A Dissertation Synopsis on

" A Study On Exchange Rate Fluctuation

And Its Impact On Export IN INDIA"

Submitted for Partial fulfillment of award of

Post Graduate Diploma in Management (PGDM)

By
Vimal Shukla

Roll Number- 2009173

Submitted to
Prof. Shalini Singh
 " A Study On Exchange Rate Fluctuation And Its
Impact On Export
IN INDIA"

Introduction:

In simple terms, an exchange rate is the rate at which one currency may be converted into
another. Generally three types of exchange rates are prevalent in the market: fixed exchange rate,
floating exchange rate and pegged exchange rate.

To maintain the same exchange rate if there is increased demand, the central bank can issue more
of the domestic currency and purchase the foreign currency, which will increase the value of
foreign reserves. Simultaneously, it may provoke domestic inflation.

Since the amount of foreign reserves available to defend a weak currency (a currency in low
demand) is limited, a foreign exchange crisis or devaluation could be the end result. For a
currency in very high and rising demand, foreign exchange reserves can theoretically be
continuously accumulated, although eventually the increased domestic money supply will result
in inflation and reduce the demand for the domestic currency.

Large reserves of foreign currency allow a government to manipulate exchange rates

- usually to stabilize the foreign exchange rates to provide a more favorable economic
environment. There are also costs in maintaining large currency reserves. Fluctuations in
exchange markets result in gains and losses in the purchasing power of reserves. Even in the
absence of a currency crisis, fluctuations can result in huge losses. Reserves of foreign currency
provide a small return in interest. However, this may be less than the reduction in purchasing
power of that currency over the same period of time due to inflation, effectively resulting in a
negative return known as the "quasi-fiscal cost". In addition, large currency reserves could have
been invested in higher yielding assets.

Foreign exchange reserves are important indicators of ability to repay foreign debt and for
currency defense. They are used to determine credit ratings of nations. However, there are other
government funds like stabilization funds (which are also called sovereign wealth funds) that are
counted as liquid assets and can be applied to liabilities in times of crisis.
How forex affects the Export:-

Foreign exchange identifies the process of converting domestic currency into international
banknotes at particular exchange rates. Analysis of the past trend shows that the exchange rate
(indirect quote) between the Indian rupee and the US dollar has varied approximately between
Rs. 44 and Rs. 48.

These transactions incorporate high economic risks and pose different implications for different
economies, global economy as a whole as well as on inflation, economic growth, international
trade, capital flows and political sentiment. All the financial decisions around the world are
somehow being taken as an effect to these exchange rate fluctuations.

Foreign exchange rates describe valuations for domestic currency, which describe the economic
and political standing of one's home nation. Weak exchange rates may signal recession and
political instability. Alternatively, strong exchange rates often serve as an indicator of favorable
commercial conditions for a particular country. Exchange rates have direct impact on
international trade. Weak exchange rates (i.e., depreciation of the domestic currency in terms of
the foreign currency) support tourism and the export economy but at the same time it hurts
imports to the country. A depreciation of the domestic currency in terms of the foreign currency
implies appreciation of the foreign currency in terms of the domestic currency. Depreciation of a
country's currency is no way desirable for the domestic economy as it entails a lot of problem
particularly inflation. Domestic consumers, however, prefer higher or strong exchange rates.
Consumers then have more purchasing power to spend on imported goods though it makes
exports of the country more expensive.

Research Problem:-

The topic which I am going to undertake is A Study On Exchange Rate Fluctuation

And Its Impact On Export IN INDIA”

The research problem is to analyze how exchange rate fluctuation effect the country’s export and
to collect the information about export of India data.

Objective of the Project:-

The objectives of the research project are bifurcated into the following parts:

⇒ To study the changes in Foreign exchange market in India.

⇒ To study the How exchange rates affects the export policy of india.
Literature Review:-
The contradictory results about the impact of exchange rate fluctuation on
international
trade are observed. Studies that support the hypothesis that t fluctuation he
volatility of exchange rate

1.Hooper and Kohlhagen (1978) was the first study to analyze

systematically the effects of
exchange rate uncertainty on the trade.

They measured exchange rate risk by

standard error of nominal exchange rate fluctuations. They could not
establish any
significant impact of exchange rate volatility on the volume of trade.

2. There was a research done by Khalid Mustafa Assistant Professor Department

of Economics, University of Karachi.

He observed that Impact of exchange rate volatility on exports growth

between Pakistan and leading trade partners has been investigated. Error
Correction techniques are used to establish the empirical relationship
between exchange rate volatility and exports growth, using quarterly data
from 1991:3 to 2004:2.
The relationship between exports growth and exchange rate volatility for
India and Pakistan is observed only in long run perspective. However, of
countries like New Zealand and Malaysia no empirical relationship is
observed between export growth and exchange rate volatility.

3. A Research was done and published in Margin—The Journal of Applied Economic

Research SAGE Publications by P.R. Bhatt.
This article attempts to measure India's
trade competitiveness and to examine the effectiveness of exchange rate policy
on trade competitiveness. The results indicate that when the nominal and real
exchange rates appreciate, export price competitiveness (REP) improves, but
the competitiveness of profitability deteriorates .

4. A paper published by federation of Indian Micro and small & Medium Enterprises on impact
of exchange rate fluctuations: option for SMEs, August 2007
Exchange rate fluctuations can adversely impact SMEs.

Research Methodology:-
I choose Explanatory Research methodology because in this study only secondary data
is available so choose explanatory research.

Research Design:-
The data which will be use for the project is only secondary majorly contribute successful
completion of the research project. The major sources of collection of secondary data will be
internet, journal, magazines catalogues and newspapers.

References:-
http://en.wikipedia.org/wiki/exchangerate

http:// www.growthcommission.org

http://www.thehindubusinessline.com/2010/06/02/stories/201006025279040
0.htm

http://ideas.repec.org/p/erg/wpaper/480.html

http://www.economicswebinstitute.org/glossary/exchrate.htm

http://www.rbi.org.in

Scottish Journal of Political Economy, Vol. 53, No. 2, May 2006

Scottish Economic Society 2006, Published by Blackwell Publishing, 9600
Garsington Road, Oxford OX4 2DQ, UK

Handbook of Alternative Theories of Economic

Growth, Northampton, MA: Edward Elgar.