shilpa bs-0347-exchange rates & stock prices

7/31/2019 Shilpa BS-0347-Exchange Rates & Stock Prices

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EXCHANGEE RATES & STOCK PRICE:ITS RELATIONSHIP IN INDDIAN

CONTEXT

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DECLARATION

I hereby declare that the research work embodied in the dissertation

entitled EXCHANGE RATES & STOCK PRICES: ITS

RELATIONSHIP IN INDIAN CONTEXT is the result of research work

carried out by me, under the guidance and supervision of Dr. Nagesh

Malavalli, Principal, M.P.Birla Institute of Management, Bangalore.

I also declare that this report has not been submitted to any other

University or Institute for award of any Degree or Diploma.

PLACE: (Shilpa. B S)

DATE: (Reg. No.

03XQCM6096)


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DECLARATION

I hereby declare that the research work embodied in the dissertation

entitled EXCHANGE RATES & STOCK PRICES: ITS

RELATIONSHIP IN INDIAN CONTEXT is the result of research work

carried out by me, under the guidance and supervision of Dr. Nagesh

Malavalli, Principal, M.P.Birla Institute of Management, Bangalore.

I also declare that this report has not been submitted to any other

University or Institute for award of any Degree or Diploma.

PLACE: (Shilpa. B S)

DATE: (Reg. No.

03XQCM6096)


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GUIDE CERTIFICATE

This is to certify that the Project titled EXCHANGE RATES &

STOCK PRICES: ITS RELATIONSHIP IN INDIAN CONTEXT

has been prepared by Ms. SHILPA B S bearing registration

number 03XQCM6096, under the guidance of Dr. Nagesh

Malavalli, M.P.Birla Institute of Management, Associate Bharatiya

Vidya Bhavan, Bangalore.

Place: Bangalore

Date: (Dr. Nagesh

Malavalli)


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PRINCIPALS CERTIFICATE

This is to certify that the Project titled EXCHANGE RATES &

STOCK PRICES: ITS RELATIONSHIP IN INDIAN CONTEXT

has been prepared by Ms. SHILPA B S bearing registration

number 03XQCM6096, under the guidance of Dr. Nagesh

Malavalli, M.P.Birla Institute of Management, Associate Bharatiya

Vidya Bhavan, Bangalore.

Place: Bangalore Dr.NAGESHMALAVALLI

Date: (Principal)


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ACKNOWLEDGEEMENT

The completion of the research would have been impossible without

the valuable contributions of people from the academics, family and

friends.

I hereby wish to express my sincere gratitude to all those who

supported me throughout the study.

I am thankful to Dr. NAGESH MALAVALLI, Principal, M.P.Birla

Institute of Management, Bangalore, for his valuable guidance,

academic and moral support which made thisreport a reality.

I am greatly thankful to Prof. T.V. Narasimha Rao (Finance) and

Prof. Santhanam (Statistics) for their support in completion of this

report.

I also thank my family members and friends whose support and

encourage has meant a lot to me personally and also for the

completion of the report.

(Shilpa. B.S)


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CONTENTS

Chapter No. PARTICULARS Page No.

Abstract1. Introduction

o Backgroundo Purpose of the studyo Problem statemento Objectives of the studyo Hypothesiso Limitations of the studyo Theoretical frame work

1-111334445

2. Review of Literatureo Theoretical literatureo Empirical literature

12-151213

3. Methodology 16-20

4. Data analysis andInterpretation

21-45

5. Discussions and conclusionso Discussionso conclusions

46-504649

Bibliography


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Annexure

o Sample data

List of Tables

Table No. PARTICULARS Page No.

1 Sensex companies 17

2 Nifty companies 18

3 CNX IT companies 19

4 Bankex companies 19

5 Import Index and Export Index companies 20

6 Correlation and T value for ER and Sensexfrom 2000- 2002

23

7 Correlation and T value for ER and Sensexfrom 2002- 2005

24

8 Correlation and T value for ER and Niftyfrom 2000- 2002

26

9 Correlation and T value for ER and Niftyfrom 2002- 2005

27

10 Correlation and T value for ER and CNX ITfrom 2000- 2002

29

11 Correlation and T value for ER and CNX ITfrom 2002- 2005

30

12 Correlation and T value for ER and Bankexfrom 2002- 2005

32

13 Correlation and T value for ER and Importfrom 2000- 2002

34

14 Correlation and T value for ER and Importfrom 2002- 2005

35

15 Correlation and T value for ER and Exportfrom 2000- 2002

37

16 Correlation and T value for ER and Exportfrom 2002- 2005

38


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17 Correlation and T value for ER and ABB

from 2000- 2005

40

18 Correlation and T value for ER and BATA

from 2000- 2005

42

ABSTRACT

Stock market and foreign exchange market are the barometers of the

economy and both the markets are sensitive segments of the

economy. Any changes in the policies of the country are quickly

reflected in these markets. There are different factors, which affect the

stock markets like interest rates, company performance, future growth

prospects, inflation, political stability, exchange rates etc. There are

different factors, which affect the Exchange rates are like the flow of

capital between nations, inflation, interest rates, faith in government' s

ability to protect the value of currency, speculation etc. This study

attempts to analyze the interlinkages between exchange rates and

stock prices. The study is conducted by considering exchange rates

and various indices form 2000 to 2005. This is analyzed by using

statistical tools cross correlation both Zero order correlation and

correlation by taking 12 day lag. From the results it is clear that there is

no significant relationship between the exchange rates and index

values. Six Multinational companies were also considered in the study

but found that the share prices of the individual company are not at

affected by fluctuations in the exchange rates.


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Introduction

BackgroundTraditionally the stock market and the exchange market have

been regarded as sensitive segments of the financial market, as the

impact of any policy changes get quickly reflected in these two

markets. Rampant fluctuations of exchange rates and stock prices

have attracted a great deal of interest from policy makers and domestic

as well as foreign investors. Stock markets as well as exchange

markets are considered as the barometers of the state and health of

the economy through which the countrys exposure towards outside

world is most readily felt.

Globalization of world economies in general and liberalization of

financial sector reforms in India specifically ushered a change in the

financial architecture of the Indian economy. In the contemporary

scenario, the activities in the financial markets and their relationships

with the real sector have assumed significant importance. Since the

inception of the financial sector reforms in the beginning of 1990s, the

implementation of various reform measures, including a number of

structural and institutional changes in the different segments of the

financial markets, particularly since 1997, have brought in a dramatic

change in the functioning of the financial sector of the economy. The

advent of floating exchange rates, opening up of current account,


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liberalization of capital account, reduction of customs duties, the

development of 24-hour screen based global trading, the increased use

of national currencies outside the country of issue and innovations in

internationally traded financial products have led to the cross country

linkages of capital markets and international integration of domestic

economy. Altogether, the whole lot of institutional reforms, introduction

of new instruments, change in procedures, widening of network of

participants, influenced a reexamination of the relationship between the

stock market and the foreign exchange sector of India.

In the present scenario, interesting results are emerging

particularly for the developing countries where the markets are

experiencing new relationships between money markets, forex

markets, capital markets, international events, oil prices, WTO

agreements etc which were not perceived earlier. The analysis on

stock markets is important as it is considered as the most sensitive

segment of the economy and through this segment the countrys

exposure to the outer world is most readily felt. The impact of

fluctuation in exchange rate on domestic companies, companies

importing or exporting and on multi national corporations with the

degree of exposure is increasing in each case respectively. The

movements in exchange rate indirectly affect the value and hence the

stock prices of these companies. The value of the company is affected

due to the forex exposures namely Transaction exposures, translation

exposure and economic exposure.

An exchange rate has two effects on stock prices, a direct effect

through Multi National Firms and an indirect effect through domestic

firms. In case of Multi National Firms involved in exports, a change in

rate will change the demand of its product in the international market,

which ultimately reflects in its B/S as profit or loss. Once the profit or

loss is declared, the stock price will also change for a domestic firm.

On the other hand, currency devaluation could either raise or decrease

a firms stock prices. This depends on the nature of the firms


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operations. A domestic firm that exports part of its output will benefit

directly from devaluation due to an increase in demand for its output.

As higher sales result in higher profits, local currency devaluation will

cause firm stock price to rise in general. On the other hand, if the firm

is a user of imported inputs, currency devaluation will raise cost and

lower profits. Thus, it will decrease the firms stock price.

Purpose of the StudyTheory says that exchange rates should have a direct impact on the

companies with heavy import or export activities and thus affecting the

profitability and hence the stock prices. The impact of fluctuation in

exchange rates on domestic companies, companies importing or

exporting and on multi national corporations with the degree of

exposure is increasing in each case respectively. The movements in

exchange rate indirectly affect the value and hence the stock prices of

these companies, to check for the relevance of this effect, the test has

been undertaken. In an increasingly complex scenario of the financial

world, it is of paramount importance for the researchers, practitioners,

market players and policy makers to understand the working of the

economic and financial system and assimilate the mutual interlinkages

between the stock and exchange markets in forming their expectations

about the future policy and financial variables. The study would be

helpful to all investors, speculators, arbitragers, brokers, dealers etc as

the foreign exchange rates can also be considered as one of the

factors, which affect the stock prices and in the same way stock prices

as a factor affecting exchange rates.


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Problem sttatementThere are various studies have been done to study the relationship

between exchange rates and stock prices by taking various indices.

This study explores the evidence of relationship between exchange

rates and stock prices and also lead lag relationship between

exchange rates and stock prices.

Objectives of tthe study To analyze the relationship between stock market and exchange

market

To find out whether the relationship changes with the different

indices

To find out which variable is leading and which variable is

lagging.

Hypothesis of the study

Hypothesis 1

H0: There is no significant relation between stock prices and

exchange rates

H1: There is significant relation between stock prices and exchange

rates

Hypothesis 2


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H0: There is no significant lead and lag relationship between stock

prices and

exchange rates

H1: There is significant lead and lag relationship between stock prices

and

exchange rates

Limitations of the study

The study is limited to six indices and six Multi National

Companies

The study is limited to Indian rupee versus US dollar only

The study is limited to a period of five years

Theoretical Framework

The Indian Financial System

The Indian financial system consists of many institutions,

instruments and markets. Financial instruments range from the

common coins, currency notes and cheques, to the more exotic futures

swaps of high finance.

Financial Markets

Generally speaking, there is no specific place or location to

indicate financial markets. Wherever a financial transaction takes

place, it is deemed to have taken place in the financial market. Hence


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financial markets are pervasive in nature since financial transactions

are themselves very pervasive throughout the economic system.

However, financial markets can be referred to as those centres

and arrangements which facilitate buying and selling of financial

assets, claims and services. Sometimes, we do find the existence of a

specific place or location for a financial market as in the case of stock

exchange.

Classification of financial markets

Financial markets can be classified as

i) Unorganized Markets

In these markets there a number of money lenders, indigenous

bankers, traders etc. who lend money to the public.

ii) Organized Market

In organized markets, there are standardized rules and

regulations governing their financial dealings. There is also a high

degree of institutionalization and instrumentalization. These markets

are subject to strict supervision and control by the RBI or other

regulatory bodies.

Organized markets can be further divided into capital market and

Money market.

Capital market

Capital market is a market for financial assets which have a long or

definite maturity.

Which can be further divided into

Industrial Securities Market

Government Securities Market

Long Term Loans Market


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Industrial Securities Market

It is a market where industrial concerns raise their capital or debt

by issuing appropriate Instruments. It can be subdivided into two. They

are

Primary Market or New Issues Market

Primary market is a market for new issues or new

financial claims. Hence, it is also called as New Issues Market.

The primary market deals with those securities which are issued

to the public for the first time

Secondary Market or Stock Exchange

Secondary market is a market for secondary sale of

securities. In other words, securities which have already passed

through the new issues market are traded in this market. Such

securities are listed in stock exchange and it provides a

continuous and regular market for buying and selling of

securities. This market consists of all stock exchanges

recognized by the government of India.

Importance of Capital Market

Absence of capital market serves as a deterrent factor to

capital formation and economic growth. Resources would

remain idle if finances are not funneled through capital market.

It serves as an important source for the productive use of

the economys savings.

It provides incentives to saving and facilitates capital

formation by offering suitable rates of interest as the price

of the capital

It provides avenue for investors to invest in financial assets.


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It facilitates increase in production and productivity in the

economy and thus enhances the economic welfare of the

society.

A healthy market consisting of expert intermediaries

promotes stability in the value of securities representing

capital funds.

It serves as an important source for technological

upgradation in the industrial sector by utilizing the funds

invested by the public.

Foreign Exchange Market

The foreign exchange market is the market in which currencies

of various countries are bought and sold against each other. The

foreign exchange market is an over-the-counter market.

Geographically, the foreign exchange markets span all time zones from

New Zealand to the West Coast of United States of America.The retail market for foreign exchange deals with transactions

involving travelers and tourists exchanging one currency for another in

the form of currency notes or travelers cheques. The wholesale marketoften referred to as the interbank market is entirely different and the

participants in this market are commercial banks, corporations and

central banks.The foreign exchange market provides the physical and

institutional structure through which the money of one country is

exchanged for that of another country, the rate of exchange between

currencies is determined, and foreign exchange transactions arephysically completed.


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Foreign exchange market spans the globe, with prices moving

currencies trading 24 hours a day.

Foreign exchange means the money of a foreign country; that is,

foreign currency bank balances, banknotes, drafts etc.

A Foreign exchange transaction is an agreement between a buyer and

seller that a fixed amount of one currency will be delivered for some

other currency at a specified rate.

A Foreign exchange rate is the price of one currency expressed in

terms of another currency.

A Foreign exchange quotation is a statement of willingness to buy or

sell currency at an announced price.

Functions of foreign exchange market

The foreign exchange market is the mechanism by which participants

Transfer purchasing power between countries,

Obtain or provide credit for international trade transactions, and

Minimize exposure to the risks of exchange rate changes

Foreign Exchange Market participants

The foreign exchange market consists of two tiers: the interbank orwholesale market and the client or retail market.

Five broad categories of participants operate within these two tiers:

Bank and nonblank foreign exchange dealers

Banks and a few nonblank foreign exchange dealers

operate in both the interbank and client markets. They profit

from buying foreign exchange at a bid price and reselling it at a

slightly higher ask price. Dealers in the foreign exchange

departments of large international banks often function as

market makers.


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Currency trading is quite profitable for commercial and

investment banks. Small to medium sized banks are likely to

participate but not as market makers in the interbank market.

Instead of maintaining significant inventory positions, they buy

from and sell to large banks to offset retail transactions with their

own customers.

Individuals and firms conducting commercial or investment

transactions

Importers and exporters, international portfolio investors,

Multi National Enterprises, tourists, and others use the foreign

exchange market to facilitate execution of commercial or

investment transactions. Some of these participants use the

market to hedge foreign exchange risk.

Speculators and arbitragers

Speculators and arbitragers seek to profit from trading in

the market itself. They operate in their own interest, without a

need or obligation to serve clients or to ensure a continuous

market. A large proportion of speculation and arbitrage is

conducted on behalf of major banks by traders employed by

those banks. Thus banks act both as exchange dealers and as

speculators and arbitrages.

Central banks and treasuries

Central bank and treasuries use the market to acquire or

spend their countrys foreign exchange reserves as well as to

influence the price at which their own currency is traded. They

may act to support the value of their own currency because of

policies adopted at the national level or because of

commitments entered into through membership in joint float

agreements.


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Foreign exchange brokers

Foreign exchange brokers are agents who facilitate

trading between dealers. Brokers charge small commission for

the service provided to dealers. They maintain instant access to

hundreds of dealers world wide via open telephone lines.

Foreign exchange transactions

Transactions within the foreign exchange market are executed

either on a spot basis, requiring settlement two days after the

transaction, or on a forward or swap basis, which requires

settlement at some designated future date.

Quotations can be direct or indirect.

A direct quote is the home currency price of a unit of foreign

currency. Indirect quote is the home currency price of a unit of

home currency.

To be successful in the foreign exchange markets, one has to

anticipate price changes by keeping a close eye on world events and

currency fluctuations.

Exchange rates are determined by the dual forces of demand andsupply. Various factors affect these, which in turn affect the exchange

rates:

The business environment: Positive indications (in terms of govt.

policy, competitive advantages, market size etc) increase the demand

of the currency, as more and more entities want to invest there. This

investment is for two basic motives purely business motive, and for

risk diversification purposes. Foreign direct investment is for taking

advantage of the comparative advantages and the economies of scale.

Portfolio investment is mainly done for risk diversification purposes.

Stock market: The major stock indices also have a correlation with the

currency rates. Three major forces affect the indices:


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1) Corporate earnings, forecast and actual;

2) Interest rate expectations and

3) Global considerations.

Consequently, these factors channel their way through the local

currency.

Political Factors: All exchange rates are susceptible to political

instability and anticipations about the new ruling party.

Economic Data: Economic data items like labour report (payrolls,

unemployment rate and average hourly earnings), CPI, PPI, GDP,

international trade, productivity, industrial production, consumer

confidence etc. also affect the exchange rate fluctuations.

Confidence in a currency is the greatest determinant of the exchange

rates. Decisions are made keeping in mind the future developments

that may affect the currency. And any adverse sentiments have a

contagion effect.

1) The sudden discovery that reserves is less than previously believed

2) Unexpected devaluation (often in part for its role in signaling the

depletion of reserves); and,

3) Contagion from neighboring countries, in a situation of perceived

vulnerability (low reserves, high short-term debt, overvalued currency).

Government influence: A country' s government may reduce the

growth in the money supply, raising interest rates, and encouraging

demand for its currency. Or a government may simply buy or sell forex

to maintain stability or to support either exporters or importers.

Productivity of an economy: An increase in productivity of an

economy tends to impact exchange rates. Its affects are more

prominent if the increase is in the traded sector.


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Exchange rates are also influenced by the flow of capital between

nations, inflation, interest rates, faith in government' s ability to protect

the value of currency, speculation, rumors and even human error.


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REVIEW OF LLITERATURE

THEORETICAL LITERATURE

Foreign exchange and capital market how are they possibly

interlinked?

The possible interlinkages between stock prices and exchange

rates suggested by several arguments/hypothesis, particularly those

identified in goods market approaches explaining likely impact of

exchange rate on stock prices and portfolio balance approaches forjustifying impact in reverse direction.

The arguments provided in goods market approachesflow that,

as many companies borrow in foreign currencies to fund their

operations, a change in exchange rate affects the cost of funds and

value of earnings of many firms, which in turn affect the

competitiveness of a firm and its stock prices a depreciation

(appreciation) of local currency makes exporting goods more (less)attractive to foreigners, which results in increase (decrease) of foreign

demand for goods, which in turn raises (reduces) the revenue of the

firm, value of firms appreciates(depreciates) and thus stock prices

increase (decrease). The sensitivity of an importing firm to a change in

exchange rate is just opposite to that of an exporting firm. Therefore,


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on a macro basis the impact of exchange rate fluctuations on stock

market seems to depend on both the importance of a countrys

international trade in its economy and the degree of the trade

imbalance.

To complete the linkage, influence in reverse direction can be

justified by portfolio balance approaches under the exchange rate

regime that allows exchange rate to be determined by market

mechanism (i.e. the demand and supply conditions). A glooming stock

market would attract capital flows from foreign investors, which may

cause an increase in the demand for a countrys currency. Thus, local

currency appreciates.

The reverse would happen in case of fallen stock prices where

the investors would try to sell their stocks to avoid further losses and

would convert their money in to foreign currency to move out of the

country. There would be demand for foreign currency in exchange of

local currency. As a result rising (declining) stock prices would lead to

an appreciation (depreciation) in local currency. Moreover, foreign

investment in domestic equities could increase over time due to

benefits of international diversification that foreign investors would gain.

Further more, movements in stock prices may influence exchange

rates (and money demand) because investors wealth (and liquidity

demand) could depend on the performance of the stock market.

EMPIRICAL LITERATURE

Frank and Youngs (1972) was the first study to examine the

impact of exchange rate changes on stock markets. The study

investigated the relationship between stock prices and exchange rates,

by using six different exchange rates and found no relationship

between these two financial variables.

Solnik (1987), employing regression analysis on monthly and

quarterly data for eight industrialized countries from 1973 to 1983, finds


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a negative relationship between real domestic stock returns and real

exchange rate movements. However, for monthly data over 197983,

he observes a weak but positive relation between the two variables.

Jorion (1988) attempted to analyze and compare the empirical

distribution of returns in the stock market and in the foreign exchange

market by using the maximum likelihood estimation procedure and

ARCH model in daily data of exchange rates and stock returns

spanning from June 1973 to December 1985. The study found that

exchange rates display significant jump components, which are more

manifest than in the stock market. The statistical

analysis of the study for the foreign exchange market and stock market

suggests there are important differences in the structures of these

markets.

Alok Kumar Mishra in his article Stock Market and Foreign

Exchange Market in India: Are they Related? attempts to examine

whether stock market and foreign exchange markets are related to

each other or not. The study uses Grangers Causality test and Vector

Auto Regression technique on monthly stock return, exchange rate,

interest rate and demand for money for the period April 1992 to March

2002. The major findings of the study are

(a) There exists a unidirectional causality between the exchange rate

and interest rate and between the exchange rate return

and demand for money;

(b) There is no Grangers causality between the exchange rate

return and stock return.

Through Vector Auto Regression modeling, the study confirms that

though stock return, exchange rate return, the demand for money and

interest rate are related to each other but any consistent relationship

doesnt exist between them. The forecast error variance decomposition

further evidences that

(a) The exchange rate return affects the demand for money,

(b) The interest rate causes exchange rate return change,


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(c) The exchange rate return affects the stock return,

(d) The demand for money affects stock return,

(e) The interest rate affects the stock return, and

(f) The demand for money affects the interest rate.

Apte (2001) investigated the relationship between the volatility of

the stock

market and the nominal exchange rate of India by using the EGARCH

specifications on the daily closing USD/INR exchange rate, BSE 30

(Sensex) and NIFTY-50 over the period 1991 to 2000. The study

suggests that there appears to be a spillover from the foreign exchange

market to the stock market but not the reverse.

Bhattacharya and Mukharjee (2002) studied the nature of causal

relation between the stock market, exchange rate, foreign exchange

reserves and value of trade balance in India from 1990 to 2001 by

applying the co-integration and long-run Granger Non-causality tests.

The study suggests that there is no causal linkage between stock

prices and the three variables under consideration.

To examine the dynamic linkages between the foreign exchange

and stock markets for India, Nath and Samanta (2003) employed the

Granger causality test on daily data during the period March 1993 to

December 2002. The empirical findings of the study suggest that these

two markets did not have any causal relationship. When the study

extended its analysis to verify if liberalization in both the markets

brought them together, it found no significant causal relationship

between the exchange rate and stock price movements, except for the

years 1993, 2001 and 2002 during when a unidirectional causal

influence from stock index return to return in forex market is detected

and a very mild causal influence in the reverse direction is found in

some years such as 1997 and 2002.


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MethodologyyStudy Design

a) Study Type:The study type is analytical, quantitative and historical.

Analytical because facts and existing information is used for the

analysis,

Quantitativeas relationship is examined by expressing variables in

measurable terms and also Historicalas the historical information isused for analysis and interpretation.

b) Study population: population is the entire stock market and all

indices and exchange rates of rupee versus currencies of all the

countries.


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c) Sampling frame: Sampling Frame would be Indian stock market and

rupee versus most traded currencies.

d) Sample: Sample chosen is daily closing values of BSE Sensex,

CNX Nifty, CNX IT, BSE Bankex, created Import index and an

export index and exchange rates of Rupee/Dollar from 1-1-2000 to

31-5-2005.

e) Sampling technique: Deliberate sampling is used because only

particular units are selected from the sampling frame. Such a

selection is undertaken as these units represent the population in a

better way and reflect better relationshipwith the other variable.

Data gathering procedures and instruments:

Data: Historical daily share prices and information about their forex

exposure. Historical daily closing values of BSE Sensex, CNX Nifty,

CNX IT, BSE Bankex, import index and export index. Direct and

indirect quotes of rupee per dollar

Data Source: Historical share prices of the sample companies andthe index points for the period has been taken from the database of

Capital Market Publishers (India) Ltd., Capitaline 2000 and exchange

rates information has been taken from www.exchangerate.com

An exchange rate has two effects on share prices, a direct effect

through Multi National Firms and indirect effect through domestic

firms.

Even though exchange rate has effect on stock prices of

companies, the study has been conducted by considering different

indices because index values are nothing but the weighted average


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of different companys share prices and indices are the proxies of

stock market.

BSE Sensex is considered as it is a barometer of the state of the

economy. It follows the free float methodology. The companies in

the Sensex are domestic companies, so it has been taken to see

the indirect effect of exchange rates.

Table No.1: BSE SENSEX COMPANIES

1 Associated Cement Companies Ltd. 16 I T C Ltd

2 Bajaj Auto 17 Infosys Technologies Ltd.

3 Bharti Televentures 18 Maruthi Udyog4 Bharat Heavy Electricals Ltd. 19 Larsen & Toubro Ltd.

5 Cipla Ltd. 20 ONGC

6 Dr.Reddy' s Laboratories Ltd. 21 Ranbaxy Laboratories Ltd.

7 Grasim Industries Ltd. 22 Reliance Energy

8 Gujarat Ambuja Cements Ltd. 23 Reliance

9 Herohonda Motors 24 Satyam Computers

10 Hindalco 25 State Bank Of India

11 Hindustan Lever Ltd. 26 Tata Iron And Steel Co. Ltd.

12 Hindustan Petroleum Corporation Ltd 27 Tata Motors

13 Housing Development Finance Co 28 Tata Power

14 HDFC Bank 29 Wipro Ltd15 ICICI Bank 30 Zee Telefilms Ltd

CNX Nifty has been taken because CNX Nifty and BSE Sensex are

considered as trust worthy indices of India, to see whether both the

indices move in the same direction or not.

Table No.2: CNX NIFTY COMPANIES

1 ABB Ltd. 26 Larsen & Toubro Ltd.

2Associated Cement CompaniesLtd. 27 Mahanagar Telephone Nigam Ltd.

3 Bajaj Auto Ltd. 28 Mahindra & Mahindra Ltd.4 Bharat Heavy Electricals Ltd. 29 Maruti Udyog Ltd.5 Bharat Petroleum Corporation Ltd. 30 National Aluminium Co. Ltd.6 Bharti Tele-Ventures Ltd. 31 Oil & Natural Gas Corporation Ltd.


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7 Cipla Ltd. 32 Oriental Bank of Commerce8 Colgate-Palmolive (India) Ltd. 33 Punjab National Bank9 Dabur India Ltd. 34 Ranbaxy Laboratories Ltd.10 Dr. Reddy' s Laboratories Ltd. 35 Reliance Energy Ltd.11 GAIL (India) Ltd. 36 Reliance Industries Ltd.

12

Glaxosmithkline Pharmaceuticals

Ltd. 37 Satyam Computer Services Ltd.13 Grasim Industries Ltd. 38 Shipping Corporation of India Ltd.14 Gujarat Ambuja Cements Ltd. 39 State Bank of India15 HCL Technologies Ltd. 40 Steel Authority of India Ltd.

16 HDFC Bank Ltd. 41Sun Pharmaceutical IndustriesLtd.

17 Hero Honda Motors Ltd. 42 Tata Chemicals Ltd.18 Hindalco Industries Ltd. 43 Tata Consultancy Services Ltd.19 Hindustan Lever Ltd. 44 Tata Iron & Steel Co. Ltd.

20Hindustan Petroleum CorporationLtd. 45 Tata Motors Ltd.

21Housing Development FinanceCorporation Ltd. 46 Tata Power Co. Ltd.

22 I T C Ltd. 47 Tata Tea Ltd.23 ICICI Bank Ltd. 48 Videsh Sanchar Nigam Ltd.

24Indian Petrochemicals CorporationLtd. 49 Wipro Ltd.

25 Infosys Technologies Ltd. 50 Zee Telefilms Ltd.

CNX IT constitutes 20 IT companies. These companies will have more

forex exposure and most of the transactions are undertaken in foreign

currencies and these companies undertake many international

projects. So, the study attempts to see how IT stocks affect due to

exchange rate fluctuations.

Table No.3:CNX-IT COMPANIES1. CMC Ltd. 11. Mastek Ltd.2. Flextronics Software Systems Ltd. 12. Moser Baer India Ltd.3. GTL Ltd. 13. Mphasis BFL Ltd.4. HCL Infosystems Ltd. 14. Patni Computer Systems Ltd.5. HCL Technologies Ltd. 15. Polaris Software Lab Ltd.6. Hexaware Technologies Ltd. 16. Rolta India Ltd.

7. Hinduja TMT Ltd. 17. Satyam Computer Services Ltd.8. I-Flex Solutions Ltd. 18. Tata Elxsi Ltd.9. iGate Global Solutions Ltd. 19. Tata Consultancy Services Ltd.


33/74

10. Infosys Technologies Ltd. 20. Wipro Ltd.

Another index is BSE Bankex, as the banks are the major participants

in foreign exchange market, banks index i.e. Bankex has been

considered.

Table No.4: BANKEX INDEX COMPANIES

1 Allahabad bank Ltd

2 Andhra Bank3 Bank of Baroda4 Bank Of India

5 Canara Bank6 HDFC Bank Ltd.7 ICICI Bank Ltd.8 Indian Overseas Bank9 Kotak Mahindra Bank Ltd.10 Oriental Bank of Commerce

11 Punjab National Bank12 State Bank of India13 Union Bank Ltd.14 UTI Bank Ltd.15 Vijaya Bank

According to theory exchange rates should have a direct impact on the

companies with heavy import or export activities. So, two special

indices are constructed by considering companies which have large

amount of exports or imports.

Steps in the process of constructing index:

The companies which had good amount of exports or imports

were picked up

The criteria for selecting the companies is, for exporting

company percentage of exports to sales revenue should be


34/74

greater than 30% and for importing companies percentage of

imports to purchases should be greater than 30%

The best of 15 companies each having more than 30%

according criteria are used for constructing index

All the companies are listed in BSE were taken

Finally, the indices are constructed by taking simple average of

closing share prices of these 15 companies

Table No.5: IMPORT AND EXPORT INDEX COMPANIES

IMPORT COMPANIES EXPORT COMPANIES

1 Associated Cement Company Ltd. 1 Bajaj Auto Ltd2 Bharat Heavey Electricals Ltd 2 CIPLA3 Grasim Cements Ltd 3 Indian Petrochemicals Corporation Ltd.

4 Gujrat Ambuja Cements Ltd. 4 INFOSYS Technologies Ltd.5 Hero Honda Motors 5 National Aluminium Company Ltd.6 HINDALCO 6 SATYAM Computers7 Hindusthan Lever Ltd 7 WIPRO Ltd8 Hidustan Petroleum Corporation Ltd 8 Zee Telefilms9 ITC Ltd 9 Arvind Mills Ltd10 RANBAXY Laboratories Ltd 10 Kesoram Industries Ltd11 DR.Reddys Laboratories Ltd 11 Tata Motors Ltd12 Relliance Industries 12 Tata Tea Ltd13 Tata Iron And Steel Company 13 Videsh Sanchar Nigam Ltd.14 Tata Power Ltd 14 Nahar Spinning Mills Ltd15 Micro Inks Ltd 15 Gail

In the foreign exchange market, the Indian rupee per US dollar is

considered. As most of the transactions are carried in terms of $

and $ is considered as Transaction Currency.

The daily returns in foreign exchange and indices are calculated by

taking Log Normal of P1/P0. These returns represent continuously

compounded returns in respective markets.


35/74

Data Analysis and Interpretation

The data has been analyzed by using cross correlation. The

correlation has been calculated for zero date and by taking lag length

of 12 days. The analysis has been done by taking exchange rate as

independent variable and its impact on index or company share price


36/74

for 12 lags. In the similar way, index is taken as independent variable

and its impact on exchange rate for 12 lags.

Cross correlation

Cross correlation is a standard method of estimating the degree

to which two series are correlated. Consider two series x(i) and y(i)

where i=0,1,2...N-1. The cross correlation r at delay d is defined as

Where mx and my are the means of the corresponding series. If

the above is computed for all delays d=0,1,2,...N-1 then it results in a

cross correlation series of twice the length as the original series.

There is the issue of what to do when the index into the series is

less than 0 or greater than or equal to the number of points. (i-d < 0 or

i-d >= N) The most common approaches are to either ignore these

points or assuming the series x and y are zero for i < 0 and i >= N. In

many signal processing applications the series is assumed to be

circular in which case the out of range indexes are "wrapped" back

within range, ie: x(-1) = x(N-1), x(N+5) = x(5) etc.

Abbreviations

ER: Exchange rate

Sensex: BSE Sensex


37/74

Nifty: CNX Nifty

Import: Import Index

Export: Export Index

ABB: Asea Brown Boveri Ltd

BATA: Bata India Ltd.

HLL: Hindustan Lever Ltd.

MICO: Machine Industries Company Ltd.

Glaxo: Glaxo Smithkline Pharmaceuticals Ltd.

Colgate: Colgate Palmolive (India) Ltd.

LEADING LAGGING

LAGGING LEADING

NEGATIVELAG

INDEX- ER

ER - INDEX

POSITIVELAG


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Table No. 6 Correlation and T values of ER and SENSEX for the period 2000 to 2005I half of 2000 II half of 2000 I half of 2001 II half of 2001 I half of 2002

Lag Correlation Correlation Correlation Correlation Correlation

-120.042(0.438)

-0.011(0.117)

0.126(1.326)

-0.011(0.110)

0.038(0.400)

-110.033(0.344)

0.087(0.935)

-0.093(0.979)

0.123(1.242)

-0.001(0.011)

-100.085(0.895)

0.099(1.065)

-0.017(0.181)

0.108(1.091)

0.012(0.128)

-90.003(0.032)

0.148(1.609)

-0.235(2.500)*

0.051(0.520)

0.11(1.170)

-8-0.038(0.404)

-0.081(0.880)

-0.121(1.287)

-0.022(0.224)

0.063(0.677)

-70.092(0.979)

0.116(1.261)

0.101(1.086)

0.103(1.062)

0.154(1.656)

-60.064(0.681)

0.066(0.725)

0.072(0.774)

-0.039(0.402)

0.134(1.457)

-50.182(1.957)

0.102(1.121)

0.069(0.750)

-0.158(1.646)

0.028(0.304)

-40.065(0.699)

-0.205(2.253)*

0.023(0.250)

-0.176(1.833)

-0.108(1.174)

-3

0.119

(1.293)

0.037

(0.411)

0.209

(2.272)*

-0.009

(0.095)

0.032

(0.352)

-20.011(0.120)

-0.2(2.222)*

0.111(1.220)

-0.121(1.274)

0.198(2.176)*

-10.055(0.598)

-0.002(0.022)

-0.205(2.253)*

-0.409(4.351)*

0.01(0.110)

00.002(0.022)

-0.162(1.820)

-0.076(0.835)

-0.328(3.489)*

-0.068(0.756)

10.071(0.772)

-0.055(0.618)

-0.169(1.857)

-0.307(3.266)*

-0.002(0.022)

2-0.096(1.043)

0.123(1.367)

0.012(0.132)

-0.079(0.832)

0.023(0.253)

30.136(1.478)

-0.091(1.011)

-0.004(0.043)

-0.169(1.779)

0.094(1.033)

4-0.029(0.312)

0.044(0.484)

0.019(0.207)

-0.057(0.594)

-0.084(0.913)

5 -0.071(0.763) -0.03(0.330) -0.024(0.261) -0.139(1.448) -0.03(0.326)

6-0.086(0.915)

0.069(0.758)

-0.067(0.720)

-0.052(0.536)

-0.087(0.946)

7-0.049(0.521)

-0.275(2.989)*

0.008(0.086)

-0.014(0.144)

-0.084(0.903)

8-0.147(1.564)

0.021(0.228)

-0.035(0.372)

-0.051(0.520)

-0.031(0.333)

90.01(0.105)

-0.149(1.620)

-0.075(0.798)

-0.028(0.286)

-0.039(0.415)

10-0.067(0.705)

0.074(0.796)

0.009(0.096)

-0.136(1.374)

-0.05(0.532)

11-0.116(1.208)

-0.163(1.753)

0.033(0.347)

-0.054(0.545)

-0.042(0.447)

12-0.174(1.813)

-0.034(0.362)

-0.044(0.463)

0.034(0.340)

0.04(0.421)

Numbers with in brackets indicate T values = correlation/ standard error

* indicates t values greater than 2, @ 5% significance level


39/74

Table No. 7 Correlation and T values of ER and SENSEX for the period

2002 to 2005

II half 2002 I half 2003 II half 2003 I half 2004 II half 2004 I half 2005

Lag Correlation Correlation Correlation Correlation Correlation Correlation

-12-0.047(0.495)

0.024(0.247)

-0.024(0.255)

-0.006(0.063)

-0.031(0.326)

0.14(1.273)

-11

0.109

(1.147)

0.085

(0.885)

0.085

(0.914)

-0.09

(0.947)

-0.013

(0.137)

-0.063

(0.573)

-10-0.07(0.745)

-0.111(1.156)

-0.158(1.699)

-0.039(0.411)

0.076(0.809)

0.006(0.055)

-9-0.081(0.862)

0.003(0.032)

0.066(0.717)

0.054(0.574)

-0.001(0.011)

0.001(0.009)

-8-0.073(0.777)

-0.056(0.589)

0.049(0.533)

-0.049(0.521)

0.068(0.723)

-0.107(0.991)

-7-0.007(0.075)

-0.081(0.862)

-0.025(0.272)

0.044(0.468)

0.036(0.387)

-0.068(0.636)

-60.006(0.065)

-0.066(0.702)

0.033(0.363)

0.023(0.247)

-0.147(1.581)

-0.106(0.991)

-50.06(0.652)

0.114(1.213)

-0.034(0.374)

-0.224(2.409)*

0.053(0.576)

0.14(1.321)

-4-0.024(0.261)

-0.131(1.409)

0.168(1.846)

-0.143(1.554)

0.151(1.641)

-0.113(1.076)

-3 -0.082(0.891) -0.014(0.151) -0.042(0.467) 0.021(0.228) -0.103(1.120) -0.012(0.114)

-2-0.04(0.440)

-0.092(1.000)

-0.172(1.911)

-0.183(1.989)

-0.009(0.099)

-0.05(0.481)

-10.137(1.505)

-0.076(0.826)

-0.123(1.382)

-0.165(1.813)

0.032(0.352)

-0.251(2.413)*

0-0.123(1.352)

0.12(1.304)

-0.012(0.135)

-0.111(1.220)

-0.188(2.066)*

-0.009(0.087)

1-0.065(0.714)

-0.017(0.185)

-0.09(1.011)

0.121(1.330)

-0.004(0.044)

0.022(0.212)

2-0.011(0.121)

-0.106(1.152)

-0.062(0.689)

-0.023(0.250)

-0.192(2.110)*

-0.107(1.029)

30.126(1.370)

0.049(0.527)

-0.16(1.778)

0.02(0.217)

0.08(0.870)

-0.05(0.476)

4-0.01(0.109)

-0.151(1.624)

0.049(0.538)

0.03(0.326)

-0.003(0.033)

0.081(0.771)

50.063(0.685)

-0.079(0.840)

-0.048(0.527)

0.036(0.387)

0.014(0.152)

0.138(1.302)

60.027(0.290)

0.086(0.915)

0.032(0.352)

0.068(0.731)

0.065(0.699)

0.063(0.589)

7-0.027(0.290)

-0.099(1.053)

-0.09(0.978)

-0.006(0.064)

-0.051(0.548)

-0.004(0.037)

80.073(0.777)

-0.089(0.937)

0.006(0.065)

0.008(0.085)

0.225(2.394)*

0.046(0.426)

9-0.127(1.351)

0.009(0.095)

0.101(1.098)

0.01(0.106)

-0.014(0.149)

-0.139(1.287)

10-0.086(0.915)

-0.009(0.094)

0.025(0.269)

-0.058(0.611)

-0.095(1.011)

0.194(1.780)

11-0.065(0.684)

0.04(0.094)

0.122(1.312)

0.183(1.926)

-0.027(0.284)

0.054(0.491)

120.174(1.832)

-0.002(0.021)

0.171(1.819)

-0.015(0.156)

0.028(0.295)

0.083(0.755)




40/74

Interpretation:

From the above table, it is clear that in first half of 2000, T value for all

the leads and lags is not statistically significant. So there is no impact

of ER on sensex and vice versa.

In the second half of 2000 T value at -2 lag and at -4 lag is significant.

This shows that ER at zero date has an inverse effect on second and

fourth days share prices and T value at + 7 lag is also significant. So

SENSEX inversely affects the ER.

In the first half of 2001 SENSEX is affected by ER on first, third and

ninth day. In the second half of 2001 on the same day and next day

there was an inverse affect on Index due to fluctuations in ER. And

there was cyclical relationship between the variables during this period.

In the year 2002 and in first half of 2003, ER and SENSEX are not

affected by each other. In the second half 2003 ER affects SENSEX on

the second day. In the first half of 2004 ER leads SENSEX at five day

lag and SENSEX leads ER at five day lag. In the first half of 2005

fluctuations in ER are reflected in SENSEX on the next day.

So finally we can find that there is no systematic pattern of lead or lag

between the variables in this period.


41/74

Table No.8 Correlation and T values of ER and NIFTY for the period 2000 to 2002

I half of 2000 II half of 2000 I half of 2001 II half of 2001 I half of 2002


-120.039

(0.406)-0.011(0.117)

0.101(1.063)

0.004(0.040)

0.047(0.495)

-11

0.043

(0.448)

0.119

(1.280)

-0.071

(0.747)

0.113

(1.141)

0.013

(0.138)

-100.1

(1.053)0.098

(1.054)-0.032(0.340)

0.112(1.131)

-0.003(0.032)

-9-0.027(0.284)

0.135(1.467)

-0.232(2.468)*

0.041(0.418)

0.094(1.000)

-8-0.01

(0.106)-0.078(0.848)

-0.096(1.021)

-0.012(0.122)

0.072(0.774)

-70.067

(0.713)0.108

(1.174)0.104

(1.118)0.117

(1.206)0.171

(1.839)

-60.096

(1.021)0.075

(0.824)0.049

(0.527)-0.024(0.247)

0.148(1.609)

-50.17

(1.828)0.065

(0.714)0.071

(0.772)-0.16

(1.667)0.031

(0.337)

-40.055

(0.591)-0.181(1.989)

0.028(0.304)

-0.179(1.865)

-0.112(1.217)

-30.146

(1.587)0.02

(0.222)0.203

(2.207)*0.004

(0.042)0.013

(0.143)

-20.042

(0.457)-0.155(1.722)

0.105(1.154)

-0.146(1.537)

0.235(2.582)*

-10.033

(0.359)-0.03

(0.337)-0.165(1.813)

-0.42(4.468)*

0.012(0.132)

00.036

(0.396)-0.17

(1.910)-0.099(1.088)

-0.365(3.883)*

-0.072(0.800)

10.04

(0.435)-0.068(0.764)

-0.152(1.670)

-0.335(3.564)*

-0.002(0.022)

2-0.053(0.576)

0.129(1.433)

0.018(0.198)

-0.105(1.105)

0.027(0.297)

30.132

(1.435)-0.112(1.244)

-0.009(0.098)

-0.17(1.789)

0.079(0.868)

4-0.046(0.495)

0.069(0.758)

0.011(0.120)

-0.075(0.781)

-0.084(0.913)

5-0.051(0.548)

-0.026(0.286)

-0.016(0.174)

-0.149(1.552)

-0.021(0.228)

6-0.069(0.734)

0.029(0.319)

-0.063(0.677)

-0.048(0.495)

-0.074(0.804)

7-0.07

(0.745)-0.263(2.859)

-0.002(0.022)

-0.015(0.155)

-0.118(1.269)

8-0.113(1.202)

0.03(0.326)

-0.021(0.223)

-0.041(0.418)

-0.052(0.559)

90.001

(0.011)-0.151(1.641)

-0.084(0.894)

-0.032(0.327)

-0.03(0.319)

10-0.096(1.011)

0.069(0.742)

0.01(0.106)

-0.139(1.404)

-0.05(0.532)

11

-0.081

(0.844)

-0.169

(1.817)

0.05

(0.526)

-0.063

(0.636)

-0.057

(0.606)

12-0.161(1.677)

-0.053(0.564)

-0.055(0.579)

0.038(0.380)

0.035(0.368)




42/74



Table No. 9 Correlation and T values of ER and NIFTY for the period 2002 to 2005

II half of 2002 I half of 2003 II half of 2003 I half of 2004 II half of 2004 I half of 2005


-110.109

(1.147)0.078

(0.813)0.053

(0.570)-0.092(0.968)

-0.016(0.168)

0.008(0.073)

-10-0.069(0.734)

-0.093(0.969)

-0.139(1.495)

-0.045(0.474)

0.091(0.968)

-0.004(0.037)

-9-0.079(0.840)

-0.002(0.021)

0.109(1.185)

0.056(0.596)

-0.002(0.021)

0.006(0.056)

-8-0.057(0.606)

-0.053(0.558)

0.063(0.685)

-0.026(0.277)

0.043(0.457)

-0.113(1.046)

-7-0.004(0.043)

-0.078(0.830)

-0.025(0.272)

0.055(0.585)

0.039(0.419)

-0.019(0.178)

-6-0.027(0.290)

-0.074(0.787)

0.008(0.088)

0.018(0.194)

-0.158(1.699)

-0.148(1.383)

-50.073

(0.793)0.087

(0.926)-0.009(0.099)

-0.241(2.591)*

0.081(0.880)

0.159(1.500)

-4-0.067(0.728)

-0.088(0.946)

0.146(1.604)

-0.141(1.533)

0.126(1.370)

-0.107(1.019)

-3-0.102(1.109)

-0.008(0.086)

-0.038(0.422)

0.001(0.011)

-0.113(1.228)

-0.047(0.448)

-2

0.088

(0.967)

-0.102

(1.109)

-0.189

(2.100)*

-0.181

(1.967)

0.007

(0.077)

-0.024

(0.231)

-10.093

(1.022)-0.075(0.815)

-0.112(1.258)

-0.172(1.890)

0.043(0.473)

-0.222(2.135)*

0-0.111(1.220)

0.103(1.120)

-0.014(0.157)

-0.101(1.110)

-0.169(1.857)

-0.063(0.612)

1-0.112(1.231)

0.004(0.043)

-0.091(1.022)

0.132(1.451)

-0.014(0.154)

0.003(0.029)

20.035

(0.385)-0.082(0.891)

-0.083(0.922)

-0.003(0.033)

-0.154(1.692)

-0.035(0.337)

30.095

(1.033)0.039

(0.419)-0.145(1.611)

0.027(0.293)

0.076(0.826)

-0.032(0.305)

40.029

(0.315)-0.141(1.516)

0.016(0.176)

0.045(0.489)

-0.02(0.217)

0.038(0.362)

50.045

(0.489)-0.099(1.053)

-0.022(0.242)

0.034(0.366)

0.019(0.207)

0.179(1.689)

6-0.028(0.301)

0.063(0.670)

0.018(0.198)

0.069(0.742)

0.068(0.731

-0.014(0.131)

70.017

(0.183)-0.093(0.989)

-0.096(1.043)

0.006(0.064)

-0.038(0.409)

0.08(0.748)

80.124

(1.319)-0.086(0.905)

0.061(0.663)

-0.009(0.096)

0.173(1.840)

0.022(0.204)

9-0.134(1.426)

0.025(0.263)

0.119(1.293)

-0.002(0.021)

-0.009(0.096)

-0.128(1.185)

10-0.058(0.617)

-0.028(0.292)

0.035(0.376)

-0.022(0.232)

-0.093(0.989)

0.179(1.642)

11-0.049(0.516)

0.018(0.188)

0.119(1.280)

0.163(1.716)

-0.018(0.189)

0.044(0.400)

120.175

(1.842)0.012

(0.124)0.195

(2.074)*-0.008(0.083)

0.021(0.221)

0.116(1.055)


43/74

Interpretation:

From the above tables, it is clear that in the year 2000, there is no

relationship between the variables. In the year 2001 there was cyclical

relation between the variables. In the year 2002 and first half 2003

there was no significant relationship between the variables. In the

second half 2003 ER affects NIFTY on the second day. In the first half

of 2004 ER leads NIFTY at five day length and NIFTY leads ER at five

day length. In the first half of 2005 fluctuations in ER are reflected in

NIFTY on the next day.

So finally we can find that there is no systematic pattern of lead or lag

between the variables in this period. This also shows that SENSEX and

NIFTY are moving in the same direction.


44/74

Table No. 10 Correlation and T values of ER and CNX IT

I half of 2000 II half of 2000 I half of 2001 II half of 2001 I half of 2002


-12-0.059(0.615)

-0.044(0.468)

0.136(1.432)

-0.123(1.230)

-0.020(0.211)

-11-0.019(0.198)

0.042(0.452)

-0.077(0.811)

-0.03(0.303)

0.022(0.234)

-10-0.021(0.221)

0.155(1.667)

0.025(0.266)

-0.039(0.394)

-0.006(0.064)

-90.064

(0.674)0.121

(1.315)-0.212

(2.255)*-0.044(0.449)

0.023(0.245)

-80.003

(0.032)-0.057(0.620)

-0.123(1.309)

-0.013(0.133)

0.017(0.183)

-70.159

(1.691)0.101

(1.098)0.052

(0.559)0.154

(1.588)0.135

(1.452)

-60.071

(0.755)0.137

(1.505)0.158

(1.699)-0.021(0.216)

0.162(1.761)

-50.255

(2.742)*0.128

(1.407)0.036

(0.391)-0.05

(0.521)0.065

(0.707)

-4 0.09(0.968) -0.175(1.923) 0.098(1.065) -0.191(1.990) -0.059(0.641)

-30.074

(0.804)0.041

(0.456)0.147

(1.598)-0.124(1.305)

-0.143(1.571)

-2-0.094(1.022)

-0.150(1.667)

0.186(2.044)*

-0.116(1.221)

0.152(1.670)

-1-0.066(0.717)

0.067(0.753)

-0.144(1.582)

-0.477(5.074)*

-0.029(0.319)

0-0.091(1.000)

-0.147(1.652)

-0.111(1.220)

-0.295(3.138)*

-0.069(0.767)

1-0.009(0.098)

-0.069(0.775)

-0.129(1.418)

-0.248(2.638)*

-0.048(0.527)

2-0.123(1.337)

0.128(1.422)

-0.107(1.176)

-0.021(0.221)

0.185(2.033)*

3

0.1

(1.087)

-0.063

(0.700)

-0.022

(0.239)

-0.13

(1.368)

0.097

(1.066)

4-0.08

(1.087)-0.060(0.659)

0.099(1.076)

-0.018(0.188)

-0.035(0.380)

5-0.099(1.065)

0.022(0.242)

-0.026(0.283)

-0.064(0.667)

-0.007(0.076)

6-0.114(1.213)

0.086(0.945)

-0.151(1.624)

-0.075(0.773

0.041(0.446)

7-0.219

(2.330)*-0.254

(2.761)*-0.053(0.570)

-0.031(0.320)

-0.132(1.419)

8-0.202

(2.149)*0.052

(0.565)-0.007(0.074)

-0.046(0.469)

-0.139(1.495)

9-0.102(1.074)

-0.160(1.739)

-0.06(0.638)

-0.048(0.490)

-0.042(0.447)

10-0.121(1.274)

0.082(0.882)

-0.014(0.149)

-0.126(1.273)

0.000(0.000)

11-0.157(1.635)

-0.143(1.538)

0.032(0.337)

-0.055(0.556)

-0.102(1.085)

12-0.152(1.583)

0.028(0.298)

-0.02(0.211)

0.037(0.370)

-0.030(0.316)

Numbers with in brackets indicate T values = correlation/ standard

error



45/74

Table No. 11 Correlation and T values of ER and CNX IT

II half 2002 I half 2003 II half 2003 I half 2004 II half 2004 I half 2005


-12-0.114(1.200)

0.058(0.598)

-0.062(0.660)

0.059(0.615)

-0.101(1.063)

0.111(1.009)

-110.082

(0.863)0.085

(0.885)0.073

(0.785)-0.179(1.884)

-0.029(0.305)

-0.052(0.473)

-10-0.012(0.128)

0.003(0.031)

-0.141(1.516)

0.03(0.316)

0.024(0.255)

-0.039(0.358)

-9-0.033(0.351)

0.006(0.063)

0.089(0.967)

0.022(0.234)

-0.018(0.191)

0.009(0.083)

-8-0.085(0.904)

0.061(0.642)

0.02(0.217)

0.174(1.851)

0.052(0.553)

-0.095(0.880)

-70.073

(0.785)0.031

(0.330)-0.077(0.837)

-0.044(0.468)

0.073(0.785)

-0.087(0.813)

-6-0.07

(0.753)-0.110(1.170)

-0.028(0.308)

0.003(0.032)

-0.047(0.505)

-0.091(0.850)

-50.003

(0.033)0.068

(0.723)0.095

(1.044)-0.061(0.656)

0.017(0.185)

0.179(1.689)

-4-0.167(1.815)

0.013(0.140)

0.137(1.505)

-0.021(0.228)

0.154(1.674)

-0.066(0.629)

-3-0.062(0.674)

-0.049(0.527)

0.096(1.067)

-0.002(0.022)

-0.037(0.402)

-0.037(0.352)

-20.248

(2.725)*-0.074(0.804)

-0.087(0.967)

-0.036(0.391)

0.082(0.901)

-0.058(0.558)

-10.043

(0.473)0.024

(0.261)-0.012(0.135)

0.002(0.022)

0.030(0.330)

-0.116(1.115)

0-0.052(0.571)

-0.023(0.250)

0.01(0.112)

0.001(0.011)

-0.031(0.341)

-0.09(0.874)

1-0.199

(2.187)*0.024

(0.261)-0.035(0.393)

0.041(0.451)

0.005(0.055)

0.093(0.894)

20.068

(0.747)0.026

(0.283)-0.055(0.611)

0.097(1.054)

-0.144(1.582)

-0.015(0.144)

30.065

(0.707)-0.069(0.742)

-0.215(2.389)*

0.079(0.859)

0.090(0.978)

-0.03(0.286)

4

0.117

(1.272)

-0.054

(0.581)

0.034

(0.374)

0.044

(0.478)

-0.079

(0.859)

-0.01

(0.095)

50.018

(0.196)-0.085(0.904)

0.055(0.604)

-0.01(0.108)

-0.044(0.478)

0.213(2.009)*

6-0.053(0.570)

0.057(0.606)

-0.001(0.011)

0.065(0.699)

-0.014(0.151)

0.022(0.206)

70.022

(0.237)-0.056(0.596)

-0.037(0.402)

-0.039(0.415)

0.012(0.129)

0.058(0.542)

80.186

(1.979)-0.111(1.168)

0.081(0.880)

-0.046(0.489)

0.223(2.372)*

0.015(0.139)

9-0.023(0.245)

0.061(0.642)

0.006(0.065)

-0.121(1.287)

-0.113(1.202)

-0.144(1.333)

10-0.076(0.809)

-0.070(0.729)

0.01(0.108)

-0.079(0.832)

-0.005(0.053)

0.227(2.083)*

11-0.023(0.242)

0.016(0.167)

0.074(0.796)

0.056(0.589)

-0.070(0.737)

0.112(1.018)

120.175

(1.842)0.010

(0.103)0.165

(1.755)-0.101(1.052)

0.080(0.842)

0.062(0.564)


error



46/74

Interpretation:

From the above tables, it is clear that in the year 2000, T value at -5,

+7and at +8 lag is statistically significant. This shows that variables

were randomly related. In the year 2001 there was cyclical relationship

between the variables. The year 2002 CNX IT had influenced ER at

two day lag and ER also influenced IT index after two days. In the

years 2003 and 2004 IT had not at all affected by ER fluctuations. In

the year 2005 IT leads ER on fifth and tenth day, but it has not affected

by ER.

So we find that there was no noticeable relation between the variables.

As there was no systematic pattern of lead or lag.


47/74

Table No. 12 Correlation and T values of ER and BANKEX for the period 2002 to 2005

I half 2002 II half 2002 I half 2003 II half 2003 I half 2004 II half 2004 I half 2005

Lag Correlation Correlation Correlation Correlation Correlation Correlation Correlation

-120.111

(1.168)0.121

(1.274)-0.031(0.320)

0.018(0.191)

-0.056(0.583)

-0.06(0.632)

0.052(0.473)

-11

0.059

(0.628)

-0.098

(1.032)

-0.052

(0.542)

0.047

(0.505)

-0.216

(2.274)*

0.034

(0.358)

-0.04

(0.364)

-10-0.096(1.021)

-0.045(0.479)

0.101(1.052)

-0.163(1.753)

-0.111(1.168)

0.112(1.191)

0.03(0.275)

-90.137

(1.457)0.037

(0.394)-0.01

(0.105)0.146

(1.587)0.074

(0.787)-0.04

(0.426)-0.088(0.815)

-80.12

(1.290)-0.051(0.543)

-0.107(1.126)

0.104(1.130)

0.023(0.245)

-0.033(0.351)

-0.003(0.028)

-70.241

(2.591)*-0.010(0.108)

0.096(1.021)

-0.051(0.554)

0.069(0.734)

0.069(0.742)

0.009(0.084)

-60.182

(1.978)0.037

(0.398)-0.052(0.553)

0.024(0.264)

0.024(0.258)

-0.172(1.849)

-0.06(0.561)

-50.003

(0.033)0.017

(0.185)0.061

(0.649)-0.088(0.967)

-0.199(2.140)*

-0.019(0.207)

0.123(1.160)

-4-0.037(0.402)

-0.028(0.304)

-0.02(0.215)

0.043(0.473)

-0.157(1.707)

0.042(0.457)

-0.146(1.390)

-30.16

(1.758)0.067

(0.728)-0.018(0.194)

-0.083(0.922)

0.026(0.283)

-0.158(1.717)

-0.066(0.629)

-20.146

(1.604)0.065

(0.714)-0.06

(0.652)-0.182

(2.022)*-0.197

(2.141)*-0.005(0.055)

0.025(0.240)

-10.003

(0.033)-0.075(0.824)

-0.041(0.446)

-0.092(1.034)

-0.229(2.516)*

0.029(0.319)

-0.209(2.010)*

00.009

(0.100)-0.084(0.923)

0.041(0.446)

0.002(0.022)

-0.144(1.582)

-0.075(0.824)

-0.159(1.544)

10.079

(0.868)0.034(0.374

0.125(1.359)

-0.071(0.798)

0.139(1.527)

0.015(0.165)

0.031(0.298)

2-0.01

(0.110)-0.014(0.154)

-0.076(0.826)

-0.034(0.378)

0.004(0.043)

-0.243(2.670)*

-0.033(0.317)

3-0.183

(2.011)*0.091

(0.989)0.005

(0.054)-0.06

(0.667)0.035

(0.380)0.101

(1.098)0.038

(0.362)

4

0.04

(0.435)

0.068

(0.739)

0.145

(1.559)

0.033

(0.363)

-0.002

(0.022)

-0.023

(0.250)

-0.054

(0.514)

50.1

(1.087)-0.130(1.413)

-0.168(1.787)

-0.111(1.220)

0.033(0.355)

-0.006(0.065

0.251(2.368)*

6-0.11

(1.196)-0.055(0.591)

0.206(2.191)*

0.04(0.440)

0.071(0.763)

0.132(1.419)

0.021(0.196)

7-0.158(1.699)

0.078(0.839)

-0.046(0.489)

-0.105(1.141)

0.010(0.106)

-0.12(1.290)

0.048(0.449)

8-0.051(0.548)

-0.076(0.809)

-0.484(5.095)*

-0.044(0.478)

0.020(0.213)

0.132(1.404)

-0.027(0.250)

90.03

(0.319)0.054

(0.574)0.395

(4.158)*0.186

(2.022)*-0.019(0.202)

-0.096(1.021)

-0.146(1.352)

100.01

(0.106)0.011

(0.117)0.02

(0.208)0.012

(0.129)-0.008(0.084)

-0.084(0.894)

0.196(1.798)

110.062

(0.660)-0.025(0.263)

-0.058(0.604)

0.084(0.903)

0.176(1.853)

-0.018(0.189)

-0.004(0.036)

12-0.069(0.726)

-0.005(0.053)

-0.051](0.526)

-0.015(0.160)

0.000(0.000)

-0.103(1.084)

0.136(1.236)


error



48/74

Interpretation:

From the above tables, it is clear that in the year 2002,t value at -7 and

at +3 lag is statistically significant and in the second half of 2002 there

was no relationship between the variables. In the first half of 2003 T

value at +6 lag is statistically significant and T value at -2 lag in the

second half of 2003 is significant. So there was a little affect on one

variable from the other variable. In the first half of 2004 T value at -1 , -

2 ,-5 and -11 lag is statistically significant. So in this period ER affects

BANKEX. In the second half of 2004 there was negligible relationship

between the variables. In the first half of 2005 T value at -1 lag and at

+5 lag is significant.

So we find that there was no noticeable relation between the variables.

As there was no systematic pattern of lead or lag.


49/74

Table No. 13 Correlation and T values of ER and IMPORT for the period 2000 to 2002

I half 2000 II half 2000 I half 2001 II half 2001 I half 2002


-120.129

(0.510)-0.032(0.340)

0.003(0.032)

0.093(0.930)

0.010(0.105)

-110.049

(1.421)0.087

(0.935)-0.074(0.779)

0.093(0.939)

0.021(0.223)

-100.135

(0.221)0.127

(1.366)-0.169(1.798)

0.079(0.939)

0.060(0.638)

-9-0.021(0.415)

-0.043(0.467)

-0.23(2.447)*

0.051(0.520)

0.118(1.255)

-80.039

(0.777)-0.097(1.054)

0.162(1.723)

-0.029(0.296)

0.088(0.946)

-70.073

(0.585)0.107

(1.163)0.08

(0.860)0.038(0.392

0.139(1.495)

-60.055

(0.129)0.000

(0.000)0.186

(2.000)*-0.047(0.485)

0.057(0.620)

-50.012

(1.247)-0.014(0.154)

0.036(0.391)

-0.178(1.854)

-0.070(0.761)

-40.116

(1.793)-0.129(1.418)

0.103(1.120)

-0.228(2.375*

-0.123(1.337)

-30.165

(0.891)-0.132(1.467)

0.137(1.489)

-0.045(0.474)

-0.003(0.033)

-20.082

(0.380)-0.004(0.044)

-0.033(0.363)

-0.08(0.842)

0.215(2.363)*

-10.035

(0.473)-0.096(1.079)

-0.146(1.604)

-0.292(3.106)*

0.031(0.341)

00.043

(0.272)-0.153(1.719)

-0.026(0.286)

-0.309(3.287)*

-0.062(0.689)

10.025

(1.000)0.082

(0.921)-0.064(0.703)

-0.263(2.798)*

-0.023(0.253)

20.092

(0.402)0.072

(0.800)0.069

(0.758)-0.107(1.126)

-0.057(0.626)

30.037

(0.108)-0.088(0.978)

-0.023(0.250)

-0.121(1.274)

0.065(0.714)

4

0.01

(0.656)

-0.030

(0.330)

-0.048

(0.522)

-0.12

(1.250)

-0.137

(1.489)

50.061

(0.468)0.086

(0.945)-0.077(0.837)

-0.142(1.479)

-0.087(0.946)

60.044

(0.777)-0.186

(2.044)*-0.04

(0.430)-0.138(1.423)

-0.097(1.054)

70.073

(0.234)-0.141(1.533)

0.003(0.032)

0.021(0.216)

-0.069(0.742)

8-0.022(0.379)

-0.014(0.152)

-0.096(1.021)

-0.035(0.357)

-0.064(0.688)

90.036

(1.558)-0.039(0.424)

0.024(0.255)

-0.081(0.827)

-0.031(0.330)

10-0.148(0.229)

-0.030(0.323)

-0.001(0.011)

-0.093(0.939)

0.001(0.011)

11-0.022(1.000)

-0.133(1.430)

-0.043(0.453)

-0.05(0.505)

-0.021(0.223)

12-0.096(0.000)

-0.073(0.777)

-0.05(0.526)

0.134(1.340)

0.039(0.411)


error



50/74


error


Table No. 14 Correlation and T values of ER and IMPORT for the period 2002 to 2005II half 2002 I half 2003 II half 2003 I half 2004 II half 2004 I half 2005


-120.041

(0.432)0.060

(0.619)-0.058(0.617)

0.018(0.188)

0.044(0.463)

0.086(0.782)

-110.106

(1.116)0.010

(0.104)0.069

(0.742)-0.045(0.474)

-0.100(1.053)

-0.022(0.200)

-10-0.041(0.436)

-0.197(2.052)*

-0.041(0.441)

-0.035(0.368)

0.027(0.287)

0.015(0.138)

-9-0.144(1.532)

-0.055(0.579)

0.066(0.717)

0.031(0.330)

-0.009(0.096)

0.000(0.000)

-8-0.009(0.096)

-0.040(0.421)

-0.053(0.576)

-0.042(0.447)

0.118(1.255)

-0.100(0.926)

-7-0.048(0.516)

-0.178(1.894)

-0.023(0.250)

0.016(0.170)

0.002(0.022)

-0.110(1.028)

-6-0.067(0.720)

-0.001(0.011)

-0.034(0.374)

0.015(0.161)

-0.117(1.258)

-0.074(0.692)

-50.066

(0.717)-0.008(0.085)

-0.049(0.538)

-0.205(2.204)*

0.047(0.511)

0.044(0.415)

-40.057

(0.620)-0.085(0.914)

0.145(1.593)

-0.149(1.620)

0.080(0.870)

-0.080(0.762)

-3-0.144(1.565)

0.086(0.925)

-0.052(0.578)

-0.044(0.478)

-0.122(1.326)

-0.072(0.686)

-2-0.037(0.407)

-0.139(1.511)

-0.177(1.967)

-0.202(2.196)*

-0.031(0.341)

-0.063(0.606)

-10.178

(1.956)-0.052(0.565)

-0.065(0.730)

-0.206(2.264)*

-0.005(0.055)

-0.254(2.442)

0-0.147(1.615)

0.074(0.804)

0.009(0.101)

-0.086(0.945)

-0.233(2.560)*

0.001(0.010)

1-0.142(1.560)

-0.155(1.685)

-0.144(1.618)

0.083(0.912)

-0.061(0.670)

0.102(0.981)

20.011

(0.121)-0.093(1.011)

-0.026(0.289)

-0.019(0.207)

-0.111(1.220)

-0.028(0.269)

30.047

(0.511)0.145

(1.559)-0.043(0.478)

0.063(0.685)

0.082(0.891)

-0.075(0.714)

4

-0.089

(0.967)

-0.112

(1.204)

-0.025

(0.275)

0.031

(0.337)

-0.008

(0.087)

0.001

(0.010)

50.048

(0.522)-0.062(0.660)

-0.095(1.044)

0.055(0.591)

0.032(0.348)

0.170(1.604)

60.058

(0.624)0.084

(0.894)0.040

(0.440)0.035

(0.376)0.033

(0.355)-0.039(0.364)

7-0.013(0.140)

-0.103(1.096)

-0.058(0.630)

0.003(0.032)

-0.044(0.473)

0.070(0.654)

80.031

(0.330)0.014

(0.147)0.103

(1.120)0.004

(0.043)0.108

(1.149)0.076

(0.704)

9-0.082(0.872)

0.058(0.611)

0.159(1.728)

0.019(0.202)

0.092(0.979)

-0.070(0.648)

10-0.104(1.106)

-0.052(0.542)

0.117(1.258)

0.001(0.011)

-0.075(0.798)

0.129(1.183)

11-0.018(0.189)

0.059(0.615)

0.163(1.753)

0.145(1.526)

-0.032(0.337)

0.016(0.145)

120.145

(1.526)0.007

(0.072)0.186

(1.979)-0.008(0.083)

0.081(0.853)

0.167(1.518)


51/74

Interpretation:

From the above tables, it is clear that in the year 2000 there was no

interrelation between the variables. In the first half of 2001, there was

negative effect of ER on index at 9 day lag and direct effect of index on

ER at 6 day lag.

In the second half of 2001, there was cyclical relation between the

variables unlike other variables.

In all the other periods there was no significant relation between the

variables.


52/74

Table No. 15 Correlation and T values of ER and EXPORT for the period 2000 to 2002I half 2000 II half 2000 I half 2001 II half 2001 I half 2002

Correlation Correlation Correlation Correlation Correlation

-120.037

(0.385)0.162

(1.723)-0.017(0.179)

-0.096(0.960)

-0.005(0.053)

-11

-0.026

(0.271)

-0.027

(0.290)

0.134

(1.411)

0.009

(0.091)

-0.016

(0.170)

-10-0.046(0.484)

0.067(0.720)

-0.046(0.489)

-0.004(0.040)

-0.031(0.330)

-9-0.009(0.095)

0.148(1.609)

0.020(0.213)

-0.007(0.071)

0.061(0.649)

-80.026

(0.277)0.141

(1.533)-0.242

(2.574)*-0.014(0.143)

0.069(0.742

-7-0.012(0.128)

-0.033(0.359)

-0.126(1.355)

0.126(1.299)

0.187(2.011)*

-60.130

(1.383)0.158

(1.736)0.044

(0.473)0.011

(0.113)0.138

(1.500)

-50.084

(0.903)0.102

(1.121)0.175

(1.902)-0.079(0.823)

0.026(0.283)

-40.222

(2.387)*0.145

(1.593)0.039

(0.424)-0.141(1.469)

-0.084(0.913)

-3 0.129(1.402) -0.2(2.222)* 0.076(0.826) -0.114(1.200) -0.071(0.780)

-20.095

(1.033)0.016

(0.178)0.130

(1.429)-0.112(1.179)

0.191(2.099)*

-1-0.079(0.859)

-0.167(1.876)

0.152(1.670)

-0.465(4.947)*

-0.037(0.407)

0-0.049(0.538)

0.03(0.337)

-0.200(2.198)*

-0.344(3.660)*

-0.096(1.067)

1-0.041(0.446)

-0.166(1.865)

-0.121(1.330)

-0.306(3.255)*

-0.002(0.022)

20.040

(0.435)-0.035(0.389)

-0.167(1.835)

-0.104(1.095)

0.179(1.967)

3-0.126(1.370)

0.123(1.367)

-0.085(0.924)

-0.148(1.558)

0.079(0.868)

40.090

(0.968)-0.052(0.571)

0.005(0.054)

-0.076(0.792)

-0.105(1.141)

5-0.036(0.387)

-0.066(0.725)

0.126(1.370)

-0.169(1.760)

-0.031(0.337)

6-0.089(0.947)

0.023(0.253)

-0.037(0.398)

-0.170(1.753)

0.008(0.087)

7-0.090(0.957)

0.059(0.641)

-0.172(1.849)

-0.060(0.619)

-0.162(1.742)

8-0.162(1.723)

-0.241(2.620)*

-0.078(0.830)

-0.077(0.786)

-0.172(1.849)

9-0.201

(2.116)*0.001

(0.011)0.023

(0.245)-0.062(0.633)

-0.115(1.223)

10-0.057(0.600)

-0.147(1.581)

-0.069(0.734)

-0.138(1.394)

-0.042(0.447)

11-0.089(0.927)

0.057(0.613)

-0.039(0.411)

-0.074(0.747)

-0.035(0.372)

12

-0.159

(1.656)

-0.146

(1.553)

0.017

(0.179)

0.044

(0.440)

-0.015

(0.158)


error



53/74

Table No. 16 Correlation and T values of ER and EXPORT for the period 2000 to 2005II half 2002 I half 2003 II half 2003 I half 2004 II half 2004 I half 2005


-12-0.066(0.695)

0.031(0.320)

-0.008(0.085)

0.006(0.063)

-0.111(1.168)

0.044(0.400)

-110.081

(0.853)0.105

(1.094)0.067

(0.720)-0.066(0.695)

-0.064(0.674)

-0.037(0.336)

-10-0.071(0.755)

-0.032(0.333)

-0.098(1.054)

-0.049(0.516)

0.071(0.755)

-0.013(0.119)

-9-0.029(0.309)

-0.009(0.095)

0.125(1.359)

0.013(0.138)

0.017(0.181)

0.006(0.056)

-8-0.126(1.340)

0.043(0.453)

0.008(0.087)

-0.041(0.436)

0.082(0.872)

-0.174(1.611)

-70.058

(0.624)0.008

(0.085)-0.047(0.511)

0.073(0.777)

-0.008(0.086)

-0.093(0.869)

-60.028

(0.301)-0.102(1.085)

-0.015(0.165)

0.021(0.226)

-0.075(0.806)

-0.141(1.318)

-50.044

(0.478)0.038

(0.404)0.100

(1.099)-0.173(1.860)

0.052(0.565)

0.145(1.368)

-4-0.139(1.511)

0.002(0.022)

0.120(1.319)

-0.135(1.467)

0.136(1.478)

-0.040(0.381)

-3

-0.063

(0.685)

-0.088

(0.946)

0.030

(0.333)

0.078

(0.848)

-0.061

(0.663)

0.011

(0.105)

-20.201

(2.209)*-0.030(0.326)

-0.101(1.122)

-0.139(1.511)

0.062(0.681)

-0.040(0.385)

-10.063

(0.692)0.074

(0.804)-0.014(0.157)

-0.078(0.857)

-0.050(0.549)

-0.192(1.846)

0-0.105(1.154)

-0.078(0.848)

-0.058(0.652)

-0.034(0.374)

-0.055(0.604)

-0.076(0.738)

1-0.094(1.033)

-0.004(0.043)

-0.101(1.135)

0.088(0.967)

-0.019(0.209)

0.060(0.577)

20.031

(0.341)-0.003(0.033)

-0.116(1.289)

-0.042(0.457)

-0.165(1.813)

-0.072(0.692)

30.067

(0.728)-0.012(0.129)

-0.189(2.100)*

0.009(0.098)

0.104(1.130)

-0.089(0.848)

40.111

(1.207)-0.064(0.688)

0.022(0.242)

0.022(0.239)

-0.038(0.413)

0.056(0.533)

5 0.059(0.641) -0.100(1.064) -0.021(0.231) 0.047(0.505) -0.045(0.489) 0.207(1.953)

6-0.003(0.032)

0.054(0.574)

0.010(0.110)

0.053(0.570)

-0.057(0.613)

0.022(0.206)

70.006

(0.065)-0.098(1.043)

-0.059(0.641)

-0.035(0.372)

0.037(0.398)

0.020(0.187)

80.133

(1.415)-0.104(1.095)

0.070(0.761)

0.036(0.383)

0.249(2.649)*

0.000(0.000)

9-0.081(0.862)

0.030(0.316)

-0.014(0.152)

0.023(0.245)

-0.099(1.053)

-0.119(1.102)

10-0.084(0.894)

-0.104(1.083)

0.027(0.290)

-0.031(0.326)

-0.048(0.511)

0.179(1.642)

110.003

(0.032)0.042

(0.438)0.125

(1.344)0.173

(1.821)-0.061(0.642)

0.045(0.409)

120.163

(1.716)-0.006(0.062)

0.192(2.043)*

0.019(0.198)

0.054(0.568)

0.056(0.509)


error



54/74

Interpretation:

From the above tables, it is clear that in the year 2000, t value at -4lag

and at +9 lag is statistically significant. In the second half of 2000, t

value at -3 and at +8 lag is statistically significant and in the year 2001

there was significant interrelationship between the variables like with

other indices. In the first half of 2002, t value at -2 and -7 lag is

significant and in the second half, t value at -2 lag is significant. But in

all the other periods there was no significant relationship between the

variables.

So for both import and export indices there were no normal or special

impact of ER on index values.

The results show that there is no zero order or lead lag relation

between the two variables so six Multi national companies are

considered in the study. These companies were selected fron CNX

MNC list. The companies are ABB, BATA, Colgate Palmolive, Glaxo

smithkline, Hindustan Lever Ltd. and Mico.

For all the six companies the test shows that the share prices of these

companies are not influenced by the exchange rate fluctuations. The

sample o two companies among six are analyzed below.


55/74

Table No.17: Correlation and T values of ER and ABB

for the period 2000 to 2005

YEAR 2000 2001 2002 2003 2004 2005

Lag Correlation. Correlation Correlation Correlation Correlation Correlation

-100.041(0.631)

-0.011(0.164)

0.041(0.631)

0.073(1.123)

0.051(0.785)

-0.044(0.407)

-9-0.005(0.077)

0.006(0.090)

0.069(1.062)

0.154(2.369)*

0.02(0.308)

0.019(0.176)

-80.09(1.385)

0.145(2.197)*

0.002(0.031)

-0.013(0.200)

0.072(1.108)

0.104(0.972)

-70.091(1.400)

0.163(2.470)*

0.05(0.769)

0(0.000)

-0.021(0.323)

-0.01(0.093)

-60.021(0.323)

0.036(0.545)

0.017(0.262)

-0.013(0.200)

-0.071(1.092)

-0.152(1.434)

-5 0.056(0.875 -0.083(1.258) -0.03(0.462) 0.042(0.656) -0.024(0.369) 0.015(0.143)

-40.029(0.453)

-0.018(0.273)

-0.101(1.578) 0.012

(0.188)-0.061(0.953)

-0.068(0.648)

-3-0.01(0.156)

-0.039(0.591)

0.009(0.141)

-0.02(0.313)

-0.08(1.250)

-0.236(2.269)*

-20.041(0.641)

-0.183(2.773)*

0.033(0.516)

-0.092(1.438)

-0.057(0.891)

-0.116(1.115)

-10.039(0.609)

-0.111(1.708)

0.121(1.891)

-0.027(0.422)

-0.066(1.031)

-0.054(0.524)

00.004(0.063)

-0.061(0.938)

0.061(0.953)

-0.085(1.328)

-0.029(0.453)

0.12(1.165)

1

0.069

(1.078)

-0.087

(1.338)

0.085

(1.328)

0.045

(0.703)

0.011

(0.172)

0.084

(0.816)

2-0.076(1.188)

-0.068(1.030)

0.011(0.172)

shilpa bs-0347-exchange rates & stock prices

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