Effect of Forex
This query is : Resolved
12 December 2007
How does fluctuations in foreign currency effect the stock market? What happens when the value of Rupees fall or rises against Dollar?
15 December 2007
Fluctuations in Foreign Exchange Rate Affects the stock market in following manner
1.
There are many companies In Information Technology ,Pharmaceuticals,garments and other export dependent industries which derives most of there income from Exports.Due to Appreciation of currency(Spectially Sudden Appreciation for which hedging is not successful)The net amount realised by these exporters In Indian currency Falls and there profits margins come under pressure.Due to severe competetion from other countries the exporters cannot increase the prices In USD terms beyond a certain limits and therefore the profits of these companies falls resulting in fall in prices of there stocks.
For e.g
If an exporter exports goods of USD 100 then amount realised by them in INR depends on Exchange rate prevailing at the time of conversion as follows.
IF 1USD =44 RS
Amount Realised in INR is 4400
IF 1USD =39 RS
Amount Realised In INR is 3900
So Exporter revenues falls by 11.5 % just because of the exchange rate.
So Share prices of export dependent companies GENERALLY FAlls.
2.
For Industries which are dependent on Import or receives services from abroad (e.g Petrolum marketing companies,Leasing of Aeroplanes) appreciation of Indian currency helps IMPORTERS to purchase goods or avail these services from abroad at a low cost as they have to pay less in IND to obtain Same amount of dollors for making payment to there overseas suppliers
Suppose an importer has to make payment of 100 USD
IF 1USD =44 RS
Amount payable in INR is 4400 to make payment of 100 USD
IF 1USD =39 RS
Amount payable In INR is 3900
Total amount saved = 500
So Share prices of import dependent companies generally rise as there profits rise KEEPING OTHER FACTORS CONSTANT.
3.
Many companies have taken Loans from abroad .Due to exchange rate fluctuations amount of principle and intrest payable for these loans also varies affecting their profits and thus stock market.
4.
A foreign investor converts Dollors in indian currency to invest in indian market ,so the exchange rate determines the amount they get in INR after conversion to be invested in market and Vice versa.Thus exchange rate influence their sentiments.
Besides these there are many factors depending on exchange rate which affects the stock market.
1.
There are many companies In Information Technology ,Pharmaceuticals,garments and other export dependent industries which derives most of there income from Exports.Due to Appreciation of currency(Spectially Sudden Appreciation for which hedging is not successful)The net amount realised by these exporters In Indian currency Falls and there profits margins come under pressure.Due to severe competetion from other countries the exporters cannot increase the prices In USD terms beyond a certain limits and therefore the profits of these companies falls resulting in fall in prices of there stocks.
For e.g
If an exporter exports goods of USD 100 then amount realised by them in INR depends on Exchange rate prevailing at the time of conversion as follows.
IF 1USD =44 RS
Amount Realised in INR is 4400
IF 1USD =39 RS
Amount Realised In INR is 3900
So Exporter revenues falls by 11.5 % just because of the exchange rate.
So Share prices of export dependent companies GENERALLY FAlls.
2.
For Industries which are dependent on Import or receives services from abroad (e.g Petrolum marketing companies,Leasing of Aeroplanes) appreciation of Indian currency helps IMPORTERS to purchase goods or avail these services from abroad at a low cost as they have to pay less in IND to obtain Same amount of dollors for making payment to there overseas suppliers
Suppose an importer has to make payment of 100 USD
IF 1USD =44 RS
Amount payable in INR is 4400 to make payment of 100 USD
IF 1USD =39 RS
Amount payable In INR is 3900
Total amount saved = 500
So Share prices of import dependent companies generally rise as there profits rise KEEPING OTHER FACTORS CONSTANT.
3.
Many companies have taken Loans from abroad .Due to exchange rate fluctuations amount of principle and intrest payable for these loans also varies affecting their profits and thus stock market.
4.
A foreign investor converts Dollors in indian currency to invest in indian market ,so the exchange rate determines the amount they get in INR after conversion to be invested in market and Vice versa.Thus exchange rate influence their sentiments.
Besides these there are many factors depending on exchange rate which affects the stock market.
15 December 2007
Do you mean that what happens in the stock market is the cumulative net effect of all the above? For instance when rupees value falls down, the share prices of export oriented companies go down and those of import oriented companies go up. Besides due to the investment pattern of FIIs, the movement becomes more unpredictable.Is that right?
Which are the sources from where I could get detailed information for delving deeper into the subject?Are there some certification courses/Professional Courses relating to this?
Which are the sources from where I could get detailed information for delving deeper into the subject?Are there some certification courses/Professional Courses relating to this?
25 December 2007
Yes, forex fluctuation is one of the reason there are many other reasons too. Sensex and NIFTY are basket of diffrent shares in diffrent sectors. It if IT sector is down it does not mean all IT company will be down. If a company does not have export order and Rs. go down then it will not effect shares value of that shares. Please tell me if some thing not clear
25 December 2007
Thank You Kirti, it is clear. However I have a query with regard to the availability of currency in the world market.For instance when India imports goods from US it has to pay in USDOLLARS.For that the exporter pays the amount in INR to get USD from IMF and he uses USD so obtained to make the payment.The value of currency fluctuates due to such demands and supplies. My query is where does International Monetary Fund get the particular currency from? Or is there anything wrong in which I have understood?
15 February 2008
Frankly saying i am not fully aware of your question. If you want to say that how one country get foreign currency. Than answer is by import and export are through bank LC currecy route to diffrent countries. At the time of export and import we have to submit data with custom authority quantity and sales/purchase value of transaction, from there they annually get that diffrent currecy inflow/outflow. If India will have enough currency say of US $ in banks. it will means that supply is more than demand so $ will depreciate or $ will be down.
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