IMPACT OF EURO-ZONE CRISIS ON CURRENT ACCOUNT DEFICIT

(Submitted in partial fulfillment of the requirement for the Degree of Master of Business Administration)

Under the supervision of: Submitted by:

Mrs. Neeta Maheshwari Sonali Kukreja

Assistant professor(MBA Deptt.) MBA 2ND year

CONTENTS

Objectives of the studyImpact of Euro-zone crisis on current account deficit-An introduction Literature reviewResearch methodology Conclusions Refrences

OBJECTIVES OF THE STUDY The present study has the following research objectives:To study the impact of euro zone crisis on Current Account DeficitTo analyze European zone as major trading partner of India.To analyze the correlation between INR and Euro exchange values so that the impact of euro crisis on Current account deficit can be evaluated.

EURO-ZONE

It is an economic and monetary union of 16 European union members.

Members-AUSTRIA,BELGIUM,CYPRUS,FINLAND,FRANCE,GERMANY,GREECE,IRELAND,LUXEMBOURG,MALTA,NETHERLAND,PORTUGAL,SLOVAKIA,SPAIN, SLOVENIA

INTRODUCTION TO EURO-ZONE CRISIS

It is the biggest challenge Europe has faced since 1990.

Due to global financial crisis that began in 2007-08 the euro zone entered its first official recession in third quarter of 2008.

The official figures were released in Jan 2009.

On 11 Oct 2008, a summit was held in Paris by the Euro group heads of state Govt. to define a joint action plan for euro zone and central banks of Europe to stabilize the economy.

WHAT IS CURRENT ACCOUNT DEFICIT?

The Current account balance is part of the Balance of

Payments (BOP)

An imbalance in a nation's balance of payments current

account in which payments received by the country for

selling domestic exports are less than payments made by the

country for purchasing imports

CURRENT ACCOUNT DEFICIT = TOTAL IMPORTS – TOTAL EXPORTS

IMPACT OF EURO CRISIS ON CURRENT ACCOUNT DEFICIT

Not driven primarily by differences in export performance across surplus and deficit countries.

Current account dynamics are correlated with unit labour costs (ULC) and imports.

LITERATURE REVIEWSebastian Barnes, Jeremy Lawson and Artur Radziwill1Demographic factors and income and growth differential has an impact on current account balances. Both trade openness and structural rigidity improve the current account imbalances.

Blanchard and Giavazzi (2002)Current account imbalances could be explained by greater financial and goods market integration, leading to deficits in countries with higher growth prospects and surpluses in the more mature economies.

Krugman and Samuelson

The Greece debt crisis was the cause of adopting Euro as their currency by replacing drachma. Greece also could not raise its interest rates because it was controlled by the European Central bank. In order to reduce government spending Greece has to lower wages, prices and costs of goods to remain competitive.

RESEARCH METHODOLOGYUniverse: Economy

Sample; Euro zone and India

Data Collected:

Secondary research is an essential part of any research at the initial stages to understand the outline and build a framework for the later analysis. The collection of secondary data involved the pro-active seeking of data, both qualitative and quantitative, that already existed and which will useful in the analysis.

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Data Source:

The data is collected from various sources like, Economic Survey, official website of International Monetary Fund, Ministry of Commerce & Industry- Government of India. The exchange rate data is collected from http://www.oanda.com. OANDA is a market maker and a trusted source for currency data. It has access to one of the world's largest historical, high frequency, filtered currency databases.

Data Period:

Euro Zone crisis 2008-2012

 

 Research Design:

Analytical

 

Tools:

Try to use SPSS, Trend Analysis, Correlation and Regression

 

EXPECTED OUTCOMES

The study will try to highlight the change in the direction of Indian exports with the onset of the European crisis.

The study would indicate if the agitated Euro has in any way impacted the troubled INR after analyzing the trade situation between India and Europe as trade relations of two countries are important parameters to determine the exchange rate of the currencies of two nations.

REFRENCES Acharya,S. 2009, India and global Crisis, Academic Foundation, New Delhi.Bhigania. M, 2012, “Foreign Trade Policy”, : Indian Streams Research Journal, Vol.1 (V), pp.1-4De, P. And C. Neogi 2009, Global economic Crisis: Implications for Trade and Industrial Restructuring in south Asia, Paper Presented at the international conference on “Global Economic Crisis: Impact & Implications for Industrial Restructuring in Asia”, Held at Taiwan on 19-20, 8; 2009.Ghosh. J & Chandrasekhar. P.C, 2009, “The costs of ‘coupling’: the global crisis and the Indian economy”, Cambridge Journal of Economics, Vol. 33, pp. 725- 739

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