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A STUDY OF RUPEE DEPRECIATION AGAINST US DOLLAR IN CURRENT MARKETForex: Theforeign exchange market(forex,FX, orcurrency market) is a global decentralized market for the trading ofcurrencies.Currency: Currencyis anything that is used in any circumstances, as a medium of exchange.Repo Rate: The rate at which theRBIlends money to commercial banks is called repo rate.Balance Of Trade: The difference between a country's imports and its exports.

Before We ContinueReverse Repo rate: The rate at which theRBIborrows money from commercial banks.Cash Reserve Ratio (CRR): The amount of funds that the banks have to keep with the RBI.FII: Foreign Institutional Investor, An investor or investment fund that is from or registered in a country outside of India.Trade Deficit: An economic measure of a negative balance of trade in which a country's imports exceeds its exports. A trade deficit represents an outflow of domestic currency to foreign markets.

INR has suffered significantly from Fed tapering implications, trading to a new record low against the USD toward the end of June. The sharp depreciation has also shaken fixed income and equity markets, key financing avenues for the countrys current account deficit.

FOREX: Theforeign exchange market(forex,FX, orcurrency market) is a global decentralized market for the trading ofcurrencies. The main participants in this market are the larger international banks. The foreign exchange market assists international trade and investment by enabling currency conversion. It also supports direct speculation in the value of currencies, and thecarry trade, speculation based on the interest rate differential between two currencies. Currency Traded: GBP/USD, EUR/USD, USD/JPY

INDIAN RUPEE(INR): TheIndian rupee(ISO code:INR) is the officialcurrencyof theRepublic of India. The Reserve Bank manages currency in India and derives its role in currency management on the basis of the Reserve Bank of India Act, 1934.

USD/INRYEAR

The Objectives of study behind this project are to learn about the following aspects:To understand the basic concepts of ForexTo understand the difference between forex market and other markets.To understand the concept of a pip (percentage in point)To know about the currencies traded in forex market,To study the major factors that affects the valuation of currency in international market.To study the recent events that lead to the depreciation of Indian Rupee.To understand the factors affecting price of any currency.To understand the concept of currency forecasting i.e; value of INR against USD.

Objectives Of Study

SCOPEThis project was based on the study of Indian Rupee depreciation against the U.S Dollar during June 2013 to August 2013.

DATA SOURCEResearch included gathering both Primary and Secondary data.Primary Data is the first hand data, which are selected a fresh and thus happen to be original in character. Primary Data was crucial to have a watch of stock market and to trace various past and present fluctuations on Indian Rupee against the U.S. Dollar.Secondary Data are those which has been collected by someone else and which already have been passed through statistical process. Secondary data has been taken from internet, newspaper, articles and journals from professionals, magazines and companies web sites.

RESEARCH APPROACHThe research approach used was survey and observation method which is a widely used method for data collection and best suited for descriptive and conclusive type of research survey includes research instrument like online survey either by use of internet or by books and journals. Conclusive type of research includes interviews from professional consultants in the company.

DATA ANALYSISIn international markets, this price is decided just like the price of any other commodity in the market, by the relative demand and supply. The demand for a currency is created by two factors, its exports or the investments that people want to make in that currency or assets denominated in that currency. The force of market sentiment becomes far overpowering than the ability of the monetary agencies to control the value of their currency.The effects of falling exports or rising imports are the reverse - they reduce its demand and weaken the currency. Outflow of capital has the same effect.

How CURRENCY Is Valued ?

Currency Depreciation and Appreciation The loss of value of a country'scurrencywith respect to one or more foreign reference currencies, typically in afloating exchange ratesystem whereas an increase of value of a currency, iscurrency appreciation.Currency Appreciation and DepreciationMore and more rupees are brought in our country and dollars are sold

More and more rupees are sold and dollars are brought

CAUSES OF A NATION'S CURRENCY APPRECIATION OR DEPRECIATION

Relative Product Prices: If a country's goods are relatively cheap, foreigners will want to buythose goods. In order to buy those goods, they will need to buy the nation's currency.Monetary Policy: Countries with expansionary (easy) monetary policies will be increasing the supply of their currencies, which will cause the currency to depreciate and vice versa.Income Changes: Indian consumers purchase moreU.S.goods, the quantity of U.S. dollars demanded will exceed the quantity supplied and the U.S. dollar will appreciate.

Short-term FactorsInterest rates:A government may decide to lower interest rates in an attempt to stimulate growth in the economy.Trade flows:A trade surplus will make the currency stronger whereas a trade deficit will usually weaken the currency.Links to commodity based currencies:Currencies such as Canadian dollar are commodity linked currencies and their exchange rates tend to increase in value when there is a rise in commodities such as oil.Long-term FactorsLong term inflation: Inflation wears away the purchasing power of money in that country. So higher inflation in a country typically weakens its currency.Economic growth:It can take many years for an economy to recover i.e. the subprime crisis in the US took place over three years ago, and it has taken many years for the US economy to recover to the level it's currently at.

Factors Affecting Any Currency Price

FII outflow touches record high USD 7 Billion in June,2013FIIs offload USD 3 Billion worth equities in July,2013.RBI kept interest rates unchanged.Increase in Crude prices.Increase in Fiscal Deficit of India.Unchanged Interest Rates BY RBI.USA initiated process of slowing down Bond Buying programme.Strengthening of US Dollar against major world currencies

Reasons for Depreciation of Rupee High Current Account Deficit High Fiscal Account DeficitHigh Cost of SubsidiesLack Of Intervention From RBI Continued Global Uncertainty Persistent InflationInterest Rate Difference

Macro Economics Factors Which Causes Depreciation Of INR

Advantages:Beneficial to the ExportersGood News for NRIsBenefits to investors invested in International FundsBenefits to Tourism IndustryDisadvantages:Imports become extremely expensiveReduction in Purchasing Power ParityOil Price will increaseRise in InflationEffect on FMGC goods

Effect Of Rupee Depreciation To Indian Economy

CURRENCY TRENDS

Future Outlook Of USD/INR

FX RateSpot June13Q113Q213Q313Q414Q114Q214Q314Q4USDINR60.254.360.258.658.558.057.557.056.5Average (Last 12 Months)54.56Average (Last 10 Years)46.18High (Last 12 Months)55.94 (June, 2012)Low (Last 12 Months)52.96 (October, 2012)High (Since January, 1973)55.94 (June, 2012)Low (Since January, 1973)7.27 (June, 1973)Historical Exchange Rate Summary: USD/INRIndian Rupee (INR) Currency Exchange ForecastTarget MonthForecastHDTFAForecast for the currency exchange rate of the Indian Rupee for the target month indicated, shown in Rupees per US Dollars (USD/INR).May 2014564.01

The 12 month forecast for the Indian Rupee is in the table at the top of thispage. The forecast is that the exchange rate for the Indian Rupee will be roughly 55.99 Indian Rupees to the USD. The table shows aHDTFA of 4.01 which suggests that the May, 2014 currency exchange ratecould easily fall between 60.01 and 51.98 USD/INR.

Lack of prior research study on the topic.Lack of availability of required data.Lack of measures used to collect the data.Limited scope of study.Limited time to watch the market and to collect the required data.Lack of availability of primary data

Limitations Of The Study

The rupee, sank by a staggering 137 paisa to its lifetime low of 60.76 against the US dollar, in the opening day at 58.39 and was still becoming weak.

INR Depreciation: The Indian National Rupee (INR) has depreciated 15% in past two months.Overall, USD/INR displays a bullish trend: We estimate USD/INR to likely continue this trend in FY2013 and target a 58-60 level. We expect the worst case USD/INR pair to make a base around 52.10 levels in the next one year.Indian GDP: We expect Indias GDP to likely to slow down further to around 6% and below.Emerging Markets: India will likely remain an Underperformer across all Emerging Markets.

ConclusionInternational Currencies: We believe international currencies to remain weak with the Euro having a target of 1.16, GBP 1.50, Yen 85 and the Australian Dollar Parity. US 10-year Treasury yield: We estimate yield should witness 1.20% in FY2013.

How to control this situation?RBI should sell Forex reserves and buy rupees in an immediate action in order to arrest the further decline in the value of rupeesGovernment should create a stable political and economic environment in order to make India an attractive destination for foreign investments. Government should increase the limit of FDI in the existing sectors.The Govt. increased import duty on gold import to 8 % from 6 %. RBI creates Demand for rupee by sucking excess rupee liquidity.

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