Impact of Fluctuation on Major Foreign Currency Pairs to Indian Rupee Involved Currency Pairs

Abstract

The study is a comprehensive analysis of the cause and effect of fluctuations in the major currency pairs and the effect on the Indian rupee. The study also depicts the variation in the rates of the currency pairs through correlation between them. The objectives of the study are met through the collective and comparative analysis of the data collected for the purpose of the study. Currency market (or Forex market) is a very volatile and liquid market among all the financial market. Currencies are priced in pairs and are traded in pairs. It is useful to know from an investment perspective, regarding the movement they share with each other i.e. whether they move in same direction or in opposite direction. Once the correlations between these pairs and their movement pattern are known, it can be used to control upon overall portfolio’s exposure. The study is useful for those willing to trade in foreign exchange. The inferences drawn from the study can be seen as useful information and can be used to test strategies on correlated pairs in order to avoid over-exposure; to double profitable positions; to diversify risks, and to hedge in the ever fluctuating market. This project is an overview of global forex market and the impact of movement pattern of major foreign currency pairs to Indian rupee currency pairs based on the date of fourteen years from 1/1/2000 to 31/12/2013. Investors can hedge their risks and diversify their portfolio by using the data of correlation between various currency pairs. Fluctuations in one currency pair may or may not impact to another currency pairs. Traders can build their strategies using the currency correlation between different currency pairs to make profit from the market.The study is undertaken in Wings World Finoconsult Pvt. Ltd., Bangalore which is a financial advisory company and is a Subsidiary of FW Markets Ltd. Located in Saint Vincent and the Grenadines under license number 20779 IBC 2013.From the analysis it is found that major foreign currency pairs EURUSD and USDJPY have direct and positive high correlation with EURINR and INRJPY respectively. Whereas, EURUSD and GBPUSD have low and insignificant impact to the exchange rate of USDINR and GBPINR.Investors can take an advantage of the finding of this study to construct the profitable portfolio, hedge the risk, confirm the breakouts and avoid fakeouts while trading in the forex market.