for them. Superidentant of Exercise Custom certifies all these copies. Finance: (Pre & Post Shipment loan): At Sight they purchase the document and make the payment within 15 to 20 days. Bank may discount it as per the instruction by party like Bill of Exchange. This may maturated at 90 days after or 90 or 120 days as per agreement between both parties. Negotiation also made by bank to get profits. Who takes the pre shipment loan they should compulsorily take post shipment loan also. Because, if any one have taken pre shipment, when goods are ready to shipment, then bank convert this pre shipment into post shipment. For this purpose Bank should require Purchase Order (PO), if New Importer / High value goods then opening of L/c and Bank should take Inventory as a Hypothesis, Guarantee from Director/partner, some times Mortgage and some times pledge the finished goods. These loan sanctions stage by stage.

IMPORT MBA IV Sem

30 Letter of Credit Finance Advise, Conformance FLC

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Here Bank gives service to importers also as an Import Service. Here importer can open Letter of credit, for this purpose Bank acts as a mediator between exporter and importer. So bank will take some risks relating to export and import of goods. Bank also acts as advisor to importer. Incase new exporter or incase of high value materials or incase first time importing the materials, in all these cases banks will give advise to the importer that whether to go or not. If any RBI’s prior permission is required or not if so require then what are the procedure all things may advise to importer. Some times for importer also it gives a loan called Foreign Letter of Credit (FLC). According to this if exporter fails to supply goods then Bank will take the responsibility. But some major responsibility will be on importer only. Outward

REMITTANCE

Inward

Money Change Remittance is nothing but receiving and paying of foreign currency in India. Outward is nothing but paying abroad. Inward means incoming payment from abroad. Money change means if a person wants to convert the one foreign currency into domestic currency. Here TT, DD, Bills, Travelers Cheques, Notes, Now recently Yatri Card etc., are the major modes of transactions held in this type of service. For this purpose of service, any receiving / paying person should be a customer i.e., he should be an Account holder in that particular Bank. But this condition is not applicable to Tourist. For Tourist Bank only looks out the Passport and Visa (According to FEMA).

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

NRI DEPOSITS

NON RESIDENT EXTERNAL RUPEE ACCOUNT (NRE) • •

•

Types of account you can open are: Savings, Current or Term Deposit in Indian Rupees. You can open a NRE account by: o Remittance from abroad (through DD/SWIFT TRANSFER) o Transfer of funds from existing NRE/FCNR accounts with other banks in India or from other branches of our bank. o Foreign currency notes/travellers cheques brought in during temporary visit to India. o Personal cheques drawn on your account abroad Unique features of NRE deposits: o The entire credit balance inclusive of interest earned can be repatriated outside India without reference to RBI. o NRE accounts can be operated by Resident Indians on the basis of the Power of Attorney Or letter of Authority issued by the NRI account holder. However PA/LA holder can repatriate the funds abroad to the non resident depositor only. o Joint accounts can be opened along with other Non Resident Indians. o Local disbursements, purchase of units of UTI, Central and State Government securities and National Savings Certificates can be made from these accounts. o Sale/Maturity Proceeds/ repurchase proceeds of units of UTI, Securities or certificates originally purchased out of funds in these accounts can be credited without reference to RBI. o Under term deposits accounts can be opened for a minimum period of 1 year and a maximum period of 3 years. o Loans/overdrafts in India to deposit holders are available against security of deposits. o Cheque book facility is available for NRE Savings Bank account.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

NON-RESIDENT (External) RUPEE ACCOUNT SCHEME (NRE Account) Who can open an account

NRIs (Individuals of Bangladesh/Pakistan nationality require prior approval of RBI)

Joint account

In the names of two or more non-resident individuals Subject to a maximum of 4 persons

Nomination

Permitted

Currency in which account is denominated

Indian Rupees

Repatriability

Repatriable

Type of Account

Savings, Current, Recurring, Fixed Deposit

Period for fixed deposits

Minimum one year and maximum 3 years.

Rate of Interest

Subject to RBI guidelines. The interest rates are displayed on our web site

Loans a) In India

Permitted

(i) to the Account holder

Permitted

(ii) to third parties

Permitted

b) Abroad > (i) to the Account holder

Permitted

(ii) to third parties

Permitted

c) Foreign Currency Loans In India (i) to the account holder

Not permitted

(ii) to third parties

Not permitted

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Purpose of Loan a) In India

(i) to the Account holder

(ii) to third party

i)Personal purposes or for carrying on business activities * ii) Direct investment in India on nonrepatriation basis by way of contribution to the capital of Indian firms/ companies iii) Acquisition of flat/ house in India for his own residential use Fund based and/or non-fund based facilities for personal purposes or for carrying on business activities.

b) Abroad To the account holder and third party

Fund based and/or non-fund based facilities for bonafide purposes.

* The loans cannot be utilized for the purpose of relending, or carrying on agriculture or plantation activities or for investment in real estate business. Note: a) When a person resident in India leaves India for Nepal and Bhutan for taking up employment or for carrying on business or vocation or for any other purposes indicating his intention to stay in Nepal and Bhutan for an uncertain period, his existing account will continue as a resident account. Such account will not be designated as Non-resident (Ordinary) Rupee Account (NRO). b) We open and maintain NRE/FCNR(B) accounts of persons resident in Nepal and Bhutan who are citizens of India or of Indian origin, provided the funds for opening these accounts are remitted in free foreign exchange. Interest earned in NRE/FCNR (B) accounts can be remitted only in Indian rupees to NRIs and PIO resident in Nepal and Bhutan. c) We extend all types of rupee loans under the “Retail lending scheme” to NRI’s.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

RESIDENT FOREIGN CURRENCY [DOMESTIC] ACCOUNT [RFCD] • •

Types of account you can open: Non interest bearing Current Account in Foreign currency. A person resident in India can open an RFCD account out of foreign exchange acquired in the form of currency notes, bank notes and travelers cheques from the following sources: o Acquired while on a visit to any place outside India by way of payment for services not arising from any business in or anything done in India; or o Acquired from any person not resident in India and who is on a visit to India, as honorarium or gift or for services rendered or in settlement of any lawful obligation; or o Acquired by way of honorarium or gift while on a visit to any place outside India; or o Unspent amount of foreign exchange acquired by him from an authorised person for travel abroad; or o Unspent amount of foreign exchange received as allowance by Pilots/Crew Members/Mariners etc., of Indian Airline/Shipping companies o Foreign exchange earnings through export of goods and/or services, royalty/honorarium etc. by resident individuals; or o Insurance claims/maturity value settled in foreign currency. o Gifts received from close relatives viz.,  Husband and Wife  Father/Mother (including step-mother)  Fathers’ father/Father’s mother/Mother’s mother/ Mother’s father  Son (including step-son)/Daughters (including step-daughter)  Son’s wife/Son’s son/Son’s son’s wife/Son’s daughter/Son’s daughter’s husband  Daughter’s husband/Daughter’s son/Daughter’s son’s wife/Daughter’s daughter/Daughter’s daughter’s husband  Brother (including step-brother)/Brother’s wife  Sister (including step-sister)/Sister’s husband.

RESIDENT FOREIGN CURRENCY [DOMESTIC] ACCOUNT [RFCD]

Who can open an account

Persons Resident in India.

Joint account

In the names of two or more resident individuals with a maximum of 4 persons.

Nomination

Permitted

Permissible currencies

USD, GBP & EUR

Type of Account

Non interest bearing Current Account

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Facilities available to NRIs, PIO for investment in India I. Bank Accounts and Deposits a) Non-Resident (External) Rupee (NRE) Accounts (Principal / Interest Repatriable) •

Savings - The interest rates on NRE Savings deposits shall be at the rate applicable to domestic savings deposits. Currently the interest rate is 3.5%.

•

Term deposits – For 1 year to 3 years, the interest rates on fresh repatriable NonResident (External) Rupee (NRE) Term deposits should not exceed the LIBOR/SWAP rates, as on the last working day of the previous month, for US dollar of corresponding maturity plus 50 basis points.

The interest rates as determined above for three year deposits should also be applicable in case the maturity period exceeds three years. The changes in interest rates will also apply to NRE deposits renewed after their present maturity period. b) FCNR (B) (Principal/Interest Repatriable) Deposits of funds in the account may be accepted in such permissible currencies as may be designated by the Reserve Bank from time to time. •

• •

Presently the term deposit can be placed with ADs in India in 6 specific foreign currencies (US Dollar, Pound Sterling, EURO, Japanese Yen, Australian Dollar and Canadian Dollar). Rate of Interest - Fixed or floating within the ceiling rate of LIBOR/SWAP rates for the respective currency/corresponding term minus 25 basis points. Maturity of deposits: 1-5 years.

c) NRO Accounts (Current earnings repatriable) • •

Savings - Normally operated for crediting rupee earnings / income such as dividends, interest. Currently the interest rate is 3.5 per cent. Term Deposits - Banks are free to determine interest rates.

d) Repatriation from NRO balances Authorised Dealers can allow remittance/s upto USD 1 million per financial year (AprilMarch) for bonafide purposes, from balances in NRO accounts subject to payment of applicable taxes. The limit of USD 1 million per financial year includes sale proceeds of immovable properties held by NRIs/PIO. MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” II. Other Investments on repatriation basis •

Government dated securities/treasury bills.

• • • •

Units of domestic mutual funds. Bonds issued by a public sector undertaking (PSU) in India. Non-convertible debentures of a company incorporated in India. Shares in Public Sector Enterprises being dis-invested by the Government of India, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids. Shares and convertible debentures of Indian companies under FDI scheme (including automatic route & FIPB). Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme. Perpetual debt instruments and debt capital instruments issued by banks in India.

• • •

III. Other Investments on non-repatriation basis •

Government dated securities (other than bearer securities)/treasury bills.

• • • •

Units of domestic mutual funds. Units of Money Market Mutual Funds in India. Non-convertible debentures of a company incorporated in India. The capital of a firm or proprietary concern in India, not engaged in any agricultural or plantation activity or real estate business. Deposits with a company registered under the Companies Act, 1956 including NBFC registered with RBI, or a body corporate created under an Act of Parliament or State Legislature, a proprietorship concern or a firm out of rupee funds which do not represent inward remittances or transfer from NRE/FCNR(B) Accounts into the NRO Account. Commercial Paper issued by an Indian company. Shares and convertible debentures of Indian companies other than under Portfolio Investment Scheme.

•

• •

IV. Investment in immovable Property •

May acquire immovable property in India other than agricultural land/ plantation property or a farmhouse out of repatriable and non-repatriable funds.

In respect of such investments NRIs are eligible to repatriate

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” •

Sale proceeds of immovable property acquired in India to the extent of repatriable funds used for acquiring the property, up to two residential properties. The balance will be repatriable through NRO Account subject to conditions mentioned at item (I) (d).

•

Refund of (a) application / earnest money / purchase consideration made by house-building agencies/seller on account of non-allotment of flats / plots and (b) cancellation of booking/deals for purchase of residential/commercial properties, together with interest, net of taxes, provided original payment is made out of NRE/FCNR(B) account/inward remittances. Housing Loan in rupees availed of by NRIs from ADs / Housing Financial Institutions can be repaid by the close relatives in India of the borrower.

•

V. Facilities to returning NRIs/PIO Returning NRIs/ PIO •

May continue to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India, if such currency, security or property was acquired, held or owned when resident outside India.

May open, hold and maintain with an authorised dealer in India a Resident Foreign Currency (RFC) Account to transfer balances held in NRE/FCNR(B) accounts. Proceeds of assets held outside India at the time of return, can be credited to RFC account. The funds in RFC accounts are free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment in any form outside India.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

NRI REMITTANCE FACILITIES SAFE CUSTODY SERVICES This subsidiary service is rendered by the Bank to most valued customers. Bank undertakes the responsibility of safe custody of articles entrusted by the customer under a contract and return the same according to terms agreed upon. SAFE DEPOSIT LOCKERS Keep your valuables in our lockers and have peace of mind. Lockers available at select branches where Safe Deposit Vaults are installed. Bank lets on hire safe deposit lockers to individuals (Singly or jointly), Firms, Companies, Association or Clubs, Trustees on nominal rent. NOMINATIONS This facility has been devised with an aim of minimising the hardships caused to the family members on the death of the depositor/s. Nominations can be made in respect of all types of deposit accounts by the individual account holders in their own capacity singly or jointly. CANBANK ELECTRONIC FUNDS TRANSFER SCHEME We have a high tech remittance product called “Canbank EFT” which at present is extended to the following exchange houses and banks 1. M/s Al Razouki International Exchange Co LLC, Dubai 2. M/s Eastern Exchange Est., Doha, Qatar 3. M/s Al Fardan Exchange Co., UAE 4. M/s Bahrain India International Exchange Co., Bahrain 5. M/s UAE Exchange Centre, Abu Dhabi, UAE 6. M/s Zenj Exchange Co., Bahrain 7. Laxmidas Tharia Ved Exchange 8. Musandam Exchange Oman 9. Arab National Bank Riyadh Saudi Arabia

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” 10. Canara Bank London Residents of Dubai, Bahrain and Saudi Arabia can make use of the above product for making remittances which enables the beneficiaries of the remittance in India to receive the funds in their accounts with designated Canara Bank branches within 24 hours from the date of remittance. This facility is highly cost-effective and secured way of remittance. At present the funds by way of EFT can be remitted to 1022 designated branches across the Country

Acquisition and Transfer of Immovable Property in India by a person resident outside India I)

Regulations/Directions issued by Reserve Bank of India 1.

Regulations regarding acquisition and transfer of immovable property in India by a person resident outside India have been notified vide RBI Notification No. FEMA 21/2000-RB dated May 3, 2000 as amended by Notification No.FEMA 64/2002-RB dated June 29, 2002, Notification No.FEMA 65/2002RB dated June 29, 2002, Notification No.FEMA 93/2003-RB dated June 6, 2003 and Notification No. 146/2006-RB dated 10/02/06 and relevant directions issued in the form of A.P. (DIR Series) Circulars.

II)

Acquisition of immovable property in India by way of purchase by a person resident outside India.

General Permission is available to purchase only a residential/commercial property in India to a person resident outside India who is a citizen of India (NRI) or who is a Person of Indian Origin (PIO).

For the purpose of acquisition and transfer of immovable property in India, a PIO means an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan), who (i) at any time, held Indian passport; or (ii) who or either of whose father or grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).

NRI/PIO who has purchased residential/commercial property under general permission is not required to file any documents with the Reserve Bank.

There is no restriction on number of residential/commercial property that NRI/PIO can purchase under the general permission available

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” 6.

No foreign national of non-Indian origin be added as a second holder to a residential/commercial property purchased by NRI/PIO

A foreign national of non-Indian origin resident outside India cannot acquire any immovable property in India by way of purchase. Sec 2 (ze)

Yes. A Foreign National of non-Indian origin including a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan may acquire only residential accommodation on lease, not exceeding five years for which he/she does not require prior permission of Reserve Bank of India.

A person resident outside India cannot acquire by way of purchase agricultural land/plantation property/farm house in India.

III)

Acquisition of immovable property in India by way of gift by a person resident outside India

10.

Yes. Under general permission available NRI/PIO may acquire residential/commercial property by way of gift from a person resident in India or a NRI or a PIO.

11.

No. Under section 2 (ze) of the Foreign Exchange Management Act, 1999 ‘transfer’ includes among others, ‘gift’. Therefore, a foreign national of nonIndian origin resident outside India cannot acquire residential/commercial property in India by way of gift.

12.

No. A person resident outside India cannot acquire agricultural land/plantation property/farm house in India by way of gift.

IV)

Acquisition of immovable property in India by way of inheritance by a person resident outside India

13.

Yes. A person resident outside India can hold immovable property acquired by way of inheritance from a person resident in India as per the provisions of Section 6(5) of the Foreign Exchange Management Act, 1999.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” 14.

With the specific approval of Reserve Bank a person resident outside India may hold any immovable property in India acquired by way of inheritance from a person resident outside India, provided the bequeathor had acquired such property in accordance with the provisions of foreign exchange law in force at the time of acquisition or under FEMA regulations.

Transfer of immovable property in India by way of sale by a person resident outside India

15.

NRI can transfer by way of sale residential/commercial property in India to a person resident in India or to a NRI or a PIO.

16.

PIO can transfer by way of sale residential/commercial property in India only to a person resident in India.

17.

No. PIO would need to seek Reserve Bank prior approval for transfer by way of sale residential/commercial property in India to a NRI or a PIO.

18.

No. A foreign national of non-Indian origin whether resident in India or outside India would need to seek prior approval of Reserve Bank for transfer by way of sale residential/property in India acquired with the specific permission of Reserve Bank to a person resident in India or outside India.

19.

Under the general permission available NRI/PIO may transfer by way of sale his agricultural land/plantation property/farm house in India to a person resident in India who is a citizen of India.

20.

A foreign national of non-Indian origin resident outside India would need to seek prior approval of Reserve Bank for transfer, by way of sale, agricultural land/plantation property/farm house acquired in India.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” VI)

Transfer of immovable property in India by way of gift by a person resident outside India

21.

Yes. NRI/PIO may transfer by way of gift residential/commercial property in India to a person resident in India or to a NRI or a PIO.

22.

Under the general permission available NRI/PIO may transfer by way of gift agricultural land/plantation property/farm house in India to a person resident in India who is a citizen of India.

23.

No. A foreign national of non-Indian origin resident outside India would need to seek prior approval of Reserve Bank for transfer by way of gift agricultural land/plantation property/farm house acquired by him in India.

VII)

Transfer of residential/commercial property in India by way of mortgage by a person resident outside India

24.

NRI/PIO, transfer by way of mortgage his residential/commercial property in India to a party abroad. He should seek prior approval of RBI.

25.

No. He should seek prior approval of RBI. However, immovable property purchased by a person resident outside India who has established a Branch Office or other place of business for carrying on in India any activity in accordance with FERA/FEMA regulations, may under general permission available, mortgage such a property with an authorized dealer as a security for any borrowing.

VIII)

Mode of payment for purchase of residential/commercial property in India by NRI/PIO

26.

Under the general permission available, NRI / PIO may purchase residential / commercial property in India out of funds remitted to India through normal banking channel or funds held in his NRE / FCNR (B) / NRO account. No consideration shall be paid outside India. However, payment for acquisition of immovable property in India by NRI/PIO cannot be made either by Travellers cheques or by foreign currency notes.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” 27.

Provided original payment was made by way of inward remittance or by debit to NRE/FCNR (B) account. For this purpose no permission of Reserve Bank is required and they may approach the Authorised Dealer directly in the matter. (Please refer to A. P. (DIR Series Circular No. 46 dated November 12, 2002).

28.

Subject to certain terms and conditions (Please refer to Schedule 1 and Schedules 2 to Notification No. FEMA 5/2000-RB dated 3rd May 2000).

29.

Loans can be repaid by the borrower by way of inward remittance through normal banking channel or by debit to his NRE/FCNR (B)/NRO account or out of rental income derived from renting out such property. Such loan can also be repaid by the borrower's close relatives through their account in India by crediting the borrower's loan account. (Please refer to Regulation 8 to Notification No. FEMA 4/2000-RB dated 3rd May 2000 and A.P. (DIR Series) Circular No.95 dated April 20, 2003 and A.P. (DIR Series) Circular No.94 dated May 25, 2003).

30.

NRI avail of housing loan in rupees from his employer in India subject to certain terms and conditions (Please refer to Regulation 8A to Notification No. FEMA 4/2000-RB dated 3rd May 2000 and A.P. (DIR Series Circular No.27 dated October 10, 2003).

IX)

Repatriation of sale proceeds of residential/commercial property purchased by NRI/PIO

31.

NRI / PIO may repatriate the sale proceeds of residential / commercial property in India acquired by way of inward remittance through normal banking channel or by debit to NRE /FCNR (B) account. The amount to be repatriated should not exceed the amount paid for acquisition of residential / commercial property (a) in foreign exchange received through normal banking channel or by debit to FCNR (B) account or (b) the foreign currency equivalent, as on the date of payment, of the amount paid by debit to NRE account. From out of balances in NRO account, he may remit upto USD one million per financial year for any bonafide purposes, eligible balances including the sale proceeds of immovable property.

32.

Yes. Repayment of loan in foreign exchange is treated as equivalent to the foreign exchange received for purchase of residential accommodation.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” 33.

No lock in period is applicable for sale of such property.

34.

Yes. Repatriation of sale proceeds is restricted to not more than two residential properties.

Remittance of sale proceeds of residential/commercial property received by way of gift by NRI/PIO

35.

The sale proceeds of residential/commercial property received by way of gift by NRI/PIO should be credited to NRO account only.

XI)

Remittance of sale proceeds of immovable property inherited by a person resident outside India

36.

Yes. Amount not exceeding USD one million, per calendar year subject to production of documentary evidence in support of inheritance and Tax clearance certificate/no objection certificate from Income Tax authority to authorized dealer for remittances. However, if a PIO is a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran he should seek prior approval of Reserve Bank with documentary evidence in support of inheritance and tax clearance/no objection certificate from Income Tax authority. This remittance facility is not available to a citizen of Nepal or Bhutan. (Please refer to Regulation 4 (3) to Notification No. FEMA 13/RB2000 dated 3rd May 2000)

37.

Yes. Amount not exceeding USD one million, per calendar year subject to production of documentary evidence in support of inheritance and Tax clearance certificate/no objection certificate from Income Tax authority to authorized dealer for remittances. However, a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran shall seek prior approval of Reserve Bank with documentary evidence in support of inheritance and tax clearance/no objection certificate from Income Tax authority. This remittance facility is not available to a citizen of Nepal or Bhutan. (Please refer to Regulation 4 (2) (ii) to Notification No. FEMA 13/RB-2000 dated 3rd May 2000)

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” 38.

No. He needs to seek prior approval of Reserve Bank with documentary evidence in support of inheritance and tax clearance/no objection certificate from Income Tax authority.

XII)

Acquisition of immovable property for carrying on a permitted activity in India

39.

No. A person resident outside India who has established a Liaison Office in India in accordance with FERA/FEMA regulations purchase immovable property

40.

Yes, provided it is necessary for or incidental to carrying on such activity and all applicable laws, rules, regulations or directions are duly complied with. The purchase price should be paid by way of inward remittance through proper banking channel. A declaration in form IPI should be filed with Reserve Bank within ninety days from the date of acquisition of commercial/residential property.

41.

Yes, a property referred to in No.41 (above) be mortgaged with an authorized dealer as a security for any borrowing. RBI has granted general permission for such a mortgage.

42.

Yes, on winding up of the business the sale proceeds of such property be repatriated with prior approval of Reserve Bank.

XIII)

Acquisition/Transfer of immovable property in India by Foreign Embassies/Diplomats /Counsel Generals

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” 43.

Yes. Under general permission available Foreign Embassies / Diplomats / Consulate Generals may acquire any immovable property other than agricultural land / plantation property / farm house in India. Such property may be purchased / sold provided prior clearance from the Government of India, Ministry of External Affairs has been obtained for such purchase / sale. The consideration for purchase of such property should be paid by way of inward remittance through normal banking channel.

Forex Facilities for Residents (Individuals) Introduction The legal framework for administration of foreign exchange transactions in India is provided by the Foreign Exchange Management Act, 1999. Under the Act, freedom has been granted for buying and selling of foreign exchange for undertaking current account transactions. The Government has issued Foreign Exchange Management (Current Account Transactions) Rules, 2000 which have been notified vide Notifications GSR. 381(E) dated May 3, 2000, S.O. 301(E) dated March 30, 2001 and GSR 608(E) dated September 13, 2004 as amended from time to time. The last amendment to the G.S.R is viding Notification No. G.S.R. No.412 (E) dated July 10, 2006 notifying certain relaxations on current account transactions in public interest. Under the Foreign Exchange Management Act, 1999 (FEMA) [in lieu of FERA], which has come into force with effect from June 1, 2000, all transactions involving foreign exchange have been classified either as Capital or Current Account transactions. All transactions undertaken by a resident that do not alter his assets or liabilities outside India are current account transactions. In terms of Section 5 of the FEMA, persons are free to buy or sell foreign exchange for any current account transaction except for those transactions on which Central Government has imposed restrictions, vide its Notification referred to above A copy of the Notification is available in the Official Gazette I. Guidelines on Travel Related Matters A 'person resident in India' is defined in Section 2(v) of FEMA, 1999 as: A person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include – (A) a person who has gone out of India or who stays outside India, in either case - for or on taking up employment outside India, or for carrying on outside India a business or vocation outside India, or for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” (B) a person who has come to or stays in India, in either case, otherwise than – for or on taking up employment in India, or for carrying on in India a business or vocation in India, or for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period; any person or body corporate registered or incorporated in India, an office, branch or agency in India owned or controlled by a person resident outside India, an office, branch or agency outside India owned or controlled by a person resident in India; That is to qualify as a resident the person concerned will have to fulfill the criterion regarding (a) the duration of stay and (b) the purpose of stay. The term Person Resident Outside India is defined in the Act as a person who is not a person resident in India. Buying foreign exchange Foreign exchange can be purchased from any authorised dealer. Besides authorised dealers, full-fledged moneychangers are also permitted to release exchange for business and private visits. Authorised Dealer An Authorised Dealer is normally a bank specifically authorised by the Reserve Bank under Section 10(1) of FEMA,1999, to deal in foreign exchange or foreign securities (List available on www.fedai.org.in ). Exchange is available for a business trip Authorised Dealers can release foreign exchange up to USD 25,000 for a business trip to any country other than Nepal and Bhutan. Release of foreign exchange exceeding USD 25,000 for a travel abroad (other than Nepal and Bhutan) for business purposes, irrespective of period of stay, requires prior permission from Reserve Bank. Visits in connection with attending of an international conference, seminar, specialised training, study tour, apprentice training, etc., are treated as business visits. Maintenance expense of a patient going abroad for medical treatment and/or check up or for accompanying as assistant to the patient going abroad for medical treatment / check-up also falls within this category. Incidentally, no release of foreign exchange is admissible for any kind of travel to Nepal and Bhutan or for any transaction with persons resident in Nepal and Bhutan. Obtaining of foreign exchange for medical treatment outside India Authorised Dealers may release foreign exchange upto USD 100,000 or its equivalent to resident Indians for medical treatment abroad on self declaration basis of essential details, without insisting on any estimate from a hospital/doctor in India/abroad. A person visiting abroad for medical treatment can obtain foreign exchange exceeding the above limit, provided the request is supported by an estimate from a hospital/doctor in India/abroad. This exchange is to meet the expenses involved in treatment.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” Exchange is available for studies outside India ADs may release an amount of USD 100,000 per academic year or the estimate received from the institution abroad, whichever is higher. Students going abroad for studies are treated as Non-Resident Indians (NRIs) and are eligible for all the facilities available to NRIs under FEMA. In addition, they can receive remittances up to USD 100,000 from close relatives (as defined in Section 6 of the Companies Act, 1956) from India on self-declaration, towards maintenance, which could include remittances towards their studies also. Educational and other loans availed of by students as resident in India can be allowed to continue. There is no dilution in the existing remittance facilities to students in regard to their academic pursuits.

Foreign exchange one can buy when traveling abroad on private visits to a country outside India In connection with private visits abroad, viz., for tourism purposes, etc., foreign exchange up to USD10,000, in any financial year may be obtained from an authorised dealer on a self-declaration basis. The ceiling of USD10,000 is applicable in aggregate and foreign exchange may be obtained for one or more than one visit provided the aggregate foreign exchange availed of in one financial year does not exceed the prescribed ceiling of USD10,000 {The facility was earlier called B.T.Q or F.T.S.}. This limit of USD10,000 per financial year can be availed of by a person along with foreign exchange for travel abroad for any purpose, including for employment or immigration or studies. However, no foreign exchange is available for visit to Nepal and/or Bhutan for any purpose. Foreign exchange is available to a person going abroad on employment Person going abroad for employment can draw foreign exchange up-to USD100,000 from any authorised dealer in India on the basis of self-declaration. Foreign exchange is available to a person going abroad on emigration Person going abroad on emigration can draw foreign exchange upto USD100,000 on selfdeclaration basis from an authorised dealer in India or the amount prescribed by the country of emigration. This amount is only to meet the incidental expenses in the country of emigration. No amount of foreign exchange can be remitted outside India to become eligible or for earning points or credits for immigration. All such remittances require prior permission of the Reserve Bank. Category of visit, which requires prior approval from the Reserve Bank or Govt. of India

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” Dance troupes, artistes, etc., who wish to undertake cultural tours abroad, are required to obtain prior approval from the Ministry of Human Resources Development, Government of India, New Delhi. Foreign exchange can be purchased in foreign currency notes while buying exchange for travel abroad Travellers are allowed to purchase foreign currency notes/coins only up to USD 2000. Balance amount can be taken in the form of travellers cheque or banker’s draft. Exceptions to this are (a) travellers proceeding to Iraq and Libya can draw foreign exchange in the form of foreign currency notes and coins not exceeding USD 5000 or its equivalent; (b) travellers proceeding to the Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States can draw entire foreign exchange released in the form of foreign currency notes or coins. Rules apply to persons going for studies abroad For the purpose of studies abroad, exchange for maintenance expenses is released in the form of (i) currency notes up to USD 2,000, (ii) the balance foreign exchange may be taken in the form of travelers cheques or bank draft payable overseas. Advance one can buy foreign exchange for travel abroad The foreign exchange acquired for any purpose has to be used within 60 days of purchase. In case it is not possible to use the foreign exchange within the period of 60 days, it should be surrendered to an authorised dealer. One can pay by cash full rupee equivalent of foreign exchange being purchased for travel abroad Foreign exchange for travel abroad can be purchased from authorized banks against rupee payment in cash up to Rs.50,000/-. However, if the rupee equivalent exceeds Rs.50,000/-, the entire payment should be made by way of a crossed cheque/banker’s cheque/pay order/demand draft only. Time frame for a traveller for surrender of foreign exchange on his return to India On his return to India, the traveller is required to surrender the unspent foreign exchange, whether in the form of currency notes or travellers cheques, within 180 days from the date of return. However, a traveller can retain up to USD 2000 or its equivalent, either in the form of currency notes or travellers cheques, for future use. Further, the traveller also has the facility of retaining the entire unspent foreign exchange in his Resident Foreign Currency (Domestic) Account. On return to India one should retain foreign exchange

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” Yes. Resident travellers, on return to India, can retain unspent foreign exchange up to USD 2,000 or its equivalent, either in the form of currency notes or travellers cheques. The traveller can also credit the foreign currency amount to their RFC (Domestic) Account, without any limit, where the foreign exchange has been acquired by the traveller by any of the following modes : a. while on a visit abroad as payment for services not arising from any business in or anything done in India; or b. as honorarium or gift or for services rendered or in settlement of any lawful obligation from any person who is not resident in India and who is on a visit to India; or c. as honorarium or gift while on a visit to any place outside India; or d. from an authorised person for travel abroad and represents the unspent amount thereof.

Required to surrender foreign coins also to an authorised dealer There is no restriction on residents holding foreign coins. Foreign exchange, a resident individual send as gift / donation to a person resident outside India Limit of USD 200,000 per financial year under the Liberalized Remittance Scheme would also include remittances towards gift and donation by a resident individual. Accordingly, under the Scheme, any resident individual, if he so desires, may remit the entire limit of USD 200,000 in one financial year as gift to a person residing outside India or as donation to a charitable/educational/ religious/cultural organization outside India. Remittances exceeding the limit will require prior permission from the Reserve Bank. Other residents send as gift / donation to a person resident outside India Other residents like corporates, partnership firms, trusts etc., are free to remit up to USD 5000 per annum per donor/remitter each as gift and donation. Remittances exceeding the limit will require prior permission from the Reserve Bank. One is permitted to use International Credit Card (ICC) for undertaking foreign exchange transactions Use of the International Credit Cards (ICCs) / ATMs/ Debit Cards can be made for making personal payments like subscription to foreign journals, internet subscription, etc., and for travel abroad in connection with various purposes. The entitlement of foreign exchange on International Credit Cards (ICCs) is limited by the credit limit fixed by the card issuing authority only. With ICCs one can (i) meet expenses/make purchases while MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” abroad (ii) make payments in foreign exchange for purchase of books and other items through internet in India. If the person has a foreign currency account in India or with a bank overseas, he/she can even obtain ICCs of overseas banks and reputed agencies. Use of these instruments for payment in foreign exchange in Nepal and Bhutan is not permitted. While coming into India how much Indian currency can be brought in? A person coming into India from abroad can bring in with him Indian currency notes within the limits given below: a. up to Rs. 5,000 from any country other than Nepal or Bhutan, and b. any amount in denomination not exceeding Rs.100 from Nepal or Bhutan.

While going abroad how much foreign exchange, in cash, can a person carry? Residents are free to carry the foreign exchange purchased from an authorised dealer or full fledged money changer in accordance with the Rules. They are, however, allowed to carry foreign exchange in the form of currency notes/coins up to USD 2,000 or its equivalent only. Balance amount can be carried in the form of travellers cheque or banker/s draft. While going abroad how much Indian currency, in cash, can a person carry? Residents are free to take outside India (other than to Nepal and Bhutan) currency notes of Government of India and Reserve Bank of India notes up to an amount not exceeding Rs. 5,000/ - per person. They may take or send outside India (other than to Nepal and Bhutan) commemorative coins not exceeding two coins each. Explanation : 'Commemorative Coin' includes coin issued by Government of India Mint to commemorate any specific occasion or event and expressed in Indian currency. A person can take or send out of India to Nepal or Bhutan, currency notes of Government of India and Reserve Bank of India notes (other than notes of denominations of above Rs. 100); While coming into India how much foreign exchange can be brought in? A person coming into India from abroad can bring with him foreign exchange without any limit. However, if the aggregate value of the foreign exchange in the form of currency notes, bank notes or travellers cheques brought in exceeds USD 10,000/- or its equivalent and/or the value of foreign currency exceeds USD 5,000/- or its equivalent, it MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” should be declared to the Customs Authorities at the Airport in the Currency Declaration Form (CDF), on arrival in India. One is required to follow complete export procedure when a gift parcel is sent outside India A person resident in India is free to send (export) any gift article of value not exceeding Rs. 5,00,000 provided export of that item is not prohibited under the extant Foreign Trade Policy. Jewellery one can carry while going abroad Taking personal jewellery out of India is governed by Baggage Rules framed under Foreign Trade Policy by the Government of India. No approval of Reserve Bank is required in this case.

A resident can extend local hospitality to a non-resident A person resident in India is free to make any payment in Indian Rupees towards meeting expenses on account of boarding, lodging and services related thereto or travel to and from and within India of a person resident outside India who is on a visit to India. Residents can purchase air tickets in India for their travel not touching India Residents may book their tickets in India for their visit to any third country. That is, residents can book their tickets for travel, for instance from London to New York, through domestic/foreign airlines in India itself. A resident can open a foreign currency denominated account in India Persons resident in India are permitted to maintain foreign currency accounts in India under the following three Schemes: a. Exchange Earners' Foreign Currency (EEFC) Accounts:All categories of resident foreign exchange earners can credit up to 100 per cent of their foreign exchange earnings, as specified in the paragraph 1 (A) of the Schedule to Notification No.FEMA.10/2000-RB dated 3rd May, 2000 and as amended from time to time, to their EEFC Account with an authorised dealer in India. Funds held in EEFC account can be utilised for all permissible current account transactions and also for approved capital account transactions as specified by the extant Rules/Regulations/ Notifications/ Directives issued by the Government/RBI from time to time. b. Resident Foreign Currency (RFC) Accounts :MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” Returning Indians, i.e., those Indians, who were non-residents earlier, and are returning now for permanent stay, are permitted to open, hold and maintain with an authorised dealer in India a Resident Foreign Currency (RFC) Account to keep their foreign currency assets. Assets held outside India at the time of return can be credited to such accounts. The foreign exchange (i) received or acquired as gift or inheritance from a person referred to sub-section (4) of section 6 of FEMA,1999 or (ii) referred to in clause (c) of section 9 of the Act or acquired as gift or inheritance therefrom may also be credited to this account or (iii) received as the proceeds of life insurance policy claims/maturity/ surrender values settled in foreign currency from an insurance company in India permitted to undertake life insurance business by the Insurance Regulatory and Development Authority. The funds in RFC account are free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment outside India.

c. RFC (Domestic) Account:A person resident in India can open, hold and maintain with an authorized dealer in India, a Resident Foreign Currency (Domestic) Account, out of foreign exchange acquired in the form of currency notes, Bank notes and travellers cheques from any of the sources like, payment for services rendered abroad, as honorarium, gift, services rendered or in settlement of any lawful obligation from any person not resident in India. The account may also be credited with/opened out of foreign exchange earned like proceeds of export of goods and/or services, royalty, honorarium, etc., and/or gifts received from close relatives (as defined in the Companies Act) and repatriated to India through normal banking channels by resident individuals. The account shall be maintained in the form of Current Account and shall not bear any interest. There is no ceiling on the balances in the account. A person can resident in India hold assets outside India In terms of sub-section 4, of Section (6) of the Foreign Exchange Management Act, 1999, a person resident in India is free to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India. II. Liberalised Remittance Scheme of USD 200,000 This is a facility extended to all resident individuals under which, they may freely remit upto USD 200,000 per fianancial year for any permissible current or capital account transaction or a combination of both. Eligibility to avail of this Liberalised Remittance Facility? MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” The facility is available to resident individuals only. Frequency for the remittance There is no restriction on the frequency. However, the total amount of foreign exchange purchased from or remitted through, all sources in India during the current financial year should be within the limit of USD 200,000/-. The purpose/s for which remittance can be made under the Scheme This facility is available for making remittance/s for any permissible current or capital account transaction or a combination of both. It is not available for purposes specifically prohibited (Schedule I) or regulated by the Government of India (Schedule II) of Foreign Exchange Management (Current Account Transactions) Rules, 2000.

Residents can avail of this facility for acquiring immovable property and other assets abroad Yes. Individuals are free to use this Scheme to acquire and hold immovable property, shares or any other asset outside India without prior approval of Reserve Bank. Individuals can open foreign currency account abroad for making remittance under the Scheme Yes. Individuals are free to open, hold and maintain foreign currency accounts with a bank outside India for making remittances under the Scheme without the prior approval of Reserve Bank. The account can be used for putting through any transaction connected with or arising from remittances under the Scheme. The impact of the Scheme on the existing facilities for private/business travel, studies, medical treatment etc./items covered in Schedule III of Foreign Exchange Management (Current Account Transactions) Rules, 2000 The facility under the Scheme is in addition to those already available under Foreign Exchange Management (Current Account Transactions) Rules, 2000. An individual send remittance under the Scheme to any country Remittance cannot be made directly or indirectly to Bhutan, Nepal, Mauritius or Pakistan. The facility is also not available for making remittances directly or indirectly to countries identified by the Financial Action Task Force (FATF) as ‘non-co-operative Countries or Territories, from time to time.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” Further, remittance under the facility cannot be made to individuals and entities identified as posing significant risk or committing acts of terrorism as advised to banks by Reserve Bank from time to time. The requirements to be complied with by the remitter The individual will have to designate a branch of an AD through which all the remittances under the Scheme will be made. The applicants should have maintained the bank account with the bank for a minimum period of one year prior to the remittance. He has to furnish an application-cum-declaration in the specified format regarding the purpose of the remittance and declare that the funds belong to him and will not be used for purposes prohibited or regulated under the Scheme.

If an investment of USD 200,000 rises in value within the year, can one book profits and invest abroad again? The investor is free to book profit or loss abroad and to invest abroad again. He is under no obligation to repatriate the funds remitted abroad. An individual, can who has repatriated the amount remitted during the financial year, avail of the facility once again Once a remittance is made for an amount upto USD 200,000 during the financial year, he would not be eligible to make any further remittances under this route, even if the proceeds of the investments have been brought back into the country. Remittances are made only in US Dollars The remittances can be in any currency equivalent to USD 200,000 in a financial year. Last year, resident individuals could invest in overseas companies listed on a recognised stock exchange abroad and which has the shareholding of at least 10 per cent in an Indian company listed on a recognised stock exchange in India. Does this condition still exist? Investment by resident individual in overseas companies is subsumed under the Scheme of USD 200,000. The requirement of 10 per cent reciprocal shareholding in the listed Indian companies by such overseas companies has since been dispensed with.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” III. Guidelines for Financial Intermediaries offering special schemes, protection under the Scheme. Intermediaries are expected to seek specific approval for making overseas investments available to clients Banks including those not having operational presence in India are required to obtain prior approval from Reserve Bank for soliciting deposits for their foreign/overseas branches or for acting as agents for overseas mutual funds or any other foreign financial services company. There are any restrictions on the kind/quality of debt or equity instruments an individual can invest in No ratings or guidelines have been prescribed under the Liberalized Remittance Scheme of USD 200,000 on the quality of the investment an individual can make. However, the individual investor is expected to exercise due diligence while taking a decision regarding the investments which he or she proposes to make.

Minor resident individuals would be permitted to open, maintain and hold such foreign currency accounts, if the same is permissible as per local law in the country of the overseas branch Banks may take necessary steps in the matter based on the settled legal position regarding enforcement of the declaration in case the remittance is made on behalf of a minor. Credit facilities in Indian Rupees or foreign currency would be permissible against security of such deposits No. The Scheme does not envisage extension of credit facility against the security of the deposits. Can bankers open foreign currency accounts in India for residents under the Scheme? No. Banks in India can not open foreign currency accounts in India for residents under the Scheme. Can an Offshore Banking Unit (OBU) in India be treated on par with a branch of the bank outside India for the purpose of opening of foreign currency accounts by residents under the Scheme? No. For the purpose of the Scheme, an OBU in India is not treated as an overseas branch of a bank in India. MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” General Information For further details/guidance, please approach any bank authorised to deal in foreign exchange or contact Regional Offices of the Foreign Exchange Department of the Reserve Bank.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Exchange Earner's Foreign Currency (EEFC) Account An EEFC Account Exchange Earners' Foreign Currency Account (EEFC) is an account maintained in foreign currency with an Authorised Dealer, i.e a bank dealing in foreign exchange. ♦ The account is a Non-interest bearing current account.

♦ A person resident in India may open the account.

♦ One can credit 100 percent of his foreign exchange earnings into this account subject to permissible credits and debits.

♦ The permissible credits into this account o Inward remittance through normal banking channel, other than remittances received on account of foreign currency loan or investment received from abroad or received for meeting specific obligations by the account holder.

MBA IV Sem

ii )Payments received in foreign exchange by a 100 per cent Export Oriented Unit or a unit in (a) Export Processing Zone or (b) Software Technology Park or (c) Electronic Hardware Technology Park for supply of goods to similar such unit or to a unit in Domestic Tariff Area.

Payments received in foreign exchange by a unit in Domestic tariff Area for supply of goods to a unit in Special Economic Zone (SEZ);

Payment received by an exporter from an account maintained with an authorised dealer for the purpose of counter trade. (Counter trade is an arrangement involving adjustment of value of goods imported into India against value of goods exported from India in terms of Reserve Bank guidelines);

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” o

Advance remittance received by an exporter towards export of goods or services;

Payment received for export of goods and services from India, out of funds representing repayment of State Credit in U.S. dollar held in the account of Bank for Foreign Economic Affairs, Moscow, with an authorised dealer in India,

Professional earnings including directors fees, consultancy fees, lecture fees, honorarium and similar other earnings received by a professional by rendering services in his individual capacity. Interest earned, if any, on the funds held in the account;

o o

Re-credit of unutilised foreign currency earlier withdrawn from the account;

Amount representing repayment by the account holder's importer customer, of loan/advances granted, by the exporter holding such account.

♦ Foreign exchange earnings received through an international credit card for which reimbursement are provided in foreign exchange may be regarded as a remittance through normal banking channels and can be credited to the EEFC account.

♦ The permissible debits into this account o Payment outside India towards a permissible current account transaction [in accordance to the provisions of the Foreign Exchange Management (Current Account Transactions) Rules, 2000] and permissible capital account transaction [in accordance to the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000]. o Payment in foreign exchange towards cost of goods purchased from a 100 percent Export Oriented Unit or a Unit in (a) Export Processing Zone or (b) Software Technology Park or (c) Electronic Hardware Technology Park and payment of customs duty in accordance with the provisions of the Foreign Trade Policy of Central Government for the time being in force. o Trade related loans/advances, by an exporter holding such account to his importer customer outside India, subject to compliance with the MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000. o Payment in foreign exchange to a person resident in India for supply of goods/services including payments for airfare and hotel expenditure. ♦ There is no restriction on withdrawal in rupees of funds held in an EEFC account. However, the amount withdrawn in rupees shall not be eligible for conversion into foreign currency and for re-credit to the account.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Minimization of Forex Exposure techniques uses in Hubli Forex Cell  Exporter’s Credit Guarantee Corporation (ECGC) This is the Government owned corporation. This company gives insurance not only to banks but also to the exporters and importers. And it also gives the guarantee towards the opposite party i.e., customer of domestic party. If exporter or importer cheats in their business, then Banks will take the responsible all those losses. For this purpose only Government has established this ECGC to minimize the risk or losses to banks. So if something happens then banks straightly approach this ECGC to refund or reimburse its losses.  Banned / Caution List by Government Every year Government makes 2 type of list. One is related to company and another one is about country. In that it makes 2 categories, one is banning category and another one is caution category. If any exporter or importer wants to trade with any country / company, which is banned by Government at that time banks will not act as a mediator between these two parties. Suppose any company / country in the list of caution. Then bank may advice to its customers to take the permission from government or RBI. Then only banks are ready to act as a mediator between both parties.  Don &Break Agency This is international Agency situated in Russia. This is nothing but Credit Rating Agency. If any customer comes to trade with any country which is not banned / cautioned by Government but bank is having some fear of cheat. Then for safety purpose banks approaches this Agency called D&B Agency. This agency studies the pros and cons in details about all aspects of that country / company. And submit the report to particular bank. For this purpose Agency takes some commissions, paid by banks only. “Prevention Better than Cure” theory they are adopting to minimize the exposure.  Square of the position Banks not kept themselves any amount or transaction at the end of the day. Every day they square of their positions. So by this they do not have any exchange rate exposure. For only working capital requirement they have some foreign currency with them, this is very minor not much affective with exchange rate exposure. MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Other Activities in Hubli Forex Cell

Report They prepare 2 types of reports. One is to RBI and another one is to FD’s. Submission of Report to RBI: RBI made a Form called R-Return Form. This form is concern with outflows and inflows of Rupee and Net. If any deposits made by particular cell in any banks and minimum deposit maintained by this particular cell with RBI. All such informations are involved in this R-Return Form. This report includes only in value terms not the Number of Transactions. As per RBI guidelines Hubli forex cell makes this report with different currencies whatever they have transacted in a particular period. In the sense they make report of dollar, pound, yen, euro and any currency they have transacted in terms of value. And they make it as one and convert it in rupee terms and submit it to RBI. This report should prepare for every fortnight i.e., every 15 th and 30th / 31st as the case may be of every month. And for this submission purpose, RBI has made relaxation period as up to 5 days after that specified dates. If banks fail to do so they have to pay penalty to RBI, each day, after that grace period. Another report is submitted to its FD. Every quarterly they have to prepare this report. Here they reports about the transaction held in that particular quarter in terms of Number of transactions and value. Peak Month Peak month starts from November and grow fast in December month. Matures in January to March months. Declines in April and ends with May month. Why? First reason is RBI. Yes, RBI declares credit rating twice in a year. This peak is nothing but comes in November month. Many foreigners are observing this credit policy of RBI, after declaration of credit rate by RBI, accordingly they will ready to trade. So these months are says to be peak months. As we know, from June to September is a rain season. Because of this climatic condition: transportation may delay, storage is main problem, high protection is require for materials, so many exporters and importers are not ready to trade in these seasons. They are trade in other than these months. This also one reason, to say November to May is the peak season for Hubli Forex Cell.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Profitable Customers As already we know that for Hubli Forex Cell, they have 3 types of customers’ viz., exporter, importer and remitters. Who are more the beneficial customers to Bank? Importer takes the first place among all customers. Because here bank will get more exchange rate spread. That is differences between buying and selling rates of particular currency. Here bank and also government are not bothering about the importer. Means they are not giving any privileges to importer for importing of materials. So here banks may charge high exchange rates to importers. Whereas for exporters government is providing some privileges, because of enjoying some privileges and encouraging the exporters bank will minimize its profit in way of minimizing the spread rates. So by this way importers are takes the first place to increase the profits of the banks. Next place occupied by Remitters. Because these customers are visit the banks only at once or twice not more than that. For this purpose banks are not viewing these customers as lifetime customers. So banks will make much profit from exchange rate spreads. But exporters are not in the least place. But really these customers are beneficial customers rather than profitable customers. Of course these customers are long-term profitable customers. So every customer is important for bank. Only for giving more privileges to exporters they seems to be as least profitable customers otherwise they are also profitable as well as beneficial customers. SWIFT Every bank is having Bank Identification Code. By entering this code only they can operate and open the SWIFT system. SWIFT system is nothing but sending a message to other bank situated in foreign countries. If Hubli Forex Cell sends the messages then they immediately receive an acknowledgement in printed format. If Hubli Forex Cell received any messages from other banks then they have a set of words like “RCVD”, means received. This system is already programmed by giving some codes we can operate it. Like “700” code for L/c, “707” is for Opening of L/c, “707” is for Amendment of L/c, “103” for Receiving / Paying of Amount, “100”series for Remittance operated by Single to Single Person, “400” Series for Exporting transaction. MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

If bank specify the specific code, then related blank boxes come on the screen. These boxes are filled by operator, who is a banker and these boxes are changes according to codes given by banks for specific purposes. Sometimes SWIFT is also uses for non-financial purpose. Like opening of L/c and amendment of L/c etc., here we cannot find out any financial transaction. So this is nothing but sending the message to other banks through Internet media. Mainly in this format we observe Code Number, Sender’s Name, Receiver’s Name, Date, Currency, Amount etc., This SWIFT mechanism is same all over the world. So by this we cannot have a Rupee V/s other currency exchange rates. This is used for only sending the messages. Rate Mechanism: From Mumbai FD only they get the exchange rates of all currencies with cross currency exchange rates. Mumbai Internal Forex Department sends exchange rates to all its branches and cells. This rate is driven by again market Demand & supply. But also some persons of “Canara Bank International Department” decide the final exchange rates for their bank. By this only all branches and cells will get the information about the rates. So it is online connection from International Department to all its branches and cells. Here we can see two rates, one is Buying Rate and another one is Selling Rate. If any customer wants to convert his Dollar into Rupee, then bank goes to the buy option and buy the dollar and sell the rupee. Here banks should give the type of transaction. Means whether this transaction is for remittance purpose or is it for TT or Cheque, or L/c etc., After doing all these things Hubli Forex cell submit report to their International Branch. Sometimes this Hubli Forex cell chats with its International Division. If customer is a lifetime customer, then Hubli cell chats with its International Division to reduce or to increase the exchange rate in the benefit of customer. In other words, this cell requests to International Division for changing the exchange rates in the beneficial of customers. So for this purpose only they use this Chatting option. Doing all these transaction is nothing but indirectly sending the report to its International Forex Department. So for this purpose now Hubli Forex Cell is having special computer. Recently, in October it was started its operation through this special computer. By this they can send and receive the message very fast and easily. MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

TRADING FIRMS We just only saw how Canara Bank is operating its Forex transactions? When we come to North Karnataka, the awareness of Forex Market is very less (Refer Bibliography). It means, here individually people are do not have their account in Forex Market. Means, they not ready to purchase or sell dollars or any other currencies directly. They purchase for specific purpose like Remittance, but not for trading. By seeing all those things, here we have gone for some companies which are there in this type of business. Foreign currencies transaction will be made by those companies which are there in the business of import or export. Yes, of course, now it is time to understand why so many exports oriented companies are closing. Especially SSI units are in more loss, because they do not have that much of capacity to pick up its forex losses. It means, now dollar is depreciating and Rupee is Appreciating, by this now exporters are getting less income in terms of Rupee. So they are hesitating to sell their goods in dollar terms. But they do not have any other option of currency to sell their goods, and also they do not have that much of knowledge to hedge the dollar and minimize the risk. For all these reasons so many SSI’s are closing their units. Is it same situation in Hubli also? Banks are now hesitating to make any hedge options to their customers, because; now so many companies are making losses in derivative transactions. Companies are do not know the concept of Mark to Market and hedging in different currencies i.e. other than domestic currency. So companies are now making losses and they are not ready to accept those losses. So they are now approaching Courts to reimburse their losses by banks. Now banks are in trouble to step ahead. So it is the time to ask some customers of banks that, is it same happing in your business also, if yes, then whom you blame? So let us see what is the present scenario in Hubli? In Hubli import and exporting companies are there. Here we have taken only ten companies as sample among all those export/import companies situated in Hubli. Because, here we would like to know that, whether exposure is there in Forex Market? And how they mitigate that risk? For this purpose we want only samples rather than whole population. Yes, it is enough for us to take only ten samples. In these samples we have taken very small business units to large units. Different types of business having different type of risks in their forex business, to understand some different types we have taken only ten as a sample. By this only we can come to conclusion to whether risks are there? And how they mitigate and where they are lacking? For all these we have made questions.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” We have made questionnaire to get the accurate answers. Please refer Annexurefor pattern of questionnaire. By this we have surveyed ten companies, and their responses we will see now:

SUPRIYA PROTOTECH C-43, Industrial Estate, Gokul Road, Hubli - 580030, Karnataka, India Phone:91-836-2212416 Fax:91-836-2333641

Profile

Exporter

Products

Quarter Turn Gear Actuator, Multi Turn Gear Actuator, Rotary Limit Switch Box, Graphite Seals, Pneumatic Gear Actuator.

Currency

USD (Usually)

Mode of Payment

Letter of Credit

Risks involved in Forex Market: Translation Risk Currency Risk

Barriers (If branch is situated in other country/ies) More Competition

Yes, More

Not having any branches Lack of Knowledge

Minimization techniques for exposure involved in Forex Market: Translation Risk Currency Risk Banks will do

Barriers (If branch is situated in other country/ies) Some permanent Customers

Not having any branches

Appointment of Knowledgeable persons Privileges enjoying

Tax reduction

Service Expecting from Bank

Nothing

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

N-26, Industrial Estate, Gokul Road Hubli 580030, Karnataka. Tel: 91-836-333759 Fax: --

Profile

Importer

Products

Gear Boxes, Bearings, Chains

Currency

USD (Usually), Yen, Singapore Dollar

Mode of Payment

Letter of Credit

Risks involved in Forex Market: Translation Risk Currency Risk Yes, Little More

Barriers (If branch is situated in other country/ies) Not having any branches

Lack of Knowledge

Minimization techniques for exposure involved in Forex Market: Translation Risk Currency Risk Everything Bank will do

MBA IV Sem

Barriers (If branch is situated in other country/ies) Not having any branches

Need some training, Seminars and Govt. help

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” Privileges enjoying

Tax reduction

Service Expecting from Bank

Nothing

Extra things

1) They are in Export business, so there are some concision for importing some materials. 2) Risk arises due to New Customer.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Profile

Exporter

Products

Chip Conveyor, Coolant Filters, Filter Papers, Oil Skimmers, Paper Band Filter.

Currency

USD (Usually)

Mode of Payment

Letter of Credit

Risks involved in Forex Market: Translation Risk Currency Risk

Barriers (If branch is situated in other country/ies) More Competition

Yes, Little More

Not having any branches Lack of Knowledge

Minimization techniques for exposure involved in Forex Market: Translation Risk Currency Risk Banks will do

Barriers (If branch is situated in other country/ies) Not having any branches

Some permanent Customers

Privileges enjoying

Tax reduction

Service Expecting from Bank

Detail about forex market

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Shakti Group of Companies, “R.M. Joshi Building”, 2 nd Floor,-43, Industrial Estate, Lamington Road, Hubli 580020, Karnataka, India Phone: 91-836-2356582 Fax: 91-836-2356586

Profile

Exporter

Products

Animal Feeds Manufacturing, International Trading.

Currency

USD (Usually)

Mode of Payment

Letter of Credit

Textile

Trading

Risks involved in Forex Market: Translation Risk Currency Risk Yes, More

Barriers (If branch is situated in other country/ies) Not having any branches

More Competition

Minimization techniques for exposure involved in Forex Market: Translation Risk Currency Risk Banks will do

Barriers (If branch is situated in other country/ies) Not having any branches

Privileges enjoying MBA IV Sem

Appointment of Knowledgeable persons

Tax reduction 71

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Service Expecting from Bank

Detail about forex market

SWASTIK WIRE INDUSTRIES M4 Industrial Estate,, Gokul Road, HUBLI - 580030 (Karnataka) India Office: +91 836 2331243, Fax: +91 836 2331780

Profile

Exporter

Products

Bare, paper covered, nomex covered, cotton covered insulated winding copper and aluminum conductors wires and strips.

Currency

USD (Usually)

Mode of Payment

Letter of Credit

Risks involved in Forex Market: Translation Risk Currency Risk

Barriers (If branch is situated in other country/ies) More Competition

Yes, More

Not having any branches Lack of Knowledge

Minimization techniques for exposure involved in Forex Market: Translation Risk Currency Risk Banks will do

Barriers (If branch is situated in other country/ies) Some permanent Customers

Not having any branches

Appointment of Knowledgeable persons

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” Privileges enjoying

Tax reduction

Service Expecting from Bank

Detail about forex market

INTERNATIONAL SALES OFFICES BDK Process Equipment Inc. BDK Process Equipment Inc. 47/48, Gokul Road, Shiv Sagar Estate "A" Block, Hubli - 580 030, Dr. Annie Besant Road, Worli, Karnataka - India Mumbai - 400 018 - India Phone: +91-836-2331499 / 2333930 Phone : +91-22-2492 5319 / 2492 7671 Fax: +91-836-2330799 / 2330899 Fax : +91-22-24950580 Email : bdkhubli@bdkindia.com

Email : bdkmumbai@bdkindia.com

Profile

Exporter

Products

Valves, Pumps and other chemical industry products for all process handling needs.

Currency

USD, Euro, Pond.

Mode of Payment

Letter of Credit

Risks involved in Forex Market: Translation Risk Currency Risk Yes, More

Barriers (If branch is situated in other country/ies) Not having any branches

More Competition

Minimization techniques for exposure involved in Forex Market: Translation Risk Currency Risk

Barriers (If branch is situated in other country/ies)

We have Not having any branches Skilled employees and Diversification of Currency

MBA IV Sem

Different types of Customers

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” Privileges enjoying

Tax reduction

Service Expecting from Bank

Some seminars from Banks.

Why USD only? Although the Indian rupee-US dollar exchange rate has a significant impact on the Indian economy and business sector, the rupee has also appreciated against other currencies as well. In January-July 2007, the rupee's value in terms of Pounds, Euros and Yen rose by 8%, 6.9% and 11.2%, respectively. According to the Reserve Bank of India (RBI) during 2005-06, 86% of Indian exports and 89% of imports were invoiced in US dollars. The Euro was a distant second, with shares of 8% in exports and 7% in imports. Is Dollar depreciating recent trend in India? The recent strengthening of the rupee is a dramatic departure from the past trends. The currency depreciated steadily for a decade after being floated in 1993, dropping from an average annual rate of Rs. 31.37: US $1 in the 1993-94 fiscal year (April-March) to Rs. 48.40: US $1 in 2002-03 (an average annual depreciation of nearly 5%). Between 200304 and 2005-06, however, the rupee appreciated against the dollar by 3% an on average a year—although there was considerable two-way movement of the rupee from month to month. The trend of steady month-on-month appreciation began in September 2006 and has been continuous since then. 47

Closing Price INR/USD

46 45

INR/USD

44 43 42 41 40 39 18/03/2008

19/02/2008

8/1/2008

29/01/2008

14/12/2007

1/11/2007

23/11/2007

11/10/2007

19/09/2007

6/8/2007

29/08/2007

16/07/2007

4/6/2007

25/06/2007

14/05/2007

19/04/2007

2/3/2007

DATE

26/03/2007

8/2/2007

15/01/2007

21/12/2006

9/11/2006

30/11/2006

17/10/2006

4/9/2006

25/09/2006

11/8/2006

21/07/2006

9/6/2006

30/06/2006

19/05/2006

3/4/2006

27/04/2006

9/3/2006

16/02/2006

24/01/2006

2/1/2006

How to forecast the future prices? What are the techniques practically banks and companies are using? The answer for second one is No! In Hubli city almost all banks and companies are not using any techniques to forecast the exchange rates. Then we will see some techniques and tools to forecast the future exchange rates. For forecasting the future rates banks and companies can minimize their risk situated in forex market. If we know what will be happen in near future then it is good for them to

MBA IV Sem

KLES’s IMSR, HUBLI

MBA IV Sem 3/4/2006

15/01/2007

21/12/2006

30/11/2006

9/11/2006

17/10/2006

DATE

75 18/03/2008

19/02/2008

29/01/2008

8/1/2008

14/12/2007

23/11/2007

1/11/2007

11/10/2007

19/09/2007

29/08/2007

6/8/2007

16/07/2007

25/06/2007

4/6/2007

14/05/2007

19/04/2007

26/03/2007

2/3/2007

8/2/2007

INR/USD 41

25/09/2006

4/9/2006

11/8/2006

21/07/2006

30/06/2006

9/6/2006

19/05/2006

27/04/2006

9/3/2006

1 /1 /2 0 0 3 8 /1 /2 0 0 7 8 /1 /2 0 0 9/ 8 1 /2 0 1 0 1 8 /1 / 15 20 0 /0 8 1 /2 1 0 7 0 /0 8 1 /2 2 0 1 0 /0 8 1 /2 2 0 3 0 /0 8 1 /2 25 0 0 /0 8 1 /2 2 0 9 0 /0 8 1 /2 3 0 1 0 /0 8 1 /2 0 0 4 8 /2 /2 0 0 6 8 /2 /2 0 0 8 8 /2 /2 0 1 0 2 8 /2 / 14 20 0 /0 8 2 /2 1 0 8 0 /0 8 2 /2 2 0 0 0 /0 8 2 /2 2 0 2 0 /0 8 2 /2 0 0 3 8 /3 /2 0 0 5 8 /3 /2 0 1 0 0 8 /3 /2 0 1 0 2 8 /3 /2 1 0 4 0 /0 8 3 /2 1 0 8 0 /0 8 3 /2 2 0 4 0 /0 8 3 /2 2 0 6 0 /0 8 3 /2 2 0 8 0 /0 8 3 /2 0 0 8

16/02/2006

24/01/2006

2/1/2006

INR/USD

“Foreign Exchange Exposure”

hedge their currencies and accordingly they can easily trade and earn some profit, minimize the risk. There are two methods: 1. Technical Analysis 2. Fundamental Analysis TECHNICAL ANALYSIS

Trend Lines

Upward Trend Line:

40.75

1st Jan to 31 Mar 2008

40.5

40.25

39.75

39.5

39.25

DATE

Downward Trend Line:

Closing Price INR/USD

Sideways Trend Line:

KLES’s IMSR, HUBLI

MBA IV Sem 15/01/2007

21/12/2006

30/11/2006

9/11/2006

17/10/2006

25/09/2006

4/9/2006

11/8/2006

21/07/2006

30/06/2006

9/6/2006

19/05/2006

27/04/2006

3/4/2006

9/3/2006

16/02/2006

24/01/2006

2/1/2006

DATE

Closing Price INR/USD

38 2/3/2007

19/09/2007

29/08/2007

6/8/2007

16/07/2007

25/06/2007

4/6/2007

14/05/2007

19/04/2007

26/03/2007

8/1/2008 29/01/2008 19/02/2008 18/03/2008

19/02/2008 18/03/2008

14/12/2007

29/01/2008

14/12/2007

23/11/2007

8/1/2008

1/11/2007 23/11/2007

1/11/2007

11/10/2007

Support Level:

11/10/2007

19/09/2007

29/08/2007

6/8/2007

16/07/2007

25/06/2007

4/6/2007

14/05/2007

19/04/2007

DATE

8/2/2007

15/01/2007

21/12/2006

30/11/2006

9/11/2006

17/10/2006

25/09/2006

4/9/2006

11/8/2006

21/07/2006

30/06/2006

9/6/2006

19/05/2006

27/04/2006

3/4/2006

9/3/2006

16/02/2006

24/01/2006

2/1/2006

INR/USD

26/03/2007

2/3/2007

8/2/2007

INR/USD

“Foreign Exchange Exposure” 46

Closing Price INR/USD

Here both dark lines are showing support level. In a bull run support level was nearly Rs.44/$, where after finishing of downward trend support level become Rs.39/$.

Resistance Level:

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” 47

Closing Price INR/USD

46 45

INR/USD

44 43 42 41 40 39 18/03/2008

19/02/2008

8/1/2008

29/01/2008

14/12/2007

1/11/2007

23/11/2007

11/10/2007

19/09/2007

6/8/2007

29/08/2007

16/07/2007

4/6/2007

25/06/2007

14/05/2007

19/04/2007

2/3/2007

DATE

26/03/2007

8/2/2007

15/01/2007

21/12/2006

9/11/2006

30/11/2006

17/10/2006

4/9/2006

25/09/2006

11/8/2006

21/07/2006

9/6/2006

30/06/2006

19/05/2006

3/4/2006

27/04/2006

9/3/2006

16/02/2006

24/01/2006

2/1/2006

The First Resistance Level was situated nearly at Rs.47/$. And support level was situated at Rs. 44/$. See it carefully, after the March 2007 this support level become a highest resistance level. When dollar appreciates more than the said resistance level then again it becomes a support level and new resistance level will be created. But here, dollar was depreciated so the new resistance level was created below that old resistance level. That old resistance level is a largest one, but for time being i.e., for short time period we can consider Rs.42/$ is a new resistance level. Head and Shoulder: Head 45.2 45

Head and Shoulder

INR/USD

44.8 44.6 44.4 44.2 44

43.8 43.6 2/ 1/ 2 5/ 00 1/ 6 10 2 0 /1 06 16 / 20 06 /0 1 19 /20 06 /0 1 24 /20 /0 06 1 30 /2 /0 00 6 1 /2 00 2/ 6 2/ 2 0 7/ 06 2 13 /2 0 /0 06 2 16 /20 /0 06 2 21 /2 0 /0 06 2 24 /20 /0 06 2 /2 00 1/ 6 3/ 2 6/ 006 3/ 2 9/ 006 3/ 14 2 /0 00 6 3 20 /20 /0 06 3 23 /20 /0 06 3 28 /20 /0 06 3 /2 00 6

43.4

Date

Shoulder Triple Top Pattern:

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” 45.2 45

Triple Top Pattern

44.8

INR/USD

44.6 44.4 44.2 44

43.8 43.6

2/ 1/ 2 5/ 006 1/ 10 2 00 /1 6 16 / 20 /0 06 1 19 /20 /0 06 1 24 /20 /0 06 1 30 /20 /0 06 1/ 2 2/ 006 2/ 2 7/ 006 2/ 13 2 0 /0 06 2 16 /20 /0 06 2 21 /20 /0 06 2 24 /20 /0 06 2/ 2 1/ 006 3/ 2 6/ 006 3/ 2 9/ 006 3/ 14 2 /0 00 3 6 20 /20 /0 06 3 23 /20 /0 06 3 28 /20 /0 06 3/ 20 06

43.4

Date

Here we easily can see the triple pattern between INR/USD on 7/2/06 it was at Rs.44.26/$ and went down to Rs.44.21/$ and again it goes up to the same level Rs.44.26/$ and again went down. At the third time it reached Rs.44.26/$ and crossed it. Whenever it crosses that resistance level of triple top then it is guarantee that it will goes to 100% more than resistance of the top. Here Rs.44.26/$ is a resistance its 100% is Rs.44.46/$. Exactly it went up to Rs.44.46/$. Elliott Wave Theory: 41

1st Jan to 31 Mar 2008

40.75

INR/USD

40.5

40.25 40

39.75

39.5

0 0 3 8 /1 /2 0 0 7 8 /1 /2 0 0 9 8 /1 /2 0 1 0 1 8 /1 /2 1 0 5 0 /0 8 1 /2 1 0 7 0 /0 8 1 /2 2 0 1 0 /0 8 1 /2 2 0 3 0 /0 8 1 /2 2 0 5 0 /0 8 1 /2 2 0 9 0 /0 8 1 /2 3 0 1 0 /0 8 1 /2 0 0 4 8 /2 /2 0 0 6 8 /2 /2 0 0 8 8 /2 /2 0 1 0 2 8 /2 /2 1 0 4 0 /0 8 2 /2 1 0 8 0 /0 8 2 /2 2 0 0 0 /0 8 2 /2 2 0 2 0 /0 8 2 /2 0 0 3 8 /3 /2 0 0 5 8 /3 /2 0 1 0 0 8 /3 /2 0 1 0 2 8 /3 /2 1 0 4 0 /0 8 3 /2 1 0 8 0 /0 8 3 /2 2 0 4 0 /0 8 3 /2 2 0 6 0 /0 8 3 /2 2 0 8 0 /0 8 3 /2 0 0 8

39.25

1 /1 /2

DATE

Here 1st wave starts from Rs.39.66/$ and ends with Rs.40.15/$ and from there 2 wave starts. As per condition always 3 rd wave should be more than 1st wave. Here the condition is same 3 rd wave is highest peak than 1 st wave. And at the end 5 th wave it stops and after wards bears market starts. If we consider next to 5 th wave is 1st wave in bear trend, 2nd wave is very small and 3rd will be more than 1st wave. So it indicates that in near future Rupee may appreciates in short term future. nd

Moving Average:

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” Closing Price

26/03/2008

22/02/2008

9/1/2008

31/01/2008

14/12/2007

22/11/2007

8/10/2007

30/10/2007

13/09/2007

22/08/2007

5/7/2007

27/07/2007

13/06/2007

22/05/2007

3/4/2007

DATE

SMA EMA

26/04/2007

7/3/2007

12/2/2007

16/01/2007

21/12/2006

7/11/2006

29/11/2006

12/10/2006

19/09/2006

3/8/2006

28/08/2006

12/7/2006

20/06/2006

5/5/2006

29/05/2006

10/4/2006

14/03/2006

20/02/2006

2/1/2006

48.75 48 47.25 46.5 45.75 45 44.25 43.5 42.75 42 41.25 40.5 39.75 39

25/01/2006

INR/USD

Moving Average

Simple Moving Average: The pink line in the diagram shows that SMA. For calculation of SMA, here we have taken 20 days as average. Why 20 days only? This is (20 days) to be a medium term average. Short term may be 10 days and long term might be 30 days. So medieval of these is 20 days so here we have taken 20 days as average. Exponential Moving Average: The yellow line shows EMA. For this also we have taken 20 days as average. Because of its 20-period EMA it weights more recent price at 9.52%. As such, it will react quicker to recent price changes than a SMA. Moving Average Convergence-Divergence (MACD):

26/03/2008

22/02/2008

31/01/2008

9/1/2008

14/12/2007

22/11/2007

30/10/2007

13/09/2007

22/08/2007

27/07/2007

5/7/2007

13/06/2007

22/05/2007

26/04/2007

DATE

3/4/2007

7/3/2007

12/2/2007

16/01/2007

21/12/2006

29/11/2006

7/11/2006

12/10/2006

19/09/2006

28/08/2006

3/8/2006

12/7/2006

20/06/2006

29/05/2006

5/5/2006

10/4/2006

14/03/2006

20/02/2006

2/1/2006

25/01/2006

INR/USD

48.75 48 47.25 46.5 45.75 45 44.25 43.5 42.75 42 41.25 40.5 39.75 39

8/10/2007

Closing Price SMA EMA

Moving Average

It Indicates Selling Point It Indicates Buying Point

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” In the above diagram it is clearly understood that, when to buy and when to sell? Wherever EMA crosses the SMA line and goes down to SMA then it is the time to buy the dollar or vice-versa (i.e. If EMA line crosses the SMA line and goes up then that is the time to sell the dollar). Green Circle shows that to buy the dollar, and please clearly observe there, where EMA was below the line of SMA. First One, Red Circle shows that to sell the dollar, so we can get more Indian Rupee Currency. At the end we can conclude that in short run Rupee will slightly appreciates as against Dollar, because high pressure or demand for INR to purchase as low cost. But this is for only short run not for long run. For long run we should consider other tools. And also we can analyze this only by seeing SMA. Yes, if SMA line cross and goes upper level than closing price then that will be a selling point. Whereas, on other hand, if SMA line comes below the actual price (i.e., closing price) then it indicates that the buying point. At the end we should see where the SMA line is situating. In this project SMA line is situated slightly below the actual line (closing price). It indicates that, in short term dollar will depreciates and INR will appreciates, and at the end this closing price touches this SMA line. And where, we can buy the dollar. There are other techniques to find out Purchase Point and Selling Point. It is very popular called RSI. We will see that RSI in detail now, Relative Strength Index (RSI): 47

Closing Price INR/USD

46 45

INR/USD

44 43 42 41 40 39

18/03/2008

19/02/2008

8/1/2008

29/01/2008

14/12/2007

1/11/2007

23/11/2007

11/10/2007

19/09/2007

6/8/2007

29/08/2007

16/07/2007

4/6/2007

25/06/2007

14/05/2007

19/04/2007

2/3/2007

DATE

26/03/2007

8/2/2007

15/01/2007

21/12/2006

9/11/2006

30/11/2006

17/10/2006

4/9/2006

25/09/2006

11/8/2006

21/07/2006

9/6/2006

30/06/2006

19/05/2006

3/4/2006

MBA IV Sem

27/04/2006

9/3/2006

16/02/2006

24/01/2006

2/1/2006

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

It Indicates Selling Point It Indicates Buying Point

This RSI calculation also tells that when to buy and when to sell? The above diagram clearly shows that if RSI points goes beyond 70 then that is the time to sell where prices are very high. And in other hand if RSI points goes below 30 then that is the time to buy the Dollar where it is very low cost. This buy and sell signals are shown in Green and Red color respectively. But the main limitation of this calculation is it does not forecast clearly. Only we can assume that, Dollar will in near short feature appreciates. When we compare RSI with MACD slightly difference we will find out in purchase and selling time.

FUNDAMENTAL ANALYSIS

From 2003-07 Indian market is booming in leaps & bounds, today after China India is 2nd fastest growing economy of the world with a growth rate of 9.4% in the first quarter. It’s a “trillion dollar country surpassed Russia & has become world’s 10 th largest economy, today (till 30th march, 2007) Indian forex reserve is around $200 bn.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” Now the hot bubble on the brink in every Indian’s mind is “Rupee Appreciation”. From July,2006-May,2007, value of rupee has highly appreciated by 10.7% from Rs 46 to Rs 40.56. There is a big dilemma in everyone's mind, will the rupee appreciation adversely effect our economic growth or is it an indicator of Indian growing economy? Indian import & export growth rates in March & June 2007 were 34.8% & 18 % respectively which reduced from April 2007 by 6% & 5% respectively. According to an industry analyst - “Every 10 paisa appreciation in rupee negates one dollar upward movement in international prices” According to IOC manager’s statement: “for every Rs1 appreciation crude oil price dip by 2%” Major reasons of this bubble are: •

Huge foreign Investment in our country

•

FIIs Inflow

•

ECB borrowings

•

Slowdown of US economy

We will see one by one in detail:

Appreciation: Reasons One striking feature of economic presence. The total value of the takeover billion in 2006. January 2007 alone saw Steel/Corus. There have been 72 foreign billion in the first four months of this year.

strength is that its reach in terms of global deals by Indian companies was less than $1 two mega deals; Hindalco/Novelis and Tata takeovers by Indian companies worth $24.4

Inflow of dollars

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” Foreign direct investment (FDI) in India almost trebled to $4.9 billion during the June 2007 quarter from a year earlier on the back of large deals by Vodafone and Matsushita Electric. During January-June 2007, FDI inflows were $11.4 billion, more than three times the $3.6 billion received a year earlier. FDI inflows were $15.7 billion for the fiscal year that ended in March 2007, almost three times the level in 2005/06. The gross FII investments in the country till June from the time they were allowed to invest in the India equity markets stands at $53.06 billion.

NRI deposits Indians settled in other countries have also been a major source of capital inflows, with many non-resident Indians (NRIs) investing large amounts in special bank accounts. While NRIs' emotional connection to their country of origin is part of the explanation for this, the attractive interest rates offered on such deposits has also provided a powerful incentive. In 2006-07, NRI deposits amounted to US $3.8bn, a 35% increase over the previous year; the outstanding value of NRI deposits as of end-March 2007 was US $39.5bn. Another large source of foreign-exchange inflows has been remittances from the huge number of Indians working overseas temporarily. Such remittances amounted to a colossal US $19.6bn in April-December 2006, a 15% year-on-year increase. NRI deposits have increased from $17,156 million in 1995 to $39,624 million in 2007. Investment highlights Positive tidings about the Indian economy combined with a fast-growing market have made India an attractive destination for foreign institutional investors (FIIs). The number of foreign institutional investors (FIIs) registered with the Securities and Exchange Board of India (Sebi) has now increased to 1,042 in June 2007. In the beginning of calendar year 2006, the figure was 813. Till May 2007, FIIs had pumped in a hefty $6 billion in equities. Last year, during the same period, the FIIs’ exposure to Indian equities was 25 per cent lower at $ 4.5 billion.

FIIs have raised their holding in 540 companies out of top 1,000 companies on the Bombay Stock Exchange (BSE) during September-March (2006-07) period. According to the data released by the Securities and Exchange Board of India (SEBI), FIIs have invested Rs.61,234 crore (US $ 14.9 billion) in the Indian equity market during 2007-08 so far (up to January 18, 2008) as compared with net purchases of Rs.18,045 crore (US $ 3.9 billion) during the corresponding period of the previous year. Mutual funds have made net investments of Rs. 9,788 crore during 2007-08 so far (up to

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” January 18, 2008) as compared with net investments of Rs.12,595 crore during the corresponding period of last year.

Here we can observe that FII’s are more contribution that Domestic Mutual Funds. If FII wants to invest in our domestic stock market, then they have purchase stocks, here they not only purchasing stocks but also they purchasing our Rupee also. At the end we would like to say here if Nifty goes up or down, how it affects to Exchange rate? Because as already saw FIIs are major players in the stock market. Then how it affects to the Exchange rate? So for this we have taken correlation between Nifty Index return and Exchange rate (INR/USD) return.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” Correlation between Nifty and INR/$

Nifty Index Return INR/USD

6 5 4 3 2 Values

1 0

-1

14 27 40 53 66 79 92 105 118 131 144 157 170 183 196 209 222 235 248 261 274 287 300 313 326 339 352 365 378 391 404 417 430 443 456 469 482

-2 -3 -4 -5 -6 -7

Date

Correlation: -0.23742 or -23.742% (Negative Correlation) It indicates that if Nifty goes up 100%, then Exchange rate comes down to 23% only or vice-versa. It means, if Nifty goes up to 100% then Rupee will appreciates to 23% only, in the same way dollar will depreciates to 23% against Rupee. It means Stock Market is not a full pledged player in Forex Market. If exchange rate changes or fluctuates because of stock market, then the effects from stock market is only 23% not more than that. There are so many factors to affect the fluctuations in Forex Market. Of-course nowadays Stock market is having major player (but not full pledged player) in Forex Market.

External Commercial Borrowings (ECBs) Indian companies have borrowed enormous amounts of money overseas to finance investments and acquisitions at home and abroad. India's balance-of-payments (BoP) data reveal that inflows through ECBs amounted to an enoromous US $12.1bn during AprilDecember 2006, a year-on-year jump of 33%. The flood of borrowed money is likely to grow in 2007. In the first three months of the year, Indian companies have notified the RBI of their plans to raise nearly US $10bn in overseas debt markets.

Foreign Trade After the liberalisation programme was launched the exports did leap at 20 per cent per annum for many years from $45 billion at March 2002 to the current level of $126 Billion as of March 2007. MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Effect On Employment Already various export promotion councils and business federations have drawn up plans to counter the effect on competitiveness of Indian products. It is already reported by the Confederation of Indian Textile industry that 579,000 jobs could be lost in 2007-2008. This could include the direct loss as well loss in dependent ancillaries.

Inflation in India The rise in the value of rupee meant that inflation was curbed. The inflation rate in India declined from 6.73 percent in February 2007 to 4.10 percent in August 2007. Now in end of March 29th 2008 inflation rate went up to 7.41%. Gross Domestic Product

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” At the end of May 2007, the Central Statistical Organisation (CSO) released quarterly real GDP growth estimates for January-March 2007 at 9.1 per cent as against 10.0 per cent a year ago. Along with revisions for the preceding three quarters, real GDP growth in 2006-07 was raised to 9.4 per cent from 9.2 per cent in the CSOs February 2007 advance estimates. In the revised estimates, real GDP originating in agriculture, industry and services sectors increased by 2.7 per cent, 11.0 per cent and 11.0 per cent, respectively, in 2006-07 as against 6.0 per cent, 8.0 per cent and 10.3 per cent in 2005-06. Over the four-year period starting in 2003-04 when the current expansionary phase began, real GDP growth has averaged 8.6 per cent, up from 5.1 per cent in the preceding four years and also above the average of 5.7 per cent achieved in the 1990s. Interest Rates Table 35 : Short-term Interest Rates

(Per cent) Region/Country

End of March March June 2006 2007 2007

September 2007

December 2007

January 2008*

Advanced Economies Euro Area

2.80

3.91

4.16

4.73

4.88

4.51

Japan

0.04

0.57

0.63

0.73

0.74

Sweden

1.99

3.21

3.42

3.54

4.02

4.58

5.55

5.92

6.28

6.41

5.58

4.77

5.23

5.27

4.72

4.16

3.74

9.63

9.25

12.31

14.50

12.94

12.68 11.93

11.18

Emerging Market Economies Argentina

9.63

Brazil

16.54

China

2.40

2.86

3.08

3.86

4.35

4.48

Hong Kong

4.47

4.17

4.43

4.97

3.73

3.12

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” India

6.11

7.98

7.39

7.19

7.35

7.10

Malaysia

3.51

3.64

3.62

Philippines

7.38

5.31

6.19

6.94

6.56

6.25

Singapore

3.44

3.00

2.55

2.56

1.75

South Korea

4.26

4.94

5.03

5.34

5.71

5.86

Thailand

5.10

4.45

3.75

3.55

3.90

3.55

*: As on January 16, 2008. Note : Data for India refer to 91-day Treasury Bills rate and for other countries 3-month money market rates. Source : The Economist. Short-term interest rates in the US declined during the third quarter of 2007-08 reflecting the monetary easing. Short-term interest rates in the EMEs witnessed a mixed trend, firming up in Argentina, China, South Korea and Thailand, while softening in Hong Kong and Philippines.

Other Major Currencies Yen/INR

MBA IV Sem

9/1/2008

14/12/2007

22/11/2007

8/10/2007

30/10/2007

13/09/2007

22/08/2007

27/07/2007

5/7/2007

13/06/2007

22/05/2007

3/4/2007

26/04/2007

DATE

7/3/2007

12/2/2007

16/01/2007

21/12/2006

7/11/2006

29/11/2006

12/10/2006

19/09/2006

3/8/2006

28/08/2006

12/7/2006

20/06/2006

5/5/2006

29/05/2006

10/4/2006

14/03/2006

20/02/2006

25/01/2006

2/1/2006

PRICES

42 41 40 39 38 37 36 35 34 33 32

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” GBP/INR

14/12/2007

9/1/2008

19/02/2008

18/03/2008

22/11/2007

8/10/2007

30/10/2007

13/09/2007

5/7/2007

27/07/2007 19/09/2007

22/08/2007

13/06/2007

29/08/2007

22/05/2007

3/4/2007

6/8/2007

26/04/2007

DATE

7/3/2007

12/2/2007

16/01/2007

21/12/2006

7/11/2006

29/11/2006

12/10/2006

19/09/2006

3/8/2006

28/08/2006

12/7/2006

20/06/2006

29/05/2006

5/5/2006

10/4/2006

14/03/2006

20/02/2006

25/01/2006

2/1/2006

PRICE

89 88 87 86 85 84 83 82 81 80 79 78 77

EURO/INR

59 58

Rs/Euro

57 56 55 54 53

8/1/2008

29/01/2008

14/12/2007

23/11/2007

1/11/2007

11/10/2007

16/07/2007

25/06/2007

4/6/2007

14/05/2007

19/04/2007

2/3/2007

Date

26/03/2007

8/2/2007

15/01/2007

21/12/2006

30/11/2006

9/11/2006

17/10/2006

25/09/2006

4/9/2006

11/8/2006

21/07/2006

30/06/2006

9/6/2006

19/05/2006

27/04/2006

3/4/2006

9/3/2006

16/02/2006

24/01/2006

2/1/2006

The exchange rate of the rupee was Rs.39.57 per US dollar as on January 23, 2008. At this level, the Indian rupee appreciated by 10.2 per cent over its level on March 31, 2007. Over the same period, the rupee appreciated by 10.5 per cent against the Pound sterling, 0.4 per cent against the Euro and 3.1 per cent against the Chinese yuan, while depreciated by 0.5 per cent against the Japanese yen Conclusion: Currencies Rs in terms of USD Rs in terms of Euro Rs in terms of Yen Rs in terms of Pound

Year (may, 2006) 46.2 59.05 41.1 86.55

Year (July, 2007) 41.05 55.35 33.20 82.20

Change % 11.12% 6.26% 19.22% 5.02%

According to the given above we can conclude that rupee is appreciating with all currencies given above which reflects that Indian economy is doing very well, though it

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” carries with it certain demerits (mentioned above). But these demerits can be worked upon and transformed into a blessing for the economy.

The average daily turnover in the foreign exchange market increased to US $ 45.9 billion during April-November 2007 from US $ 23.8 billion in the corresponding period of 2006. While inter-bank turnover increased to US $ 31.9 billion from US $ 17.2 billion, the merchant turnover increased to US $ 14.0 billion from US $ 6.6 billion. The ratio of inter-bank to merchant turnover was 2.4 during April-November 2007 as compared with 2.6 a year ago.

Let us now look at the pros and cons of a rising rupee. Advantages of the rising rupee: •

•

Foreign debt service: Appreciation of the rupee helps in easing the pressure, related to foreign debt servicing (interest payments on debt raised in foreign currency), on India and Indian companies.With Indian companies taking advantage of the United States soft interest rate regime and raising foreign currency loans, known as external commercial borrowings (ECBs), this is a welcome phenomenon from the point of view of their interest commitments on the loans raised. This will help them avoid taking a bigger hit on their bottomline, which is beneficial for its shareholders. Outbound tourists/student bonanza: The appreciating rupee is a big positive for tourists traveling or wanting to travel abroad. Considering that the rupee has appreciated by over 10% against the US dollar since mid-2002, traveling to the US is now cheaper by a similar quantum in rupee terms.The same applies to students who are still in the process of finalizing their study plans abroad. For

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

•

example, a student's enrollment for a $1,000 course abroad would now cost only Rs.44,000 instead of the earlier Rs 49,000! Government reserves: Considering that the government has been selling its stake aggressively in major public sector units in the recent past, and with a substantial chunk of this being subscribed by FIIs, the latter will have to invest more dollars to pick up a stake in the company being divested, thus aiding the governments build up of reserves.

Disadvantages of the rising rupee: •

Exporters' disadvantage: The exporters are at a disadvantage owing to the currency appreciation as this renders their produce expensive in the international markets as compared to other competing nations whose currencies haven't appreciated on a similar scale. This tends to take away a part of the advantage from Indian companies, which they enjoy due to their cost competitiveness. However, it must be noted that despite the sharp currency appreciation in recent times, Indian exports have continued to grow. This is vindicated from the fact that while in the month of February 2004, India's exports were higher by 35% over the same month previous year, in the first 11 months of the current fiscal, Indian exports have been higher by 15% year-on-year.

Dollar denominated earnings hurt: The strengthening rupee has an adverse impact on various companies/sectors, which derive a substantial portion of their revenues from the US markets (or in dollar denominations). Software and BPO are typical examples of the sectors adversely impacted by the appreciation of rupee.

Looking Ahead: However certain sections of the economy have welcomed the rupee appreciation. This is because of the following key reasons: •

•

Firstly, the IT industry which is strongly lobbying against the appreciation of the INR should realize that its phenomenal growth during the last decade is partly because of INR depreciation too. INR depreciated by almost 100% against the USD from a level of 25 in 1992 to 48 in 2003. Further, Indian economy needs development of infrastructure which warrants huge investments. A big chunk of the said investments must come from overseas. The host country's currency, viz., INR, must appreciate to instill confidence into overseas investors. Secondly INR appreciation is welcomed by those companies with overseas borrowings. Significant levels of foreign currency – denominated, especially USD-denominated loans generate forex gains because of reduced interest payout occasioned by the rising INR. Companies like Ranbaxy and L&T have been able

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

•

to generate forex gains in the last quarter because they have substantial exposure to ECBs. Thirdly, major Indian stock indices are able to scale new peaks because of recent appreciation in the INR. It has been proved beyond any doubt that there is a very strong correlation between our stock indices and the parity value of the rupee visà-vis major currencies like the USD. Analysts point out that during the last year Sensex and INR exhibited a correlation of approximately 80% as against the 3040% exhibited in the last three years. FII's who have heavily invested in India are reluctant to sell off mainly because of the appreciating INR. Lastly and most importantly, INR appreciation has helped control inflation. (It touches a 5 year low at 3.32%)

The general index of industrial production (IIP) rose by 11.7 per cent in April-May 2007 from 10.8 per cent a year ago. The acceleration in industrial activity in the current financial year was led by manufacturing output which rose by 12.7 per cent as against 12.2 per cent in April-May 2006. Electricity generation and mining activity increased by 9.0 per cent and 3.0 per cent, respectively, as against 5.5 per cent and 3.2 per cent a year ago. Within manufacturing, industries such as machinery and equipment, food products, basic metals and alloys and chemicals emerged as growth drivers in 2007-08 (up to May). In terms of the use-based classification, production of capital goods increased by 18.6 per cent (20.6 per cent a year ago), while the production of basic goods and intermediate goods rose by 9.4 per cent (9.2 per cent) and 10.5 per cent (10.5 per cent), respectively. Consumer goods output increased by 12.7 per cent (9.7 per cent). The six infrastructure industries, comprising nearly 27 per cent of the IIP, posted a growth of 8.1 per cent during April-May 2007 as against 7.2 per cent a year ago. Output growth picked up in respect of petroleum products and electricity, whereas some deceleration was recorded in steel, coal and cement output and crude petroleum production declined marginally. In the Reserve Banks Industrial Outlook Survey conducted during May 2007, nearly 60 per cent of respondent companies reported no change in capacity utilisation and a majority also indicated no change in the financial situation, working capital finance requirements and availability of finance. Responses relating to export orders, imports and profits were somewhat mixed. The business expectations index for April-June 2007 declined by 7.1 percentage points from its level in the preceding quarter and by 6.0 percentage points from its level a year ago. The outlook for July-September 2007 appears to be optimistic with 54 per cent of the respondents expecting an improvement in the overall business situation on the back of increase in production, order books and capacity utilisation. As in April-June 2007 a majority of respondents expect no change in the financial situation, working capital finance requirements, availability of finance and in profit margins. The overall business expectations index for July-September 2007 declined by 3.8 percentage points from its level in the previous quarter and by 5.4 percentage points from a year ago. Business sentiment polled by other surveys presents a varied response, with optimism relating to sales volume, order books and net profits being tempered by the impact of exchange rate changes on services sector companies as well as export industries with

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” relatively low import content. According to one survey, business confidence for July 2007 continues to be high but has declined by 8.8 per cent from its level in April-June 2007 and by 2.7 per cent year-on-year. Seasonally adjusted purchasing managers indices for the first quarter of 2007-08 indicate favourable operating conditions in the manufacturing sector with the growth of output and new orders being maintained, a modest rise in staff hiring and selling prices, some easing of input price inflation and a build-up in pre-production and finished goods inventory levels. These indices also reflect some optimism about the general business scenario among micro, small and medium enterprises with more than 90 per cent planning higher capital investment. Money supply (M3) increased by 21.6 per cent on a year-on-year basis on July 6, 2007 which was above the projected trajectory of 17.0-17.5 per cent indicated in the Annual Policy Statement for 2007-08 and higher than 19.0 per cent a year ago. On a financial year basis, M3 increased by 3.8 per cent (Rs.1,24,365 crore) during 2007-08 up to July 6, 2007 as compared with the increase of 3.5 per cent (Rs.95,488 crore) in the corresponding period of the previous year. In the foreign exchange market, large surplus conditions in the spot market were accompanied by a sharp increase in average daily turnover in the foreign exchange market to US $ 38.2 billion from a level of US $ 23.6 billion a year ago. While the interbank turnover increased from US $ 17.1 billion to US $ 27.7 billion, the merchant turnover increased from US $ 6.5 billion to US $ 10.5 billion. Forward premia spiked in April 2007 but in subsequent months, there has been a softening across all maturities. The six-month forward premia eased from 3.60 per cent in March 2007 to 2.53 per cent by end-June 2007 and further to 1.28 per cent as on July 27, 2007.

During 2006-07, gross invisible receipts at US $ 119.2 billion amounted to as much as 94 per cent of merchandise exports, recording an increase of 29.1 per cent. The sustained growth of software exports as well as earnings from other professional and business services and travel have provided innate strength to the invisibles account in conjunction with steadily rising inflows of remittance from overseas Indians. During 2006-07, invisible payments increased by 28.7 per cent, mainly on account of a surge in outbound tourist traffic, imports of business and management consultancy services, engineering and technical services as well as dividend and profit payouts. The net invisibles surplus rose to US $ 55.3 billion in 2006-07 from US $ 42.7 billion in the previous year. Accordingly, the current account deficit (CAD) amounted to US $ 9.6 billion (1.1 per cent of GDP), up from US $ 9.2 billion (1.1 per cent of GDP) in 2005-06.

Net capital flows were buoyant in 2006-07, nearly doubling to US $ 44.9 billion from US $ 23.4 billion in 2005-06. Sizeable increases in net inflows were received under foreign MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” direct investment (FDI), non-resident Indian (NRI) deposits, external commercial borrowings (ECB), external assistance and short-term credit while net portfolio inflows moderated in relation to their levels in the preceding year. There was bi-directional movement in direct investment flows with Indian corporates exhibiting a strong appetite for global expansion. As regards inward FDI, sectors such as manufacturing and construction, financial and banking services and information technology services were the main recipients in the net inflows of US $ 8.4 billion in 2006-07, sizeably higher than US $ 4.7 billion in 2005-06. Net ECB disbursements accounted for a third of total net capital inflows in 2006-07, reflecting extremely favourable conditions for Indian borrowers in the global financial markets. Net portfolio inflows were lower at US $ 7.1 billion than US $ 12.5 billion in 2005-06, partly due to volatility in Asian and global equity markets in February-March 2007. On the other hand, American Depository Receipts/Global Depository Receipts (ADRs/GDRs) issuances remained buoyant as corporates took advantage of favourable external market conditions to issue equities abroad. NRI deposits increased by US $ 3.9 billion as compared with US $ 2.8 billion in the previous year.During the first two months of 2007-08, developments in the external sector indicate sustained strength and resilience. Export growth rose to 20.2 per cent from 19.2 per cent in the corresponding period of the previous year. Imports also posted a sharp rise of 33.0 per cent as compared with 16.9 per cent in the corresponding period of the previous year. Non-POL imports rose by 47.3 per cent whereas oil imports remained broadly stable at the level recorded a year ago. As a result, the merchandise trade deficit widened to US $ 13.3 billion during April-May 2007 from US $ 8.2 billion in April-May 2006.

On July 12, 2007 the Government announced a package of measures to provide relief to exporters for a temporary period in response to representations received in regard to exchange rate movements. The package, involving an estimated outlay of Rs.1,400 crore, included tax/duty concessions and other measures such as concessional preshipment and post-shipment credit by banks for small and medium exporters and enterprises that export textiles, readymade garments, leather products, handicrafts, engineering products, processed agricultural products, marine products, sports goods and toys. Under the scheme, interest subvention of 2 percentage points per annum would be provided to all scheduled commercial banks in respect of rupee export credit extended by them to the specified categories of exporters.

Global Economy:

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” In the US, real GDP growth which had decelerated to 0.6 per cent in the first quarter of 2007, accelerated to 3.4 per cent in the second quarter of 2007 as compared to 2.6 per cent a year ago, reflecting positive contributions from narrowing trade deficit, commercial structures investment, personal consumption expenditure and government spending, partly offset by a decrease in residential fixed investment. Several headwinds to growth are, however, evident in the weak growth in incomes and consumer spending and the continued weakness in the sub-prime housing sector which is spilling over to higher quality credit market as also into debt and equity markets. Risks to the outlook for global growth and financial markets from the prolonged slump in the US housing market have become accentuated with the adverse developments in the subprime mortgage market that surfaced in late 2006 and has continued into 2007. In the recent period, solvency threats to hedge funds with large subprime exposure have increased the danger of event risk in leveraged loan and junk bond markets from the collapse in prices of illiquid or hard-to-trade securities linked to subprime loans. Limits on redemptions by several hedge funds and the ensuing flight to quality has raised concerns that contagion could spread across credit markets and corporate bond markets in a spiral of repricing, tighter mortgage and borrowing conditions, falling house prices and slower consumption growth which could ultimately drag down US and global economic growth. Regulators and monetary authorities have expressed concern about the vulnerability of the global financial system due to excessive leveraging and gaps in creditor supervision in the context of rising levels of widely diffused risks.

In the overall assessment, therefore, domestic economic activity has continued to expand at a strong pace and there are indications that the impulses of growth are getting broadbased. The recent gains in bringing down inflation and in stabilising inflation expectations should support the current expansionary phase of the growth cycle. While noting the inflation environment in recent weeks, it is necessary to continuously assess the risks to the inflation outlook emanating from high and volatile international crude prices, the continuing firmness in key food prices and the uncertainties surrounding the evolution of demand-supply gaps globally as well as in India. It is also necessary to note that demand pressures and cyclical effects persist, mirrored in investment and consumer demand, monetary and banking aggregates, capacity constraints and a widening trade deficit. Financial markets are reflecting the interplay of these factors, although surges in capital inflows and large changes in liquidity conditions are obscuring an accurate assessment of risks, with attendant uncertainty. It is necessary to note that while there is an abatement of inflation in the recent period, upward pressures persist. In this regard, it is essential to carefully monitor developments relating to aggregate supply conditions and

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” the supply response to the impulses of demand in the short-term, while stepping up efforts to expand production capabilities over the medium-term. Risks from global developments continue to persist, especially in the form of inflationary pressures, re-pricing of risks by financial markets and danger of downturn in some asset classes, with implications for EMEs in general. International food and energy prices are likely to settle at higher levels than before with indications that the sharp acceleration recorded in 2006 will not reverse. In addition, there are risks emanating from the developments in global financial markets. While excessive leveraging by hedge funds and private equity has enhanced the vulnerability of the global financial system, exchange rate fluctuations in respect of the major currencies have become amplified with large changes in the magnitude and direction of capital flows.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Findings

•

Canara Bank is one of the good banks in Hubli city, which provides almost all facilities to its customers. They had opened a stall in Hubli Expo, held in Indira Glasshouse.

•

Hubli is not a major city in forex market like Bangalore. But there are some players in Hubli, they trade very cautiously. But some need training programs, seminars, some knowledge to trade in forex market.

•

As per some samples we found it out that, almost all exporters or importers trades in only currency, i.e., USD. Because of Dollar depreciation they are in some currency loss. So to avoid this risk or exposure they can go for currency diversification. For that they require some guidelines. Anyhow now banks are ready for that.

•

Canara Bank, Forex Cell is very cautious regarding the risk arises in forex market. And they are having some techniques and tools to minimize those risks. They are in the theory of “Prevention better than cure”. Means, before causing something now only they are takes some steps to avoid the adverse effect.

•

But Trading Firms are not in the position to recognize the risk. Then minimizing is secondary. Any how they need some training programs.

•

Government is not making any restrictions on forex market. Rather it is making some help to exporters and also importers (especially those who are importing of materials for exporting purpose).

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

Recommendation

1. To Bank:

• •

Now they have a time to conduct some seminars, training programs of forex market. By this they can get some customers or traders.

•

And others (i.e, especially companies) will feel, you are doing social welfare. And they are very happy to close with you.

•

Existing customers will feel proud for their bank and they are also give some good word of mouth.

•

By this you can get more information about: What’s really customer wants? What we suppose to do for our customers? What are the troubles for customers? By understanding this what can we provide the service so customer will come to us very easily?

•

So it is recommend to Canara Bank that: “CONDUCT A SEMINAR OR 15 DAYS TRAINING PROGRAM IN FOREX MARKET”.

•

By this Hubli also recognize itself in forex market. And more and more traders will create, because some are hesitate to export or import the goods, if you made easy then many traders may ready to come in forex market. All these credit will goes to Canara Bank.

2. To Trading Firms:

• •

MBA IV Sem

All trading firms should go for diversification of currency risk by trading in different currencies. Do not rely on single currency.

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” •

And future is for Rupee. It means, in future Rupee will be strong currency, so do not depends on thumb rules, that everything will be done by banks.

•

As per this report we have said some tools and techniques, where everyone can easily understand the future volatility.

•

So please refer or follow some techniques or tools before going to forex market.

As a general: Nevertheless, given this economic verity, it is important that exporters, in particular, and Indian businesses, in general, recalibrate their position. These include: •

•

Consequent to Rupee appreciation, the net earnings of our exporters in rupee terms would necessarily dip. Exporters need to guard themselves against antidumping investigations that would necessarily follow in this new paradigm. Accordingly, an exporter has to perhaps conduct a comprehensive risk analysis of his exports to various countries, taking into account the probability of facing antidumping measures in those countries, and has to strategies his operations. Our businesses need to rework their position in the value chain. As the Rupee appreciates, exporters must realize that 'brand India' has arrived. This means we cannot continue to export or produce products at the low end of the value chain. India, perhaps, needs to import such goods from other developing countries and concentrate on value-added products. This is possible as, with the appreciation of the Rupee, newer technologies become economical and accessible to Indian manufacturers. Further, the changing paradigm calls for a re-look at domestic markets by exporters. To aid domestic consumption, the government too has to play its part. One factor that inhibits domestic consumption is the high incidence of indirect taxes -- we end up paying 16% to the central government and another 12.5% as VAT to state governments, aggregating to approximately 30% or one-fourth of retail prices. This is one of the highest in the world. Obviously, indirect tax reforms are crucial to boost domestic consumption. Exports of services would apparently be hit due to appreciation of Rupee and salary levels in this sector may see a dip. But the rise in the intrinsic value of the Rupee compensates for the same. For instance, an Rs 50 tip to the waiter may do when Rs 100 would do today. An alternative that could be explored would be to bill in other currencies, perhaps in Euro, Yuan or Rupee. Another area that requires deep contemplation by the business community is to recompute their entire strategy on Special Economic Zones (SEZs) given these developments. It has to be noted that the success of the Chinese SEZs was aided and abetted almost close to a decade by a tightly pegged Yuan to US dollar. The entire economics of SEZs could undergo a tectonic shift in light of a sustained Rupee appreciation.

MBA IV Sem

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” •

An appreciating Rupee makes foreign direct investment (FDI) into India attractive as it hedges such investments from exchange rate depreciation. On the contrary, it provides a further incentive through capital appreciation. This once again calls for a comprehensive strategic positioning to leverage the opportunity -- not only by exporters but even by others. Obviously, as an investment destination, India and perhaps China, with their booming stock exchanges and rising currency, could be the best bet for investments. Of course, one cannot forget investments in gold and real estate.

CONCLUSION



Now banks are moving towards their core business to other businesses like mutual fund, stock market and forex market also. Because of low IRP (Interest Rate Parity) between deposit and lending.



Hubli also one of growing city in Karnataka. So year on year new firms are establishing and some existing firms are also ready to enter into forex market.



Exposure is there everywhere; Banks are avoiding these exposures by following some methods and techniques as already told.



But trading firms are not having that much of knowledge as for as Forex Market concern. They required much training and knowledgeable persons to conduct their business of import / export.



Some firms, they do not know whether they are in exposure or not. So it is a time to all banks and especially EXIM bank to conduct some seminars to all exporters and importers and especially to all traders of Forex Market situated in North Karnataka.

MBA IV Sem

100

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

MBA IV Sem

101

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

LIMITATION •

Survey made only in Hubli City.

•

Taken only 7 companies (trading firms).

•

2 years data was taken for technical analysis.

•

Project was done for only 4 months.

•

MBA IV Sem

102

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

ANNEXURE Date

3/2/2006

USD 45.0 5 44.9 5 44.8 5 44.6 7 44.6 6 44.2 8 44.3 8 44.1 5 44.2 6 44.1 7 44.3 1 44.5 1 44.3 6 44.3 6 44.1 5 44.2 1 44.2 9 44.1 5 44.1 4 44.0 7 44.1 5 44.3 1 44.2 3

6/2/2006 7/2/2006

44.2 44.2

2/1/2006 3/1/2006 4/1/2006 5/1/2006 6/1/2006 9/1/2006 10/1/2006 12/1/2006 13/01/2006 16/01/2006 17/01/2006 18/01/2006 19/01/2006 20/01/2006 23/01/2006 24/01/2006 25/01/2006 27/01/2006 30/01/2006 31/01/2006 1/2/2006 2/2/2006

MBA IV Sem

SMA

EMA

CALCULATION OF SMA & EMA FORMULA OF EMA

44.398 5 44.353 5 44.321 5 44.290 5 44.267 44.247

44.3985 44.3942 1 44.3872 8 44.3780 5 44.3674 7 44.3560

`=(((C22-D21)*0.095328095)+D21)

103

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” 7 8/2/2006 10/2/2006 13/02/2006 14/02/2006 15/02/2006 16/02/2006 17/02/2006 20/02/2006 21/02/2006 22/02/2006 23/02/2006 24/02/2006 27/02/2006 28/02/2006 1/3/2006 2/3/2006 3/3/2006 6/3/2006 7/3/2006 8/3/2006 9/3/2006 10/3/2006 13/03/2006 14/03/2006

44.2 44.2 1 44.2 6 44.2 2 44.2 7 44.3 44.4 6 44.4 3 44.4 44.5 1 44.5 6 44.4 5 44.4 2 44.4 4 44.3 5 44.3 4 44.3 6 44.3 2 44.3 3 44.4 2 44.5 5 44.5 44.5 3 44.4 7

5 44.243 5 44.235 44.240 5 44.238 5 44.243 5 44.243 44.240 5 44.244 44.246 44.264 44.281 5 44.289 5 44.303 44.318 44.332 44.341 5 44.344 44.348 5 44.355 44.362 5 44.38 44.394 5 44.408 44.420 5

3 44.3453 44.3347 9 44.3258 44.3174 8 44.3104 3 44.304 44.2979 4 44.2928 44.2883 4 44.2860 2 44.2855 9 44.2859 6 44.2875 9 44.2904 9 44.2944 4 44.2989 3 44.3032 3 44.3075 4 44.3120 7 44.3168 7 44.3228 9 44.3297 2 44.3371 8 44.3451 2

RSI Date

MBA IV Sem

USD

Change

Advance

Decline

104

Avg. Gain

Avg. Loss

KLES’s IMSR, HUBLI

RSI

“Foreign Exchange Exposure” 2/1/2006 45.05 3/1/2006 44.95 -0.100 0.1 4/1/2006 44.85 -0.100 0.1 5/1/2006 44.67 -0.180 0.18 6/1/2006 44.66 -0.010 0.01 9/1/2006 44.28 -0.380 0.38 10/1/2006 44.38 0.100 0.100 12/1/2006 44.15 -0.230 0.23 13/01/2006 44.26 0.110 0.110 16/01/2006 44.17 -0.090 0.09 17/01/2006 44.31 0.140 0.140 18/01/2006 44.51 0.200 0.200 `=100-100/(1+J17)) 19/01/2006 44.36 -0.150 0.15 `=H17/I17 20/01/2006 44.36 0.000 0.000 0 `=(((F16*13)+D17)/14) 23/01/2006 44.15 -0.210 0.21 0.039 0.104 `=(F16*13+D17)/14 24/01/2006 44.21 0.060 0.060 0.041 0.096 0.041 0.096 0.424 29.769 25/01/2006 44.29 0.080 0.080 0.044 0.089 0.044 0.089 0.488 32.789 27/01/2006 44.15 -0.140 0.14 0.040 0.093 0.040 0.093 0.435 30.331 30/01/2006 44.14 -0.010 0.01 0.038 0.087 0.038 0.087 0.432 30.157 31/01/2006 44.07 -0.070 0.07 0.035 0.086 0.035 0.086 0.407 28.908 1/2/2006 44.15 0.080 0.080 0.038 0.080 0.038 0.080 0.478 32.357 2/2/2006 44.31 0.160 0.160 0.047 0.074 0.047 0.074 0.633 38.758 3/2/2006 44.23 -0.080 0.08 0.043 0.074 0.043 0.074 0.584 36.879 6/2/2006 44.2 -0.030 0.03 0.040 0.071 0.040 0.071 0.567 36.170 7/2/2006 44.27 0.070 0.070 0.042 0.066 0.042 0.066 0.642 39.109 8/2/2006 44.2 -0.070 0.07 0.039 0.066 0.039 0.066 0.594 37.262 10/2/2006 44.21 0.010 0.010 0.037 0.062 0.037 0.062 0.605 37.714 13/02/2006 44.26 0.050 0.050 0.038 0.057 0.038 0.057 0.668 40.043 14/02/2006 44.22 -0.040 0.04 0.036 0.056 0.036 0.056 0.634 38.793 15/02/2006 44.27 0.050 0.050 0.037 0.052 0.037 0.052 0.702 41.261 16/02/2006 44.3 0.030 0.030 0.036 0.048 0.036 0.048 0.747 42.752 17/02/2006 44.46 0.160 0.160 0.045 0.045 0.045 0.045 1.002 50.038 20/02/2006 44.43 -0.030 0.03 0.042 0.044 0.042 0.044 0.953 48.785 21/02/2006 44.4 -0.030 0.03 0.039 0.043 0.039 0.043 0.905 47.503 22/02/2006 44.51 0.110 0.110 0.044 0.040 0.044 0.040 1.102 52.437 23/02/2006 44.56 0.050 0.050 0.044 0.037 0.044 0.037 1.199 54.530 24/02/2006 44.45 -0.110 0.11 0.041 0.042 0.041 0.042 0.976 49.383 27/02/2006 44.42 -0.030 0.03 0.038 0.041 0.038 0.041 0.925 48.051 28/02/2006 44.44 0.020 0.020 0.037 0.038 0.037 0.038 0.962 49.038 1/3/2006 44.35 -0.090 0.09 0.034 0.042 0.034 0.042 0.815 44.904 2/3/2006 44.34 -0.010 0.01 0.032 0.040 0.032 0.040 0.800 44.456 3/3/2006 44.36 0.020 0.020 0.031 0.037 0.031 0.037 0.839 45.625 6/3/2006 44.32 -0.040 0.04 0.029 0.037 0.029 0.037 0.774 43.646 7/3/2006 44.33 0.010 0.010 0.027 0.034 0.027 0.034 0.795 44.296 ST ST RUPEE V/s DOLLAR FROM 1 JAN 2006 TO 31 MAR 2008 Date USD DATE USD DATE USD 2/1/2006 45.05 17/03/2006 44.42 2/6/2006 46.17 3/1/2006 44.95 20/03/2006 44.44 5/6/2006 45.82 4/1/2006 44.85 21/03/2006 44.38 6/6/2006 45.92 5/1/2006 44.67 22/03/2006 44.47 7/6/2006 45.93

MBA IV Sem

105

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” 6/1/2006 9/1/2006 10/1/2006 12/1/2006 13/01/2006 16/01/2006 17/01/2006 18/01/2006 19/01/2006 20/01/2006 23/01/2006 24/01/2006 25/01/2006 27/01/2006 30/01/2006 31/01/2006 1/2/2006 2/2/2006 3/2/2006 6/2/2006 7/2/2006 8/2/2006 10/2/2006 13/02/2006 14/02/2006 15/02/2006 16/02/2006 17/02/2006 20/02/2006 21/02/2006 22/02/2006 23/02/2006 24/02/2006 27/02/2006 28/02/2006 1/3/2006 2/3/2006 3/3/2006 6/3/2006 7/3/2006 8/3/2006 9/3/2006 10/3/2006 13/03/2006 14/03/2006 16/03/2006 11/8/2006 14/08/2006 16/08/2006 17/08/2006

MBA IV Sem

44.66 44.28 44.38 44.15 44.26 44.17 44.31 44.51 44.36 44.36 44.15 44.21 44.29 44.15 44.14 44.07 44.15 44.31 44.23 44.2 44.27 44.2 44.21 44.26 44.22 44.27 44.3 44.46 44.43 44.4 44.51 44.56 44.45 44.42 44.44 44.35 44.34 44.36 44.32 44.33 44.42 44.55 44.5 44.53 44.47 44.41 46.52 46.56 46.55 46.46

23/03/2006 24/03/2006 27/03/2006 28/03/2006 29/03/2006 31/03/2006 3/4/2006 4/4/2006 5/4/2006 7/4/2006 10/4/2006 12/4/2006 13/04/2006 17/04/2006 18/04/2006 19/04/2006 20/04/2006 21/04/2006 24/04/2006 25/04/2006 26/04/2006 27/04/2006 28/04/2006 2/5/2006 3/5/2006 4/5/2006 5/5/2006 8/5/2006 9/5/2006 10/5/2006 11/5/2006 12/5/2006 15/05/2006 16/05/2006 17/05/2006 18/05/2006 19/05/2006 22/05/2006 23/05/2006 24/05/2006 25/05/2006 26/05/2006 29/05/2006 30/05/2006 31/05/2006 1/6/2006 27/10/2006 30/10/2006 31/10/2006 1/11/2006

44.55 44.66 44.66 44.66 44.69 44.61 44.61 44.61 44.69 44.63 44.74 44.93 45.3 45.15 45.15 45.14 45.15 45.09 45.06 44.83 45.03 45.06 44.97 44.9 44.86 44.97 44.88 44.88 44.96 44.93 45.07 45.05 45.39 45.61 45.34 45.48 45.46 45.68 45.52 45.73 45.85 45.85 45.97 46.19 46.43 46.22 45.22 45.09 45.02 44.93

106

8/6/2006 9/6/2006 12/6/2006 13/06/2006 14/06/2006 15/06/2006 16/06/2006 19/06/2006 20/06/2006 21/06/2006 22/06/2006 23/06/2006 26/06/2006 27/06/2006 28/06/2006 29/06/2006 30/06/2006 3/7/2006 4/7/2006 5/7/2006 6/7/2006 7/7/2006 10/7/2006 11/7/2006 12/7/2006 13/07/2006 14/07/2006 17/07/2006 18/07/2006 19/07/2006 20/07/2006 21/07/2006 24/07/2006 25/07/2006 26/07/2006 27/07/2006 28/07/2006 31/07/2006 1/8/2006 2/8/2006 3/8/2006 4/8/2006 7/8/2006 8/8/2006 9/8/2006 10/8/2006 10/1/2007 11/1/2007 12/1/2007 15/01/2007

46.06 45.92 45.88 46.04 45.98 45.91 45.92 45.89 45.91 45.92 46.01 46.2 46.34 46.36 46.4 46.34 46.08 45.98 46.01 46.03 46.15 46.12 46.06 46.21 46.21 46.29 46.43 46.44 46.73 46.95 46.84 46.83 46.93 46.81 46.85 46.64 46.56 46.51 46.65 46.56 46.72 46.54 46.49 46.59 46.53 46.43 44.53 44.56 44.61 44.31

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” 18/08/2006 21/08/2006 22/08/2006 23/08/2006 24/08/2006 25/08/2006 28/08/2006 29/08/2006 30/08/2006 31/08/2006 1/9/2006 4/9/2006 5/9/2006 6/9/2006 7/9/2006 8/9/2006 11/9/2006 12/9/2006 13/09/2006 14/09/2006 15/09/2006 18/09/2006 19/09/2006 20/09/2006 21/09/2006 22/09/2006 25/09/2006 26/09/2006 27/09/2006 28/09/2006 29/09/2006 3/10/2006 4/10/2006 5/10/2006 6/10/2006 9/10/2006 10/10/2006 11/10/2006 12/10/2006 13/10/2006 16/10/2006 17/10/2006 18/10/2006 19/10/2006 20/10/2006 23/10/2006 26/10/2006 30/03/2007 3/4/2007 4/4/2007

MBA IV Sem

46.48 46.45 46.52 46.56 46.5 46.61 46.56 46.52 46.51 46.55 46.53 46.44 46.22 46.21 46.1 46.2 46.27 46.34 46.22 46.15 46.13 46.12 46.11 46.05 45.88 45.94 45.86 45.97 45.92 45.92 45.96 45.84 45.69 45.71 45.61 45.72 45.74 45.76 45.6 45.49 45.46 45.36 45.26 45.32 45.31 45.4 45.3 43.59 43.13 42.9

2/11/2006 3/11/2006 6/11/2006 7/11/2006 8/11/2006 9/11/2006 10/11/2006 13/11/2006 14/11/2006 15/11/2006 16/11/2006 17/11/2006 20/11/2006 21/11/2006 22/11/2006 23/11/2006 24/11/2006 27/11/2006 28/11/2006 29/11/2006 30/11/2006 1/12/2006 4/12/2006 5/12/2006 6/12/2006 7/12/2006 8/12/2006 11/12/2006 12/12/2006 13/12/2006 14/12/2006 15/12/2006 18/12/2006 19/12/2006 20/12/2006 21/12/2006 22/12/2006 26/12/2006 27/12/2006 28/12/2006 29/12/2006 2/1/2007 3/1/2007 4/1/2007 5/1/2007 8/1/2007 9/1/2007 15/06/2007 18/06/2007 19/06/2007

44.93 44.84 44.86 44.83 44.68 44.65 44.45 44.9 45.16 45.34 45.17 45.01 44.86 44.99 44.75 44.7 44.87 44.64 44.74 44.65 44.76 44.67 44.59 44.56 44.51 44.66 44.69 44.76 44.82 44.83 44.74 44.66 44.79 44.83 44.74 44.73 44.59 44.54 44.39 44.36 44.23 44.2 44.33 44.42 44.3 44.42 44.47 40.97 40.76 40.7

107

16/01/2007 17/01/2007 18/01/2007 19/01/2007 22/01/2007 23/01/2007 24/01/2007 25/01/2007 29/01/2007 31/01/2007 2/2/2007 5/2/2007 6/2/2007 7/2/2007 8/2/2007 9/2/2007 12/2/2007 13/02/2007 14/02/2007 15/02/2007 19/02/2007 20/02/2007 21/02/2007 22/02/2007 23/02/2007 26/02/2007 27/02/2007 28/02/2007 1/3/2007 2/3/2007 5/3/2007 6/3/2007 7/3/2007 8/3/2007 9/3/2007 12/3/2007 13/03/2007 14/03/2007 15/03/2007 16/03/2007 20/03/2007 21/03/2007 22/03/2007 23/03/2007 26/03/2007 28/03/2007 29/03/2007 29/08/2007 30/08/2007 31/08/2007

44.32 44.27 44.25 44.34 44.21 44.21 44.23 44.24 44.27 44.17 44.11 44.11 44.13 44.09 44.12 44.06 44.18 44.17 44.16 44.09 44.07 44.2 44.19 44.25 44.28 44.17 44.2 44.31 44.27 44.28 44.49 44.56 44.5 44.44 44.27 44.22 44.22 44.31 44.22 44.17 43.98 43.63 43.66 43.7 43.39 43.14 43.47 41.24 41.04 40.96

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” 5/4/2007 9/4/2007 10/4/2007 11/4/2007 12/4/2007 13/04/2007 16/04/2007 17/04/2007 18/04/2007 19/04/2007 20/04/2007 23/04/2007 24/04/2007 25/04/2007 26/04/2007 27/04/2007 30/04/2007 3/5/2007 4/5/2007 7/5/2007 8/5/2007 9/5/2007 10/5/2007 11/5/2007 14/05/2007 15/05/2007 16/05/2007 17/05/2007 18/05/2007 21/05/2007 22/05/2007 23/05/2007 24/05/2007 25/05/2007 28/05/2007 29/05/2007 30/05/2007 31/05/2007 1/6/2007 4/6/2007 5/6/2007 6/6/2007 7/6/2007 8/6/2007 11/6/2007 12/6/2007 13/06/2007 14/06/2007 12/11/2007 13/11/2007

MBA IV Sem

43.15 42.88 42.86 42.87 42.86 42.74 42.3 41.73 41.89 42.15 41.99 41.67 41.64 40.97 40.78 41.07 41.29 41.18 40.9 40.57 40.78 40.91 41 41.34 40.93 40.87 40.84 40.84 40.9 40.6 40.64 40.55 40.57 40.6 40.53 40.45 40.64 40.73 40.54 40.47 40.56 40.55 40.63 40.98 40.91 40.73 40.93 40.84 39.33 39.39

20/06/2007 21/06/2007 22/06/2007 25/06/2007 26/06/2007 27/06/2007 28/06/2007 29/06/2007 2/7/2007 3/7/2007 4/7/2007 5/7/2007 6/7/2007 9/7/2007 10/7/2007 11/7/2007 12/7/2007 13/07/2007 16/07/2007 17/07/2007 18/07/2007 19/07/2007 20/07/2007 23/07/2007 24/07/2007 25/07/2007 26/07/2007 27/07/2007 30/07/2007 31/07/2007 1/8/2007 2/8/2007 3/8/2007 6/8/2007 7/8/2007 8/8/2007 9/8/2007 10/8/2007 13/08/2007 14/08/2007 16/08/2007 17/08/2007 21/08/2007 22/08/2007 23/08/2007 24/08/2007 27/08/2007 28/08/2007 24/01/2008 25/01/2008

40.82 40.75 40.71 40.81 40.95 41.01 40.84 40.75 40.66 40.58 40.49 40.46 40.46 40.41 40.41 40.38 40.38 40.47 40.37 40.36 40.4 40.39 40.33 40.34 40.24 40.3 40.27 40.48 40.54 40.44 40.55 40.43 40.36 40.45 40.37 40.58 40.4 40.67 40.56 40.69 41.09 41.57 41.06 41.01 40.86 41.18 40.98 41.12 39.43 39.4

108

3/9/2007 4/9/2007 5/9/2007 6/9/2007 7/9/2007 10/9/2007 11/9/2007 12/9/2007 13/09/2007 14/09/2007 17/09/2007 18/09/2007 19/09/2007 20/09/2007 21/09/2007 24/09/2007 25/09/2007 26/09/2007 27/09/2007 28/09/2007 1/10/2007 3/10/2007 4/10/2007 5/10/2007 8/10/2007 9/10/2007 10/10/2007 11/10/2007 12/10/2007 15/10/2007 16/10/2007 17/10/2007 18/10/2007 19/10/2007 22/10/2007 23/10/2007 24/10/2007 25/10/2007 26/10/2007 29/10/2007 30/10/2007 31/10/2007 1/11/2007 2/11/2007 5/11/2007 6/11/2007 7/11/2007 8/11/2007 7/1/2008 8/1/2008

40.88 40.91 40.94 40.85 40.71 40.63 40.58 40.49 40.44 40.45 40.47 40.59 40.26 39.91 39.87 39.82 39.81 39.7 39.75 39.74 39.73 39.79 39.56 39.49 39.43 39.55 39.34 39.31 39.33 39.31 39.31 39.68 39.47 39.79 39.79 39.69 39.57 39.54 39.51 39.38 39.4 39.32 39.32 39.37 39.32 39.29 39.27 39.34 39.28 39.27

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” 14/11/2007 15/11/2007 16/11/2007 19/11/2007 20/11/2007 21/11/2007 22/11/2007 23/11/2007 26/11/2007 27/11/2007 28/11/2007 29/11/2007 30/11/2007 3/12/2007 4/12/2007 5/12/2007 6/12/2007 7/12/2007 10/12/2007 11/12/2007 12/12/2007 13/12/2007 14/12/2007 17/12/2007 18/12/2007 19/12/2007 20/12/2007 24/12/2007 26/12/2007 27/12/2007 28/12/2007 31/12/2007 1/1/2008 2/1/2008 3/1/2008 4/1/2008

39.33 39.28 39.35 39.29 39.34 39.39 39.41 39.57 39.68 39.85 39.68 39.77 39.67 39.56 39.43 39.45 39.47 39.41 39.38 39.36 39.36 39.37 39.35 39.37 39.57 39.55 39.57 39.49 39.39 39.43 39.44 39.41 39.42 39.43 39.45 39.32

28/01/2008 29/01/2008 30/01/2008 31/01/2008 1/2/2008 4/2/2008 5/2/2008 6/2/2008 7/2/2008 8/2/2008 11/2/2008 12/2/2008 13/02/2008 14/02/2008 15/02/2008 18/02/2008 19/02/2008 20/02/2008 21/02/2008 22/02/2008 25/02/2008 3/3/2008 4/3/2008 5/3/2008 7/3/2008 10/3/2008 11/3/2008 12/3/2008 13/03/2008 14/03/2008 17/03/2008 18/03/2008 19/03/2008 24/03/2008 25/03/2008 26/03/2008

39.47 39.4 39.43 39.39 39.36 39.38 39.43 39.6 39.48 39.55 39.73 39.65 39.68 39.65 39.66 39.66 39.87 40.15 40.07 39.98 40.05 40.26 40.29 40.29 40.53 40.67 40.47 40.36 40.44 40.45 40.77 40.62 40.45 40.34 40.12 40.14

9/1/2008 10/1/2008 11/1/2008 14/01/2008 15/01/2008 16/01/2008 17/01/2008 18/01/2008 21/01/2008 22/01/2008 23/01/2008 27/03/2008 28/03/2008 31/03/2008

39.29 39.29 39.29 39.29 39.27 39.27 39.29 39.27 39.38 39.73 39.56 40.15 40.1 39.97

Questionnaire: Respected sir/madam, Pavan Kulkarni, fourth semester student of KLES’S IMSR, thank you for agreeing to participate in the survey. Your inputs will be valuable for us, please feel free to express your frank opinion on all issues. Your responses are entirely anonymous. Name of the Organization : Address of the Organization : Business of the Organization :

MBA IV Sem

Import/Export/Both

109

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure” Since from the year in Import/Export/Both Business: Type of the Materials (Imports/Exports): Name of the Respondent: 1.

Designation:

Exports / Imports by: Your own Branch, or Head Office / Some other Branch

How many times you export / import the materials in a year? 1 to 3 times

7 to 9 times

4 to 6 times

More than 10 times

In which currency you usually export / import the materials? USD

GBP

EURO

If other Specify ________

If more than one currency give the weights in % age 4.

Mode of Payment Advance Payment

After receipts of Goods/Payment

Bills Collection Letter of Credit If any other please specify: _____________________ What are the risks involved in forex market according to you? 1)__________________________

2)____________________________

3)__________________________

4)____________________________

What the techniques you are using to minimize these exposures / risks?

MBA IV Sem

Hedging

Options Market

Lead or Lags

Others, Specify ________________ 110

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

What are the techniques you are using to forecast the exchange rates? 1)__________________________

2)____________________________

3)__________________________

4)____________________________

If you have branches in other countries, how you translate the P&L A/c and Balance Sheet, What are the risks involved in it? 1)__________________________

2)____________________________

How you minimize these exposures / risks? 1)__________________________

2)____________________________

10.

What are the privileges you are enjoying, provided from Governments (S/C)?

11.

What are the restrictions in forex market by Government or other concerns?

12.

What other Services you are expecting from Banks?

Thank You Sir,

BIBILOGRAPHY www.rbi.org.in www.khsitij.com www.google.com www.nse-india.com Business world – magazine Business & Economy - magazine Business Standard – Daily Newspaper Business Line – Daily Newspaper MBA IV Sem

111

KLES’s IMSR, HUBLI

“Foreign Exchange Exposure”

MBA IV Sem

112

KLES’s IMSR, HUBLI