The project involves understanding of Foreign Exchange and Currency Hedging related to Indian Economy. This basically will deal into studying various factors leading to currency movements both domestic as well as international. To understand the importance of Currency Hedging to corporates and business houses, advantages and various shortcomings that they face. The project aims to understand the major issues in Currency hedging, how currency hedging can be used to protect against currency volatility and seeks to find solutions to the problems faced in hedging. The project specifically focuses on how currency futures can be used to carry out currency hedging. Initially the meaning & need for currency hedging is understood. Next, the various tools for currency hedging such as forwards, futures, options and natural hedges is understood. Further part explains in detail how currency futures can be used to carry out hedging. The comparison, merits and demerits of different tools of hedging is explained later. The Project gives the challenges for currency hedging and proposes certain solutions to the issues involved in hedging. The practical experience of client involvement will be dealt through phases of interaction, acquisition and servicing. Also an overview of commodities like gold and crude oil, their effects on currency is dealt with. The overall understanding of hedging in currency and the practical implications that the client foresees is thus understood. Thus this project also portrays the marketing side of financial instrument, currency.
My Management Internship is at Almondz Global Securities Ltd. (AGSL), Mumbai. The company is one of the leading Investment Banks in India. The company was incorporated in 1994 and is listed on the BSE and NSE. The company offers various financial avenues to its clients such as Corporate Finance, Debt PMS, Equity Broking, Commodity Broking, etc. The project assigned to me is on Currency Hedging. This project aims to increase my theoretical as well as practical knowledge. The project requires the basics about the Forex market. Understanding the various platforms like derivatives, etc. that the company offers through Multi Commodity Exchange (MCX). This helped us understand how Currency Hedging is done through derivatives like Forward, Futures, Options, etc. Also the factors influencing Currency Movements in Domestic as well as International economy is dealt with. The implications of Currency Volatility in each and every segment of the market are understood. Currency is the medium of exchange. Every transaction is carried out in the world with the expectancy of currency in return. Therefore, it is of utmost importance that any changes in currency can affect millions. Any slight fluctuation in the currency can affect the economy accordingly. Currency risk essentially comes from the movement in the exchange rate between two currencies. The price at which you will be able to buy or sell a certain amount of currency will be affected by the currency movement. Any business or individual looking to reduce currency risk and remove a certain level of uncertainty from its future currency transactions, there is tool called as Hedging. Globalization and integration of financial markets, coupled with progressive increase of cross-border flow of capital, have transformed the dynamics of Indian financial markets. This has increased the need for dynamic currency risk management.
Globalization and incorporation of financial markets, in addition to modern increase of cross-border flow of capital, have modified the characteristics of Indian Financial Markets. This has increased the need for powerful Forex risk management. The stable rise in India’s move along with liberalization in Forex trading program has led to large influx of foreign currency into the system in the form of FDI and FII investment strategies. In order to offer a liquid, clear and vivid market for Forex rate risk management, Securities & Exchange Board of India (SEBI) and Reserve Bank of India (RBI) have allowed dealing in currency futures on stock exchanges for the first time in India, initially based on the USDINR exchange amount and therefore on three other Forex sets – EURINR, GBPINR and JPYINR. The USDINR futures contract is being exchanged on MCX-SX with more than US$ 3 billion average daily turnover. This would give Indian businesses another tool for securing their Forex risk effectively and efficiently at clear rates on an electronic trading platform. The primary purpose of exchange-traded currency derivatives is to offer a procedure for price risk management and consequently offer cost bend of expected future prices to enable the industry to protect its Forex exposure. The need for such instrument increases with increase of foreign exchange volatility. Whether you are an individual looking to travel offshore, or planning to send cash to loved ones offshore, you will be suffering from Forex activity. In the same way, if you are in business of imports or exports of products or services you will either receive or transfer cash that will be suffering from currency fluctuation. For businesses, currency volatility have a huge effect on performing worldwide company. Large movements in the Forex can often result in big drops for companies that have not considered securing of their Forex risk exposure Theoretically currency risk is variation in the value of an exposure due to concern about exchange rate changes. Currency risk basically comes from the activity in the exchange rate between two currencies. The cost at which you will be able to buy or offer a certain amount of currency will be suffering from the currency movement. If you are in business or individual looking to reduce your currency risk and remove a certain level of uncertainty from your future currency transactions there is tool called as Hedging. The best way to comprehend hedging is to think of it as INSURANCE. When people decide to hedge, they are assuring themselves against a bad occurrence. This doesn’t avoid a bad occurrence from occurring, but if it does occur and you’re effectively hedged, the effect of the occurrence is decreased. So, hedging happens almost everywhere, and we see it every day. For example, if you buy an automobile insurance, you are securing yourself against robbery, accident etc. In the same way when you guarantee your equipment, godown or warehouse, you are securing against fires, break-ins or other unexpected problems. Hedging means taking place in futures market that is opposite to a position in a physical market with a perspective to decrease or restrict risk coming up of unforeseen changes in currency rate. Corporates use hedging methods to decrease their currency risks. Of course, nothing is free in this world, so one has to pay for this insurance policy in one type or another. Hedging is a strategy by which one can manage risk. It is a tool by which you can decrease potential loss. The most regularly used hedging tools are forwards and futures.
The difference between hedging and trading corresponds to risk existing before access into the futures/forward market. The trader begins with no risk and then goes into a deal that requires risk in order-one hopes-to make earnings. The hedger, however, begins with a pre-existing risk produced from the regular course of his or her conventional business. Futures/forwards are then used to decrease or remove this pre-existing exposure. These contracts may be used to protect some or all of such risk, basically by fixing the price or exchange rate associated with the appropriate exposure. Once so hedged, the business is protected from the consequences of following changes in the exchange rate, either positive or negative.
When you hedge, you are protecting yourself against currency risk. In other words, hedging is a tool for currency risk management. Currency risk is the risk arising out of fluctuations in exchange rates. Today, importers and exporters face the risk of their margins being eroded on account of excessive volatility in currency. Hedging allows the importers/exporters to focus on his core business and not worry about currency movements. Earlier, the rupee was not very volatile. But, in the past few months, rupee has shown a lot of volatility. In 2011, rupee depreciated from Rs.43.80 to a dollar to Rs. 54.20 levels, a change of around 23%. However, in January the rupee logged its best monthly gains in 17 years to rise to Rs.49.05. CURRENCY VOLATILITY IN THE PAST FEW MONTHS Figure USDINR Chart Note: The various events represented by the numbers are: 1. Dec 15: RBI Circular saying forward contracts once cancelled, cannot be rebooked. 2. Jan 31: The rupee logged its best monthly gains in more than 17 years in January 3. March 7: The rupee fell to a seven-week low early on Wednesday, extending a slide to a fifth consecutive session, on strong demand for dollars from oil refiners and slowing capital inflows as global risk appetite wanes. 4. Mar 22: Rupee off 2-month low on possible RBI dollar sales i.e RBI intervention 5. Mar 30: Data released revealed that India’s balance of payments fell into negative territory in the December quarter for the first time in three years 6. May 10: To curb the slide in the rupee, the Reserve Bank of India has asked exporters to convert 50% of their dollars held in Exchange Earner’s Foreign Currency (EEFC) accounts into rupee. The central bank has also ruled that exporters can henceforth access the forex market for buying dollars only after they have utilized the balance in their EEFC accounts. Thus, we can see that currency moves on account of a multitude of factors such as RBI intervention, FII inflows, FII outflows, inflation and interest rate differentials, current account deficit, changes in Govt. policy etc. This currency movement is outside the control of an enterprise. In other words, it relates to the external environment and can be a threat for importers, exporters, enterprises who have taken foreign currency loans and those who invest abroad. Though the external environment cannot be controlled, there are certain risk management tools available to an enterprise in order to manage currency risk. Hedging is one such tool.
A host of benefits are available to a wide range of financial market participants, including hedgers (exporters, importers, corporates and Banks), investors and arbitrageurs on MCX-SX. Hedgers: A high-liquidity platform for hedging against the effects of unfavourable fluctuations in the foreign exchange markets is available on this exchange. Banks, importers, exporters and corporate houses hedge on MCX-SX. Investors: All those interested in taking a view on appreciation or depreciation of exchange rate in the long and short term can participate in the MCX-SX currency futures. For example, if one expects depreciation of the Indian Rupee against the US dollar, then one can hold on long (buy) position in USDINR contract for returns. Contrarily, one can sell the contract if one sees appreciation of the Indian Rupee. Arbitrageurs: Arbitrageurs get the opportunity of trading in calendar spreads and inter currency spreads; on the existing contracts on the exchange.
Currency exchange rates are typically affected by the supply and demand of a particular country’s currency in the international foreign exchange market. The level of confidence in the economy of a particular country also influences the currency of that country. Major factors influencing the currency market: Inflation rates Interest rates Trade balance Central bank intervention Global and domestic stock markets Global and domestic economic indicators Global currency movement Economic and political scenarios Crude oil price movement
Importers and exporters: Importers need to protect themselves from rupee depreciation and exporters need to protect themselves from rupee appreciation. Foreign bound students: If rupee depreciates, then students who want to study abroad will have to pay more rupees as their fees. Such a student can hedge the amount payable as fees. Foreign currency denominated loans: There are many companies which take taken ECB/FCCB’s, the value of these loans keeps on changing on account of rupee fluctuations. Thus, if the rupee depreciates, more rupees need to be paid while repaying these loans. Corporates can hedge these loans and protect themselves from currency volatility. Foreign bound travellers: A person who wants to travel abroad has to protect himself from currency depreciation. Such a person can hedge the amount required as his tour expenditure.
The most commonly used tools of hedging are futures and forwards. You can also enter into an option contract in order to hedge. In India, hedging through futures is carried out through MCX while hedging through forwards is carried out through banks. You cannot use options in order to carry out hedging through MCX. However, currency options are available on NSE.
A forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed upon today. This is in contrast to a spot contract, which is an agreement to buy or sell an asset today. The party agreeing to buy the underlying asset in the future assumes a long position, and the party agreeing to sell the asset in the future assumes a short position. The price agreed upon is called the delivery price, which is equal to the forward price at the time the contract is entered into.
An option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price (the strike). The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the corresponding obligation to fulfil the transaction. The price of an option derives from the difference between the reference price and the value of the underlying asset (commonly a stock, a bond, a currency or a futures contract) plus a premium based on the time remaining until the expiration of the option.
An arrangement in which two parties exchange specific amounts of different currencies initially and a series of interest payments on the initial cash flows are exchanged. Often, one party will pay a fixed interest rate, while another will pay a floating exchange rate (though there may also be fixed-fixed and floating-floating arrangements). At the maturity of the swap, the principal amounts are exchanged back. Unlike an interest rate swap, the principal and interest are both exchanged in full in a currency swap.
Natural Hedging involves to the extent possible, foreign currency outflows with inflows. There are certain companies which have assets in foreign countries as well as they import a lot of raw materials from foreign countries. The offshore assets serve as a natural hedge against the depreciating currency. E.g. Tata Steel has a lot of assets in Europe (Corus) and it also imports a lot of raw materials for the purpose of producing steel. Thus, if the rupee depreciates, the Balance Sheet is converted at a higher rate but it has to may much more for imports. An example of ‘operational hedging’ is relocating the production facilities of Japanese car manufacturers for example who used to supply cars to the American market in the entirety, earlier used to export them from Japan. But now they have set up factories in the USA, thus reducing their exposure to the fluctuating Yen/dollar rate. Similarly, an oil producer may expect to receive its revenues in U.S. dollars, but faces costs in a different currency; it would be applying a natural hedge if it agreed to, for example, pay bonuses to employees in U.S. dollars.
Hedging through MCX futures can be carried out in four currency pairs viz. US dollars to Indian rupees (USDINR) Euro to Indian rupees (EURINR) Japanese Yen to Indian rupees (JPYINR) Great Britain Pound to Indian rupees (GBPINR) The lot size is of 1000 dollars/1000 Pounds/1000 Euro.
9:00AMto5:00PM (Monday to Friday)
INR per USD , EUR ,GBP and JPY
1.75% on first day&1% thereafter
All months with a maturity duration of 12 months
Cash Settled in Indian Rupee
RBI USD INR Reference Rate
Last working day of month, except Saturday.
RBI reference rate is the rate published daily by RBI for spot rate for various currency pairs. The rates are arrived at by averaging the mean of the bid/offer rates polled from a few select banks during a random five minute window between 11:45 AM and 12:15 PM and the daily press on RBI reference rate is be issued every week-day (excluding Saturdays) at around 12.30 PM. The contributing banks are selected on the basis of their standing, market-share in the domestic foreign exchange market and representative character. The RBI periodically reviews the procedure for selecting the banks and the methodology of polling so as to ensure that the reference rate is a true reflection of the market activity. The reference rate is a transparent price which is publicly available from an authentic source.
Currency futures contracts have two types of settlements, the MTM settlement which happens on continuous basis at the end of each day, and the final settlement which happens on the last trading day of the futures contract.
All futures contracts for each member are marked to market to the daily settlement price of the relevant futures contract at the end of each day.
On the last trading day of the futures contracts, after the close of trading hours, the Clearing Corporation marks all positions of a CM to the final settlement price and the resulting profit/loss is settled in cash.
No guarantee of settlement until the dateA of maturity only the forward price Both parties must deposit an initial guarantee (margin)
Depending on the transaction Standardized
Negotiated directly by the buyer and seller Quoted and traded onA the Exchange
Depending on the transaction and the requirements of the contracting parties. Standardized
The contracting parties Clearing House
Not regulated Government regulated market
High counterparty risk Low counterparty risk
CustomizedA to customers need. Usually no initialA paymentA required. Standardized. Initial margin paymentA required.
OppositeA contractA with same or different counterparty. Counterparty risk remains while terminating with different counterparty. OppositeA contractA onA the exchange.
ForwardA contractA mostly mature by delivering the commodity. Future contracts are generally cash settled.
Transaction: Exporter executes an export order on 1st Nov’ 2011 & has inflows of $1, 00,000 to be received on 28/03/12. Spot rate of USDINR as on 01/11/11 is Rs. 50.00/- Exporters Risk: Rupee may appreciate & export proceeds of USD 1, 00,000 will be converted at a rate lower than 50.00 Unprotected Transaction: As seen in the previous example, IF exporter is also not hedging his currency risk, his business fortunes are totally dependent on currency fluctuations and may have major impact on profit margins. Solution: In order to avoid these unforeseen situations, exporters also should buy INSURANCE (hedge their currency exposure on MCX-SX). Hedging Strategy: The Exporter has to sell Dollar as he will be getting remittances from abroad, but instead of selling dollar in the spot, he sells Dollar in MCX-SX Futures Contract. So on 01/11/11, Exporter will SELL 100 lots (1 lot = $1000) of MCX-SX USDINR 28/03/12 Future Contract say at Rs. 51/- On USD Receipt Day (28/03/12): Exporter squares up (BUY) 100 lots of MCX-SX USDINR 28/03/12 Future Contract and simultaneously sell USD to INR on spot rate at Bank. Figure Scenario Example Scenario 1: On 28/03/12 Bank Spot Rate & MCX-SX USDINR 28/03/12 Future Contract moved to 48.00, Exporter will gain Rs. 3/- (51-48 ) at MCX-SX, Since on 1/11/11, he has sold dollar in Futures Market at Rs. 51/- and on 28/03/12 rupee has appreciated to Rs. 48/-, hence he gains Rs. 3/-. But will lose Rs. 2/- (48-50) by converting USD to INR at bank at 48.00, Instead of 50.00. As If he had sold dollar on 1/11/11, he would have sold at Rs. 50/-, but now on 28/3/12, he is selling dollar at Rs. 48/- Scenario 2: On 28/03/12 Bank Spot Rate & MCX-SX USDINR 28/03/12 Future Contract moved to 50.00, Exporter will gain Rs. 1/- (51-50) at MCX-SX, Since on 1/11/11, he has sold dollar in Futures Market at Rs. 51/- and on 28/03/12 rupee has appreciated to Rs. 50/-, hence he gains Rs. 1/- and exporter will convert USD to INR at bank @50.00, same as spot on 01/11/11 ( i.e. 50.00). Scenario 3: On 28/03/12 Bank Spot Rate & MCX-SX USDINR 28/03/12 Future Contract moved to 52.00, Exporter will lose Rs. 1/- (51-52) at MCX-SX, Since on 1/11/11, he has sold dollar in Futures Market at Rs. 51/- and on 28/03/12 rupee has depreciated to Rs. 52/-, hence he lose Rs. 1/-. But will gain Rs. 2/- (52-50) by converting USD to INR at bank @52.00, Instead of 50.00. As If he had sold dollar on 1/11/11, he would have sold at Rs. 50/-, but now on 28/3/12, he is selling dollar at Rs. 52/- Observation: Overall he is gaining Re. 1/- in all scenarios and protecting his fixed margins. By hedging his position, the exporter is buying peace of mind. In times of extreme volatility he has safe-guarded his margins. Conclusion: Corporate can focus on their main business and minimize risks arising from currency fluctuations by buying INSURANCE i.e. hedging on currency futures platform (MCX-SX).
Better Rates: While hedging through MCX, importers/exporters get better rates as compared to the rates obtained through banks. Counterparty Risk: If you hedge through bank, then there is counterparty risk. Counterparty risk implies that the bank might not honour the commitment it makes, if the bank itself goes into liquidation. However, in case of using MCX as a platform, it is guaranteed by the exchange. However, it has to be noted that the counterparty risk is extremely less in case of PSU banks and large private sector banks as they are in reasonably good shape. However, the level of trust that people place on smaller private sector banks and co-operative banks is much less and the perception of counterparty risk is much higher. Small Lot Size: The lot size in case of MCX contracts is quite less. The lot size for an MCX contract is only $1000 i.e. approximately Rs. 55000. The margin money that needs to be paid is approximately 3 per cent which works out to RS.1650. Thus, a person who is hedging can pay margin money of Rs. 1650 and have an exposure of Rs. 55000. Transparency: In case of a bank, the client does not know the difference between the bid and ask rates, whereas in case of MCX, the bid and ask rates are available on the screen. Hence, MCX offers much more transparency as compared to banks.
Margin Money: It is the money that has to be deposited at the time of opening the account.eg. If a person wants an exposure of Rs 55000 he would have to deposit approximately Rs. 1650 as margin money. When a person hedges through banks, this margin money is not required to be paid. If the margin money deposited with broker is not much and the trade goes against the person, then more margin money is to be deposited. This results in unnecessary administrative work for the person who has hedged. Liquidity of long term contracts: The contracts up to 2 months in MCX are fairly liquid. However, the contracts after that are not very liquid. Not possible to hedge for long run: The maximum tenor for which you can hedge is 12 months as the maximum duration of a futures contract is 12 months. Here is a screenshot of MCX-SX market data watch Figure MCX Market Data Watch Factors affecting the exchange rate of Indian Rupee As we know that Forex market for Indian currency is highly volatile where one cannot forecast exchange rate easily, there is a mechanism which works behind the determination of exchange rate. One of the most important factors, which affect exchange rate, is demand and supply of domestic and foreign currency. There are some other factors also, which are having major impact on the exchange rate determination. After studying research reports on relationship between Rupee and Dollar of last four years we identified some factors, which have been segregated under four heads. These are: Market Situations Economic Factors Political Factors Special Factors 1. Market Situations: India follows the “floating rate system” for determining exchange rate. In this system “market situation” also is pivot for determining exchange rate. As we know that 90% of the Forex market is between the inter-bank transactions. So how the banks are taking the decision for settling out their different exposure in the domestic or foreign currency that is impacting to the exchange rate. Apart from the banks, transactions of exporters and importers are having impact on this market. So in the day-to-day Forex market, on the basis of the bank and trader’s transactions the demand and supply of the currencies increase or decrease and that is deciding the exchange rate. On the basis of this study we found out the different types of the decisions, which is affecting to market. These are as follows: In India, there are big Public Sectors Units (PSUs) like ONGC, GAIL, IOC etc. all the foreign related transactions of these PSUs are settled through the State Bank of India. E.g. India is importing Petroleum from the other countries so payment is made through State Bank of India in the foreign currency. When State Bank of India (SBI) sells and buys the foreign currency then there will be noticeable movement in the rupee. If the SBI is going for purchasing the Dollar then Rupee will be depreciated against Dollar and vice versa. Foreign Institutional Investor’s (FIIs) inflow and outflow of the currency is having the major impact on the currency. E.g. U.S. based company is investing their money through the Stock markets BSE or NSE so her inflows of the Dollars is increasing and when it is selling out their investments through these Stock markets then outflows of the Dollars are increasing. However if the FIIs inflowing the capital in the country then there will be the supply of the foreign currency increases and Demand for the Rupee will increases and that will resulted appreciation in the rupee and vice versa. Importer and Exporter’s trading is also affecting to the rupee. Like if an Indian exported material to U.S. so he will get his payments in Dollars and that will increase the supply of Dollars and increase of demand of rupee and that will appreciate the rupee and vice versa. Banks can be confronted different positions like oversold or over bought position in the foreign currency. So bank will try to eradicate these positions by selling or purchasing the foreign currency. So this will be increased or decreased demand and supply of the currency. And that will cause to appreciation or depreciation in the currency. As we know that in India there is a floating rate system. In India Central Bank (RBI) is always intervene in the trade for smoothen the market. And this RBI can achieve by selling foreign exchange and buying domestic currency. Thus, demand for domestic currency which, coupled with supply of foreign exchange, will maintain the price foreign currency at the desired level. Interventions can be defined as buying or selling of foreign currency by the central bank of a country with a view to maintaining the price of a given currency against another currency. US Dollar is the currency of intervention in India. 2. Economic Factors: In the Forex Market Economic factors of the country is playing the pivot role. Every country is depending on its prospect economy. If there will be change in any economy factors, which will directly or indirectly affected to Forex market. Here there are two types of economic factors. These are as follows: Internal Factors. External Factors. Internal Factors includes: Industrial Deficit of the country. Fiscal Deficit of the country. GDP and GNP of the country. Foreign Exchange Reserves. Inflation Rate of the Country. Agricultural growth and production. Different types of policies like EXIM Policy, Credit Policy of the country as well reforms undertaken in the yearly Budget. Infrastructure of the Country External Factors includes: Export trade and Import trade with the foreign country. Loan sanction by World Bank and IMF Relationship with the foreign country. Internationally OIL Price and Gold Price. Foreign Direct Investment, Portfolio Investment by the country. 3. Political Factors: In India election held every five years mean thereby one party has rule for the five years. But from the 1996 India was facing political instability and this type of political instability has created hefty problem in the different market especially in Forex market, which is highly volatile. In fact in the year 1999 due to political uncertainty in the BJP Government the rupee has depreciated by 30 paise in the month of April. So we can say that political can become important factor to determine foreign exchange in India. Due to political instability there can be possibility of de possibility delaying implementation of all policies and sanction of budget. So that will create also major impact on trade. 4. Special Factors: Till now we have seen the general factors, which will affect the Forex market in daily business. And on that factors the different players in the market have taken the decision. But some times some event happened in such a way that it will really change the whole scenario of the market so we can called that event special factors. However traders have to really consider those things and take the decisions. We will see these types of factors in detailed: In the year 1998, when Government of India has done “Pokhran Nuclear Test” at that time rupee has been depreciated around 85 paise in day and 125 paise in seven days. Her main fear was that U.S., Australia and other countries have stop to sanctions the loans So this type of event will have major impact on the market. And due to this the decision procedure of the trader also varies. In the year 2000, India has faced Kargil war, which is also affected to the market. By this war the defence expenditures are raised and due to that there will be increase in the fiscal deficit. And become obstacle in the growth of the economy. So this type of event has impact on the Forex market. There are various measures taken by Reserve Bank of India which contributes to fluctuation in Indian Rupee against global currencies. Some factors are listed hereby: RBI Interest Rate Decision (Repo Rate) The RBI Interest Rate Decision is announced by the Reserve Bank of India. If the bank is hawkish about the inflationary outlook of the economy and rises the interest rates, it is seen as positive, or bullish, for the INR, while a dovish outlook for the economy (or a rate cut) is seen as negative, or bearish, for the currency. Reserve Repo Rate The Reverse Repo Rate released by the Reserve Bank of India is the rate at which the RBI borrows money from commercial banks. The rate is another tool of monetary policy, with an increase leading to a transfer of funds to the RBI, and thus out of the banking system. A decline in the reverse repo rate is seen as positive (or bullish) for the Rupee while an increase is seen as negative (or bearish). Cash Reserve Ratio The Cash Reserve Ratio released by the Reserve Bank of India is the minimum reserves each commercial bank must hold against customer deposits. The rate is thought of as a tool of monetary policy, while indicating the strength in the economy. Generally speaking, a high reading is seen as positive (or bullish) for the Rupee, while a low reading is seen as negative (or Bearish). M3 Money Supply The M3 Money Supply released by the Reserve Bank of India measures all the India Rupees in circulation, encompassing notes and coins as well as money held in bank accounts. It is considered as an important indicator of inflation, as monetary expansion adds pressure to the exchange rates. An acceleration of the M3 money is considered as positive for the Rupee, whereas a decline is negative. Bank Loan Growth The Bank Loans released by Reserve Bank of India measures the amount of lending by the domestic financial system. A high reading is seen as positive (or bullish) for the Rupee, whereas a low reading is seen as negative (or bearish). FX Reserves, USD The FX Reserves released by the Reserve Bank of India presents changes in the value of official reserve assets reflecting purchases and sales (including swaps) of foreign exchange by the Central Bank, earnings on foreign securities, and transactions with official institutions overseas. A high reading is is seen as positive (or bullish) for the Rupee, while a low reading is seen as negative (or Bearish).
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