Shilpa BS-0347-Exchange Rates & Stock Prices

EXCHANGE RATES & STOCK PRICE:
ITS RELATIONSHIP IN IND

NDIIAN
CONTEXT

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UNDER THE GUIDANCE OF:

Dr.Nagesh Malavalli
Prinicipal,MPBIM
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ASSOCIATE BHARATIYA VIDYA BHAVAN
#43, RACE COURSE ROAD
BANGALORE-560 001
JUNE-JULY 2005
DECLARATION
I hereby declare that the research work embodied in the dissertation

entitled
EXCHANGE
RATES
&
STOCK
PRICES:
ITS
RELATIONSHIP IN INDIAN CONTEXT is the result of research work

carried out by me, under the guidance and supervision of Dr. Nagesh
Malavalli, Principal, M.P.Birla Institute of Management, Bangalore.
I also declare that this report has not been submitted to any other
University or Institute for award of any Degree or Diploma.
PLACE:
DATE:
03XQCM6096)
(Shilpa. B S)
(Reg. No.
DECLARATION
I hereby declare that the research work embodied in the dissertation

entitled
EXCHANGE
RATES
&
STOCK
PRICES:
ITS
RELATIONSHIP IN INDIAN CONTEXT is the result of research work

carried out by me, under the guidance and supervision of Dr. Nagesh
Malavalli, Principal, M.P.Birla Institute of Management, Bangalore.
I also declare that this report has not been submitted to any other
University or Institute for award of any Degree or Diploma.
PLACE:
DATE:
03XQCM6096)
(Shilpa. B S)
(Reg. No.
GUIDE CERTIFICATE
This is to certify that the Project titled EXCHANGE RATES &
STOCK PRICES: ITS RELATIONSHIP IN INDIAN CONTEXT
has been prepared by Ms. SHILPA B S bearing registration
number
03XQCM6096, under
the guidance of Dr. Nagesh
Malavalli, M.P.Birla Institute of Management, Associate Bharatiya

Vidya Bhavan, Bangalore.
Place: Bangalore
Date:
Malavalli)
(Dr.
Nagesh
PRINCIPALS CERTIFICATE
This is to certify that the Project titled EXCHANGE RATES &
STOCK PRICES: ITS RELATIONSHIP IN INDIAN CONTEXT
has been prepared by Ms. SHILPA B S bearing registration
number
03XQCM6096, under
the guidance of Dr. Nagesh
Malavalli, M.P.Birla Institute of Management, Associate Bharatiya

Vidya Bhavan, Bangalore.
Place: Bangalore
MALAVALLI
Date:
Dr. NAGESH
(Principal)
ACKNOWLEDGE
GEM
ME NT
The completion of the research would have been impossible without

the valuable contributions of people from the academics, family and
friends.
I hereby wish to express my sincere gratitude to all those who
supported me throughout the study.
I am thankful to Dr. NAGESH MALAVALLI, Principal, M.P.Birla
Institute of Management, Bangalore, for his valuable guidance,
academic and moral support which made this report a reality.
I am greatly thankful to Prof. T.V. Narasimha Rao (Finance) and
Prof. Santhanam (Statistics) for their support in completion of this
report.
I also thank my family members and friends whose support and
encourage has meant a lot to me personally and also for the
completion of the report.
(Shilpa. B.S)
CONTENTS
Chapter No.
PARTICULARS
Page No.
Abstract
1.
Introduction
o
o
o
o
o
o
o
Background
Purpose of the study
Problem statement
Objectives of the study
Hypothesis
Limitations of the study
Theoretical frame work
1-11
1
3
3
4
4
4
5
Review of Literature
12-15
3.
Methodology
16-20
4.
Data analysis and

Interpretation
21-45
5.
Discussions and conclusions
46-50
2.
o Theoretical literature
o Empirical literature
o Discussions
o conclusions
Bibliography
12
13
46
49
Annexure
o Sample data
List of Tables
Table No.
PARTICULARS
Page No.
1
2
3
Sensex companies
Nifty companies
CNX IT companies
17
18
19
4
5
6
Bankex companies
Import Index and Export Index companies
Correlation and T value for ER and Sensex
from 2000- 2002
Correlation and T value for ER and Sensex
from 2002- 2005
Correlation and T value for ER and Nifty
from 2000- 2002
Correlation and T value for ER and Nifty
from 2002- 2005
Correlation and T value for ER and CNX IT
from 2000- 2002
19
20
23
Correlation and T value for ER and CNX IT

from 2002- 2005
Correlation and T value for ER and Bankex
from 2002- 2005
30
Correlation and T value for ER and Import

from 2000- 2002
Correlation and T value for ER and Import
from 2002- 2005
Correlation and T value for ER and Export
from 2000- 2002
34
Correlation and T value for ER and Export

from 2002- 2005
38
7
8
9
10
11
12
13
14
15
16
24
26
27
29
32
35
37
17
Correlation and T value for ER and ABB

from 2000- 2005
40
18
Correlation and T value for ER and BATA

from 2000- 2005
42
ABSTRACT
Stock market and foreign exchange market are the barometers of the
economy and both the markets are sensitive segments of the
economy. Any changes in the policies of the country are quickly
reflected in these markets. There are different factors, which affect the
stock markets like interest rates, company performance, future growth
prospects, inflation, political stability, exchange rates etc. There are
different factors, which affect the Exchange rates are like the flow of
capital between nations, inflation, interest rates, faith in government's
ability to protect the value of currency, speculation etc. This study
attempts to analyze the interlinkages between exchange rates and
stock prices. The study is conducted by considering exchange rates
and various indices form 2000 to 2005. This is analyzed by using
statistical tools cross correlation both Zero order correlation and
correlation by taking 12 day lag. From the results it is clear that there is
no significant relationship between the exchange rates and index
values. Six Multinational companies were also considered in the study
but found that the share prices of the individual company are not at
affected by fluctuations in the exchange rates.
Introduction
Background
Traditionally the stock market and the exchange market have
been regarded as sensitive segments of the financial market, as the
impact of any policy changes get quickly reflected in these two
markets. Rampant fluctuations of exchange rates and stock prices
have attracted a great deal of interest from policy makers and domestic
as well as foreign investors. Stock markets as well as exchange
markets are considered as the barometers of the state and health of
the economy through which the countrys exposure towards outside
world is most readily felt.
Globalization of world economies in general and liberalization of
financial sector reforms in India specifically ushered a change in the
financial architecture of the Indian economy. In the contemporary
scenario, the activities in the financial markets and their relationships
with the real sector have assumed significant importance. Since the
inception of the financial sector reforms in the beginning of 1990s, the
implementation of various reform measures, including a number of
structural and institutional changes in the different segments of the
financial markets, particularly since 1997, have brought in a dramatic
change in the functioning of the financial sector of the economy. The
advent of floating exchange rates, opening up of current account,
liberalization of capital account, reduction of customs duties, the

development of 24-hour screen based global trading, the increased use
of national currencies outside the country of issue and innovations in
internationally traded financial products have led to the cross country
linkages of capital markets and international integration of domestic
economy. Altogether, the whole lot of institutional reforms, introduction
of new instruments, change in procedures, widening of network of
participants, influenced a reexamination of the relationship between the
stock market and the foreign exchange sector of India.
In the present scenario, interesting results are emerging
particularly for the developing countries where the markets are
experiencing new relationships between money markets, forex
markets, capital markets, international events, oil prices, WTO
agreements etc which were not perceived earlier. The analysis on
stock markets is important as it is considered as the most sensitive
segment of the economy and through this segment the countrys
exposure to the outer world is most readily felt. The impact of
fluctuation in exchange rate on domestic companies, companies
importing or exporting and on multi national corporations with the
degree of exposure is increasing in each case respectively. The
movements in exchange rate indirectly affect the value and hence the
stock prices of these companies. The value of the company is affected
due to the forex exposures namely Transaction exposures, translation
exposure and economic exposure.
An exchange rate has two effects on stock prices, a direct effect
through Multi National Firms and an indirect effect through domestic
firms. In case of Multi National Firms involved in exports, a change in
rate will change the demand of its product in the international market,
which ultimately reflects in its B/S as profit or loss. Once the profit or
loss is declared, the stock price will also change for a domestic firm.
On the other hand, currency devaluation could either raise or decrease
a firms stock prices. This depends on the nature of the firms
operations. A domestic firm that exports part of its output will benefit
directly from devaluation due to an increase in demand for its output.
As higher sales result in higher profits, local currency devaluation will
cause firm stock price to rise in general. On the other hand, if the firm
is a user of imported inputs, currency devaluation will raise cost and
lower profits. Thus, it will decrease the firms stock price.
Purpose of the Study
Theory says that exchange rates should have a direct impact on the
companies with heavy import or export activities and thus affecting the
profitability and hence the stock prices. The impact of fluctuation in
exchange rates on domestic companies, companies importing or
exporting and on multi national corporations with the degree of
exposure is increasing in each case respectively. The movements in
exchange rate indirectly affect the value and hence the stock prices of
these companies, to check for the relevance of this effect, the test has
been undertaken. In an increasingly complex scenario of the financial
world, it is of paramount importance for the researchers, practitioners,
market players and policy makers to understand the working of the
economic and financial system and assimilate the mutual interlinkages
between the stock and exchange markets in forming their expectations
about the future policy and financial variables. The study would be
helpful to all investors, speculators, arbitragers, brokers, dealers etc as
the foreign exchange rates can also be considered as one of the
factors, which affect the stock prices and in the same way stock prices
as a factor affecting exchange rates.
Problem st
staatement
There are various studies have been done to study the relationship
between exchange rates and stock prices by taking various indices.
This study explores the evidence of relationship between exchange
rates and stock prices and also lead lag relationship between
exchange rates and stock prices.
Objectives of th
the study
To analyze the relationship between stock market and exchange

market
To find out whether the relationship changes with the different

indices
To find out which variable is leading and which variable is

lagging.
Hypothesis of the study

Hypothesis 1
H0:
There is no significant relation between stock prices and
exchange rates
H1:
There is significant relation between stock prices and exchange
rates
Hypothesis 2
H0:
There is no significant lead and lag relationship between stock
prices and
exchange rates
H1: There is significant lead and lag relationship between stock prices
and
exchange rates
Limitations of the study
The study is limited to six indices and six Multi National

Companies
The study is limited to Indian rupee versus US dollar only
The study is limited to a period of five years
Theoretical Framework
The Indian Financial System
The Indian financial system consists of many institutions,
instruments and markets. Financial instruments range from the
common coins, currency notes and cheques, to the more exotic futures
swaps of high finance.
Financial Markets
Generally speaking, there is no specific place or location to
indicate financial markets. Wherever a financial transaction takes
place, it is deemed to have taken place in the financial market. Hence
financial markets are pervasive in nature since financial transactions

are themselves very pervasive throughout the economic system.
However, financial markets can be referred to as those centres
and arrangements which facilitate buying and selling of financial
assets, claims and services. Sometimes, we do find the existence of a
specific place or location for a financial market as in the case of stock
exchange.
Classification of financial markets
Financial markets can be classified as
i) Unorganized Markets
In these markets there a number of money lenders, indigenous
bankers, traders etc. who lend money to the public.
ii) Organized Market
In organized markets, there are standardized rules and
regulations governing their financial dealings. There is also a high
degree of institutionalization and instrumentalization. These markets
are subject to strict supervision and control by the RBI or other
regulatory bodies.
Organized markets can be further divided into capital market and
Money market.
Capital market
Capital market is a market for financial assets which have a long or
definite maturity.
Which can be further divided into
Industrial Securities Market
Government Securities Market
Long Term Loans Market
Industrial Securities Market

It is a market where industrial concerns raise their capital or debt
by issuing appropriate Instruments. It can be subdivided into two. They
are
Primary Market or New Issues Market

Primary market is a market for new issues or new
financial claims. Hence, it is also called as New Issues Market.
The primary market deals with those securities which are issued
to the public for the first time
Secondary Market or Stock Exchange

Secondary market is a market for secondary sale of
securities. In other words, securities which have already passed
through the new issues market are traded in this market. Such
securities are listed in stock exchange and it provides a
continuous and regular market for buying and selling of
securities. This market consists of all stock exchanges
recognized by the government of India.
Importance of Capital Market
Absence of capital market serves as a deterrent factor to
capital formation and economic growth. Resources would
remain idle if finances are not funneled through capital market.
It serves as an important source for the productive use of

the economys
savings.
It provides incentives to saving and facilitates capital

formation by offering suitable rates of interest as the price
of the capital
It provides avenue for investors to invest in financial assets.
It facilitates increase in production and productivity in the

economy and thus enhances the economic welfare of the
society.
A healthy market consisting of expert intermediaries

promotes stability in the value of securities representing
capital funds.
It serves as an important source for technological

upgradation in the industrial sector by utilizing the funds
invested by the public.
Foreign Exchange Market

The foreign exchange market is the market in which currencies
of various countries are bought and sold against each other. The
foreign
exchange
market
is
an
over-the-counter
market.
Geographically, the foreign exchange markets span all time zones from
New Zealand to the West Coast of United States of America.
The retail market for foreign exchange deals with transactions
involving travelers and tourists exchanging one currency for another in
the form of currency notes or travelers cheques. The wholesale market
often referred to as the interbank market is entirely different and the
participants in this market are commercial banks, corporations and
central banks.
The foreign exchange market provides the physical and
institutional structure through which the money of one country is
exchanged for that of another country, the rate of exchange between
currencies is determined, and foreign exchange transactions are
physically completed.
Foreign exchange market spans the globe, with prices moving

currencies trading 24 hours a day.
Foreign exchange means the money of a foreign country; that is,
foreign currency bank balances, banknotes, drafts etc.
A Foreign exchange transaction is an agreement between a buyer and
seller that a fixed amount of one currency will be delivered for some
other currency at a specified rate.
A Foreign exchange rate is the price of one currency expressed in
terms of another currency.
A Foreign exchange quotation is a statement of willingness to buy or
sell currency at an announced price.
Functions of foreign exchange market
The foreign exchange market is the mechanism by which participants
Transfer purchasing power between countries,

Obtain or provide credit for international trade transactions, and
Minimize exposure to the risks of exchange rate changes
Foreign Exchange Market participants

The foreign exchange market consists of two tiers: the interbank or
wholesale market and the client or retail market.
Five broad categories of participants operate within these two tiers:
Bank and nonblank foreign exchange dealers

Banks and a few nonblank foreign exchange dealers
operate in both the interbank and client markets. They profit
from buying foreign exchange at a bid price and reselling it at a
slightly higher ask price. Dealers in the foreign exchange
departments of large international banks often function as
market makers.
Currency trading is quite profitable for commercial and

investment banks. Small to medium sized banks are likely to
participate but not as market makers in the interbank market.
Instead of maintaining significant inventory positions, they buy
from and sell to large banks to offset retail transactions with their
own customers.
Individuals and firms conducting commercial or investment

transactions
Importers and exporters, international portfolio investors,
Multi National Enterprises, tourists, and others use the foreign
exchange market to facilitate execution of commercial or
investment transactions. Some of these participants use the
market to hedge foreign exchange risk.
Speculators and arbitragers

Speculators and arbitragers seek to profit from trading in
the market itself. They operate in their own interest, without a
need or obligation to serve clients or to ensure a continuous
market. A large proportion of speculation and arbitrage is
conducted on behalf of major banks by traders employed by
those banks. Thus banks act both as exchange dealers and as
speculators and arbitrages.
Central banks and treasuries

Central bank and treasuries use the market to acquire or
spend their countrys foreign exchange reserves as well as to
influence the price at which their own currency is traded. They
may act to support the value of their own currency because of
policies
adopted
at
the
national
level
or
because
of
commitments entered into through membership in joint float

agreements.
Foreign exchange brokers

Foreign exchange brokers are agents who facilitate
trading between dealers. Brokers charge small commission for
the service provided to dealers. They maintain instant access to
hundreds of dealers world wide via open telephone lines.
Foreign exchange transactions

Transactions within the foreign exchange market are executed
either on a spot basis, requiring settlement two days after the
transaction, or on a forward or swap basis, which requires
settlement at some designated future date.
Quotations can be direct or indirect.
A direct quote is the home currency price of a unit of foreign
currency. Indirect quote is the home currency price of a unit of
home currency.
To be successful in the foreign exchange markets, one has to
anticipate price changes by keeping a close eye on world events and
currency fluctuations.
Exchange rates are determined by the dual forces of demand and
supply. Various factors affect these, which in turn affect the exchange
rates:
The business environment: Positive indications (in terms of govt.
policy, competitive advantages, market size etc) increase the demand
of the currency, as more and more entities want to invest there. This
investment is for two basic motives purely business motive, and for
risk diversification purposes. Foreign direct investment is for taking
advantage of the comparative advantages and the economies of scale.
Portfolio investment is mainly done for risk diversification purposes.
Stock market: The major stock indices also have a correlation with the
currency rates. Three major forces affect the indices:
1) Corporate earnings, forecast and actual;

2) Interest rate expectations and
3) Global considerations.
Consequently, these factors channel their way through the local
currency.
Political Factors: All exchange rates are susceptible to political

instability and anticipations about the new ruling party.
Economic Data: Economic data items like labour report (payrolls,
unemployment rate and average hourly earnings), CPI, PPI, GDP,
international trade, productivity, industrial production, consumer
confidence etc. also affect the exchange rate fluctuations.
Confidence in a currency is the greatest determinant of the exchange
rates. Decisions are made keeping in mind the future developments
that may affect the currency. And any adverse sentiments have a
contagion effect.
1) The sudden discovery that reserves is less than previously believed
2) Unexpected devaluation (often in part for its role in signaling the
depletion of reserves); and,
3) Contagion from neighboring countries, in a situation of perceived
vulnerability (low reserves, high short-term debt, overvalued currency).
Government influence: A country's government may reduce the
growth in the money supply, raising interest rates, and encouraging
demand for its currency. Or a government may simply buy or sell forex
to maintain stability or to support either exporters or importers.
Productivity of an economy: An increase in productivity of an
economy tends to impact exchange rates. Its affects are more
prominent if the increase is in the traded sector.
Exchange rates are also influenced by the flow of capital between

nations, inflation, interest rates, faith in government's ability to protect
the value of currency, speculation, rumors and even human error.
REVIEW OF LI
LITERATURE
THEORETICAL LITERATURE
Foreign exchange and capital market how are they possibly
interlinked?
The possible interlinkages between stock prices and exchange
rates suggested by several arguments/hypothesis, particularly those
identified in goods market approaches explaining likely impact of
exchange rate on stock prices and portfolio balance approaches for
justifying impact in reverse direction.
The arguments provided in goods market approaches flow that,
as many companies borrow in foreign currencies to fund their
operations, a change in exchange rate affects the cost of funds and
value of
earnings
of many firms,
which in turn affect the
competitiveness of a firm and its stock prices a depreciation

(appreciation) of local currency makes exporting goods more (less)
attractive to foreigners, which results in increase (decrease) of foreign
demand for goods, which in turn raises (reduces) the revenue of the
firm, value of firms appreciates(depreciates) and
thus stock prices
increase (decrease). The sensitivity of an importing firm to a change in

exchange rate is just opposite to that of an exporting firm. Therefore,
on a macro basis the impact of exchange rate fluctuations on stock

market seems to depend on both the importance of a countrys
international trade in its economy and the degree of the trade
imbalance.
To complete the linkage, influence in reverse direction can be
justified by portfolio balance approaches under the exchange rate
regime that allows exchange rate to be determined by market
mechanism (i.e. the demand and supply conditions). A glooming stock
market would attract capital flows from foreign investors, which may
cause an increase in the demand for a countrys currency. Thus, local
currency appreciates.
The reverse would happen in case of fallen stock prices where
the investors would try to sell their stocks to avoid further losses and
would convert their money in to foreign currency to move out of the
country. There would be demand for foreign currency in exchange of
local currency. As a result rising (declining) stock prices would lead to
an appreciation (depreciation) in local currency. Moreover, foreign
investment in domestic equities could increase over time due to
benefits of international diversification that foreign investors would gain.
Further more, movements in stock prices may influence exchange
rates (and money demand) because investors wealth (and liquidity
demand) could depend on the performance of the stock market.
EMPIRICAL LITERATURE
Frank and Youngs (1972) was the first study to examine the
impact of exchange rate changes on stock markets. The study
investigated the relationship between stock prices and exchange rates,
by using six different exchange rates and found no relationship
between these two financial variables.
Solnik (1987), employing regression analysis on monthly and
quarterly data for eight industrialized countries from 1973 to 1983, finds
a negative relationship between real domestic stock returns and real

exchange rate movements. However, for monthly data over 197983,
he observes a weak but positive relation between the two variables.
Jorion (1988) attempted to analyze and compare the empirical
distribution of returns in the stock market and in the foreign exchange
market by using the maximum likelihood estimation procedure and
ARCH model in daily data of exchange rates and stock returns
spanning from June 1973 to December 1985. The study found that
exchange rates display significant jump components, which are more
manifest than in the stock market. The statistical
analysis of the study for the foreign exchange market and stock market
suggests there are important differences in the structures of these
markets.
Alok Kumar Mishra in his article Stock Market and Foreign
Exchange Market in India: Are they Related? attempts to examine
whether stock market and foreign exchange markets are related to
each other or not. The study uses Grangers Causality test and Vector
Auto Regression technique on monthly stock return, exchange rate,
interest rate and demand for money for the period April 1992 to March
2002. The major findings of the study are
(a) There exists a unidirectional causality between the exchange rate
and
interest rate and between the exchange rate return
and demand for money;

(b)
There is no Grangers causality between the exchange rate

return and stock return.
Through Vector Auto Regression modeling, the study confirms that

though stock return, exchange rate return, the demand for money and
interest rate are related to each other but any consistent relationship
doesnt exist between them. The forecast error variance decomposition
further evidences that
(a) The exchange rate return affects the demand for money,
(b) The interest rate causes exchange rate return change,
(c) The exchange rate return affects the stock return,

(d) The demand for money affects stock return,
(e) The interest rate affects the stock return, and
(f) The demand for money affects the interest rate.
Apte (2001) investigated the relationship between the volatility of
the stock
market and the nominal exchange rate of India by using the EGARCH
specifications on the daily closing USD/INR exchange rate, BSE 30
(Sensex) and NIFTY-50 over the period 1991 to 2000. The study
suggests that there appears to be a spillover from the foreign exchange
market to the stock market but not the reverse.
Bhattacharya and Mukharjee (2002) studied the nature of causal
relation between the stock market, exchange rate, foreign exchange
reserves and value of trade balance in India from 1990 to 2001 by
applying the co-integration and long-run Granger Non-causality tests.
The study suggests that there is no causal linkage between stock
prices and the three variables under consideration.
To examine the dynamic linkages between the foreign exchange
and stock markets for India, Nath and Samanta (2003) employed the
Granger causality test on daily data during the period March 1993 to
December 2002. The empirical findings of the study suggest that these
two markets did not have any causal relationship. When the study
extended its analysis to verify if liberalization in both the markets
brought them together, it found no significant causal relationship
between the exchange rate and stock price movements, except for the
years 1993, 2001 and 2002 during when a unidirectional causal
influence from stock index return to return in forex market is detected
and a very mild causal influence in the reverse direction is found in
some years such as 1997 and 2002.
Methodology
Study Design
a) Study Type: The study type is analytical, quantitative and historical.
Analytical because facts and existing information is used for the
analysis,
Quantitative as relationship is examined by expressing variables in
measurable terms and also Historical as the historical information is
used for analysis and interpretation.
b) Study population: population is the entire stock market and all
indices and exchange rates of rupee versus currencies of all the
countries.
c) Sampling frame: Sampling Frame would be Indian stock market and

rupee
versus most traded currencies.
d) Sample: Sample chosen is daily closing values of BSE Sensex,

CNX Nifty, CNX IT, BSE Bankex, created Import index and an
export index and exchange rates of Rupee/Dollar from 1-1-2000 to
31-5-2005.
e) Sampling technique:
Deliberate sampling is used because only
particular units are selected from the sampling frame. Such a

selection is undertaken as these units represent the population in a
better way and reflect better relationship with the other variable.
Data gathering procedures and instruments:

Data: Historical daily share prices and information about their forex
exposure. Historical daily closing values of BSE Sensex, CNX Nifty,
CNX IT, BSE Bankex, import index and export index. Direct and
indirect quotes of rupee per dollar
Data Source:
Historical share prices of the sample companies and
the index points for the period has been taken from the database of
Capital Market Publishers (India) Ltd., Capitaline 2000 and exchange
rates information has been taken from www.exchangerate.com
An exchange rate has two effects on share prices, a direct effect

through Multi National Firms and indirect effect through domestic
firms.
Even though exchange rate has effect on stock prices of
companies, the study has been conducted by considering different
indices because index values are nothing but the weighted average
of different companys share prices and indices are the proxies of

stock market.
BSE Sensex is considered as it is a barometer of the state of the
economy. It follows the free float methodology. The companies in
the Sensex are domestic companies, so it has been taken to see
the indirect effect of exchange rates.
Table No.1: BSE SENSEX COMPANIES

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Associated Cement Companies Ltd.

Bajaj Auto
Bharti Televentures
Bharat Heavy Electricals Ltd.
Cipla Ltd.
Dr.Reddy's Laboratories Ltd.
Grasim Industries Ltd.
Gujarat Ambuja Cements Ltd.
Herohonda Motors
Hindalco
Hindustan Lever Ltd.
Hindustan Petroleum Corporation Ltd
Housing Development Finance Co
HDFC Bank
ICICI Bank
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
I T C Ltd
Infosys Technologies Ltd.
Maruthi Udyog
Larsen & Toubro Ltd.
ONGC
Ranbaxy Laboratories Ltd.
Reliance Energy
Reliance
Satyam Computers
State Bank Of India
Tata Iron And Steel Co. Ltd.
Tata Motors
Tata Power
Wipro Ltd
Zee Telefilms Ltd
CNX Nifty has been taken because CNX Nifty and BSE Sensex are
considered as trust worthy indices of India, to see whether both the
indices move in the same direction or not.
Table No.2: CNX NIFTY COMPANIES
1
2
3
4
5
6
ABB Ltd.
Associated Cement Companies
Ltd.
Bajaj Auto Ltd.
Bharat Heavy Electricals Ltd.
Bharat Petroleum Corporation Ltd.
Bharti Tele-Ventures Ltd.
26
Larsen & Toubro Ltd.
27
28
29
30
31
Mahanagar Telephone Nigam Ltd.

Mahindra & Mahindra Ltd.
Maruti Udyog Ltd.
National Aluminium Co. Ltd.
Oil & Natural Gas Corporation Ltd.
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Cipla Ltd.
Colgate-Palmolive (India) Ltd.
Dabur India Ltd.
Dr. Reddy's Laboratories Ltd.
GAIL (India) Ltd.
Glaxosmithkline Pharmaceuticals
Ltd.
Grasim Industries Ltd.
Gujarat Ambuja Cements Ltd.
HCL Technologies Ltd.
32
33
34
35
36
Oriental Bank of Commerce

Punjab National Bank
Ranbaxy Laboratories Ltd.
Reliance Energy Ltd.
Reliance Industries Ltd.
37
38
39
40
HDFC Bank Ltd.

Hero Honda Motors Ltd.
Hindalco Industries Ltd.
Hindustan Petroleum Corporation
Ltd.
Housing Development Finance
Corporation Ltd.
I T C Ltd.
ICICI Bank Ltd.
Indian Petrochemicals Corporation
Ltd.
Infosys Technologies Ltd.
41
42
43
44
Satyam Computer Services Ltd.

Shipping Corporation of India Ltd.
State Bank of India
Steel Authority of India Ltd.
Sun Pharmaceutical Industries
Ltd.
Tata Chemicals Ltd.
Tata Consultancy Services Ltd.
Tata Iron & Steel Co. Ltd.
45
Tata Motors Ltd.
46
47
48
Tata Power Co. Ltd.

Tata Tea Ltd.
Videsh Sanchar Nigam Ltd.
49
50
Wipro Ltd.
Zee Telefilms Ltd.
CNX IT constitutes 20 IT companies. These companies will have more

forex exposure and most of the transactions are undertaken in foreign
currencies and these companies undertake many international
projects. So, the study attempts to see how IT stocks affect due to
exchange rate fluctuations.
Table No.3: CNX-IT COMPANIES

1.
2.
3.
4.
5.
6.
7.
8.
9.
CMC Ltd.
Flextronics Software Systems Ltd.
GTL Ltd.
HCL Infosystems Ltd.
HCL Technologies Ltd.
Hexaware Technologies Ltd.
Hinduja TMT Ltd.
I-Flex Solutions Ltd.
iGate Global Solutions Ltd.
11.
12.
13.
14.
15.
16.
17.
18.
19.
Mastek Ltd.
Moser Baer India Ltd.
Mphasis BFL Ltd.
Patni Computer Systems Ltd.
Polaris Software Lab Ltd.
Rolta India Ltd.
Satyam Computer Services Ltd.
Tata Elxsi Ltd.
Tata Consultancy Services Ltd.
10. Infosys Technologies Ltd.
20. Wipro Ltd.
Another index is BSE Bankex, as the banks are the major participants
in foreign exchange market, banks index i.e. Bankex has been
considered.
Table No.4: BANKEX INDEX COMPANIES
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Allahabad bank Ltd

Andhra Bank
Bank of Baroda
Bank Of India
Canara Bank
HDFC Bank Ltd.
ICICI Bank Ltd.
Indian Overseas Bank
Kotak Mahindra Bank Ltd.
Oriental Bank of Commerce
Punjab National Bank
State Bank of India
Union Bank Ltd.
UTI Bank Ltd.
Vijaya Bank
According to theory exchange rates should have a direct impact on the

companies with heavy import or export activities. So, two special
indices are constructed by considering companies which have large
amount of exports or imports.
Steps in the process of constructing index:
The companies which had good amount of exports or imports

were picked up
The criteria for selecting the companies is, for exporting

company percentage of exports to sales revenue should be
greater than 30% and for importing companies percentage of

imports to purchases should be greater than 30%
The best of 15 companies each having more than 30%

according criteria are used for constructing index
All the companies are listed in BSE were taken
Finally, the indices are constructed by taking simple average of

closing share prices of these 15 companies
Table No.5: IMPORT AND EXPORT INDEX COMPANIES

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
IMPORT COMPANIES
Associated Cement Company Ltd.
Bharat Heavey Electricals Ltd
Grasim Cements Ltd
Gujrat Ambuja Cements Ltd.
Hero Honda Motors
HINDALCO
Hindusthan Lever Ltd
Hidustan Petroleum Corporation Ltd
ITC Ltd
RANBAXY Laboratories Ltd
DR.Reddys Laboratories Ltd
Relliance Industries
Tata Iron And Steel Company
Tata Power Ltd
Micro Inks Ltd
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
EXPORT COMPANIES
Bajaj Auto Ltd
CIPLA
Indian Petrochemicals Corporation Ltd.
INFOSYS Technologies Ltd.
National Aluminium Company Ltd.
SATYAM Computers
WIPRO Ltd
Zee Telefilms
Arvind Mills Ltd
Kesoram Industries Ltd
Tata Motors Ltd
Tata Tea Ltd
Videsh Sanchar Nigam Ltd.
Nahar Spinning Mills Ltd
Gail
In the foreign exchange market, the Indian rupee per US dollar is

considered. As most of the transactions are carried in terms of $
and $ is considered as Transaction Currency.
The daily returns in foreign exchange and indices are calculated by
taking Log Normal of P1/P0. These returns represent continuously
compounded returns in respective markets.
Data Analysis and Interpretation

The data has been analyzed by using cross correlation. The
correlation has been calculated for zero date and by taking lag length
of 12 days. The analysis has been done by taking exchange rate as
independent variable and its impact on index or company share price
for 12 lags. In the similar way, index is taken as independent variable

and its impact on exchange rate for 12 lags.
Cross correlation
Cross correlation is a standard method of estimating the degree
to which two series are correlated. Consider two series x(i) and y(i)
where i=0,1,2...N-1. The cross correlation r at delay d is defined as
Where mx and my are the means of the corresponding series. If

the above is computed for all delays d=0,1,2,...N-1 then it results in a
cross correlation series of twice the length as the original series.
There is the issue of what to do when the index into the series is
less than 0 or greater than or equal to the number of points. (i-d < 0 or
i-d >= N) The most common approaches are to either ignore these
points or assuming the series x and y are zero for i < 0 and i >= N. In
many signal processing applications the series is assumed to be
circular in which case the out of range indexes are "wrapped" back
within range, ie: x(-1) = x(N-1), x(N+5) = x(5) etc.
Abbreviations
ER:
Sensex:
Exchange rate
BSE Sensex
Nifty:
CNX Nifty
Import:
Import Index
Export:
Export Index
ABB:
Asea Brown Boveri Ltd
BATA:
Bata India Ltd.
HLL:
MICO:
Machine Industries Company Ltd.
Glaxo:
Glaxo Smithkline Pharmaceuticals Ltd.
Colgate:
Colgate Palmolive (India) Ltd.
NEGATIVE
LAG
ER - INDEX
INDEX- ER
POSITIVE
LAG
LEADING
LAGGING
LAGGING
LEADING
Table No. 6 Correlation and T values of ER and SENSEX for the period 2000 to 2005
Lag
-12
-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
I half of 2000
Correlation
0.042
(0.438)
0.033
(0.344)
0.085
(0.895)
0.003
(0.032)
-0.038
(0.404)
0.092
(0.979)
0.064
(0.681)
0.182
(1.957)
0.065
(0.699)
0.119
(1.293)
0.011
(0.120)
0.055
(0.598)
0.002
(0.022)
0.071
(0.772)
-0.096
(1.043)
0.136
(1.478)
-0.029
(0.312)
-0.071
(0.763)
-0.086
(0.915)
-0.049
(0.521)
-0.147
(1.564)
0.01
(0.105)
-0.067
(0.705)
-0.116
(1.208)
-0.174
(1.813)
II half of 2000
Correlation
-0.011
(0.117)
0.087
(0.935)
0.099
(1.065)
0.148
(1.609)
-0.081
(0.880)
0.116
(1.261)
0.066
(0.725)
0.102
(1.121)
-0.205
(2.253)*
0.037
(0.411)
-0.2
(2.222)*
-0.002
(0.022)
-0.162
(1.820)
-0.055
(0.618)
0.123
(1.367)
-0.091
(1.011)
0.044
(0.484)
-0.03
(0.330)
0.069
(0.758)
-0.275
(2.989)*
0.021
(0.228)
-0.149
(1.620)
0.074
(0.796)
-0.163
(1.753)
-0.034
(0.362)
I half of 2001
Correlation
0.126
(1.326)
-0.093
(0.979)
-0.017
(0.181)
-0.235
(2.500)*
-0.121
(1.287)
0.101
(1.086)
0.072
(0.774)
0.069
(0.750)
0.023
(0.250)
0.209
(2.272)*
0.111
(1.220)
-0.205
(2.253)*
-0.076
(0.835)
-0.169
(1.857)
0.012
(0.132)
-0.004
(0.043)
0.019
(0.207)
-0.024
(0.261)
-0.067
(0.720)
0.008
(0.086)
-0.035
(0.372)
-0.075
(0.798)
0.009
(0.096)
0.033
(0.347)
-0.044
(0.463)
II half of 2001
Correlation
-0.011
(0.110)
0.123
(1.242)
0.108
(1.091)
0.051
(0.520)
-0.022
(0.224)
0.103
(1.062)
-0.039
(0.402)
-0.158
(1.646)
-0.176
(1.833)
-0.009
(0.095)
-0.121
(1.274)
-0.409
(4.351)*
-0.328
(3.489)*
-0.307
(3.266)*
-0.079
(0.832)
-0.169
(1.779)
-0.057
(0.594)
-0.139
(1.448)
-0.052
(0.536)
-0.014
(0.144)
-0.051
(0.520)
-0.028
(0.286)
-0.136
(1.374)
-0.054
(0.545)
0.034
(0.340)
I half of 2002
Correlation
0.038
(0.400)
-0.001
(0.011)
0.012
(0.128)
0.11
(1.170)
0.063
(0.677)
0.154
(1.656)
0.134
(1.457)
0.028
(0.304)
-0.108
(1.174)
0.032
(0.352)
0.198
(2.176)*
0.01
(0.110)
-0.068
(0.756)
-0.002
(0.022)
0.023
(0.253)
0.094
(1.033)
-0.084
(0.913)
-0.03
(0.326)
-0.087
(0.946)
-0.084
(0.903)
-0.031
(0.333)
-0.039
(0.415)
-0.05
(0.532)
-0.042
(0.447)
0.04
(0.421)
Numbers with in brackets indicate T values = correlation/ standard error

* indicates t values greater than 2, @ 5% significance level
Table No. 7 Correlation and T values

2002 to 2005
II half 2002 I half 2003 II half 2003
Lag Correlation Correlation Correlation
-0.047
0.024
-0.024
-12
(0.495)
(0.247)
(0.255)
0.109
0.085
0.085
-11
(1.147)
(0.885)
(0.914)
-0.07
-0.111
-0.158
-10
(0.745)
(1.156)
(1.699)
-0.081
0.003
0.066
-9
(0.862)
(0.032)
(0.717)
-0.073
-0.056
0.049
-8
(0.777)
(0.589)
(0.533)
-0.007
-0.081
-0.025
-7
(0.075)
(0.862)
(0.272)
0.006
-0.066
0.033
-6
(0.065)
(0.702)
(0.363)
0.06
0.114
-0.034
-5
(0.652)
(1.213)
(0.374)
-0.024
-0.131
0.168
-4
(0.261)
(1.409)
(1.846)
-0.082
-0.014
-0.042
-3
(0.891)
(0.151)
(0.467)
-0.04
-0.092
-0.172
-2
(0.440)
(1.000)
(1.911)
0.137
-0.076
-0.123
-1
(1.505)
(0.826)
(1.382)
-0.123
0.12
-0.012
0
(1.352)
(1.304)
(0.135)
-0.065
-0.017
-0.09
1
(0.714)
(0.185)
(1.011)
-0.011
-0.106
-0.062
2
(0.121)
(1.152)
(0.689)
0.126
0.049
-0.16
3
(1.370)
(0.527)
(1.778)
-0.01
-0.151
0.049
4
(0.109)
(1.624)
(0.538)
0.063
-0.079
-0.048
5
(0.685)
(0.840)
(0.527)
0.027
0.086
0.032
6
(0.290)
(0.915)
(0.352)
-0.027
-0.099
-0.09
7
(0.290)
(1.053)
(0.978)
0.073
-0.089
0.006
8
(0.777)
(0.937)
(0.065)
-0.127
0.009
0.101
9
(1.351)
(0.095)
(1.098)
-0.086
-0.009
0.025
10
(0.915)
(0.094)
(0.269)
-0.065
0.04
0.122
11
(0.684)
(0.094)
(1.312)
0.174
-0.002
0.171
12
(1.832)
(0.021)
(1.819)
of ER and SENSEX for the period

I half 2004
Correlation
-0.006
(0.063)
-0.09
(0.947)
-0.039
(0.411)
0.054
(0.574)
-0.049
(0.521)
0.044
(0.468)
0.023
(0.247)
-0.224
(2.409)*
-0.143
(1.554)
0.021
(0.228)
-0.183
(1.989)
-0.165
(1.813)
-0.111
(1.220)
0.121
(1.330)
-0.023
(0.250)
0.02
(0.217)
0.03
(0.326)
0.036
(0.387)
0.068
(0.731)
-0.006
(0.064)
0.008
(0.085)
0.01
(0.106)
-0.058
(0.611)
0.183
(1.926)
-0.015
(0.156)
II half 2004
Correlation
-0.031
(0.326)
-0.013
(0.137)
0.076
(0.809)
-0.001
(0.011)
0.068
(0.723)
0.036
(0.387)
-0.147
(1.581)
0.053
(0.576)
0.151
(1.641)
-0.103
(1.120)
-0.009
(0.099)
0.032
(0.352)
-0.188
(2.066)*
-0.004
(0.044)
-0.192
(2.110)*
0.08
(0.870)
-0.003
(0.033)
0.014
(0.152)
0.065
(0.699)
-0.051
(0.548)
0.225
(2.394)*
-0.014
(0.149)
-0.095
(1.011)
-0.027
(0.284)
0.028
(0.295)
I half 2005
Correlation
0.14
(1.273)
-0.063
(0.573)
0.006
(0.055)
0.001
(0.009)
-0.107
(0.991)
-0.068
(0.636)
-0.106
(0.991)
0.14
(1.321)
-0.113
(1.076)
-0.012
(0.114)
-0.05
(0.481)
-0.251
(2.413)*
-0.009
(0.087)
0.022
(0.212)
-0.107
(1.029)
-0.05
(0.476)
0.081
(0.771)
0.138
(1.302)
0.063
(0.589)
-0.004
(0.037)
0.046
(0.426)
-0.139
(1.287)
0.194
(1.780)
0.054
(0.491)
0.083
(0.755)

Interpretation:
From the above table, it is clear that in first half of 2000, T value for all
the leads and lags is not statistically significant. So there is no impact
of ER on sensex and vice versa.
In the second half of 2000 T value at -2 lag and at -4 lag is significant.
This shows that ER at zero date has an inverse effect on second and
fourth days share prices and T value at + 7 lag is also significant. So
SENSEX inversely affects the ER.
In the first half of 2001 SENSEX is affected by ER on first, third and
ninth day. In the second half of 2001 on the same day and next day
there was an inverse affect on Index due to fluctuations in ER. And
there was cyclical relationship between the variables during this period.
In the year 2002 and in first half of 2003, ER and SENSEX are not
affected by each other. In the second half 2003 ER affects SENSEX on
the second day. In the first half of 2004 ER leads SENSEX at five day
lag and SENSEX leads ER at five day lag. In the first half of 2005
fluctuations in ER are reflected in SENSEX on the next day.
So finally we can find that there is no systematic pattern of lead or lag
between the variables in this period.
Table No.8 Correlation and T values of ER and NIFTY for the period 2000 to 2002
II half of 2001 I half of 2002
I half of 2000 II half of 2000 I half of 2001
Lag
-12
-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
Correlation
0.039
(0.406)
0.043
(0.448)
0.1
(1.053)
-0.027
(0.284)
-0.01
(0.106)
0.067
(0.713)
0.096
(1.021)
0.17
(1.828)
0.055
(0.591)
0.146
(1.587)
0.042
(0.457)
0.033
(0.359)
0.036
(0.396)
0.04
(0.435)
-0.053
(0.576)
0.132
(1.435)
-0.046
(0.495)
-0.051
(0.548)
-0.069
(0.734)
-0.07
(0.745)
-0.113
(1.202)
0.001
(0.011)
-0.096
(1.011)
-0.081
(0.844)
-0.161
(1.677)
Correlation
-0.011
(0.117)
0.119
(1.280)
0.098
(1.054)
0.135
(1.467)
-0.078
(0.848)
0.108
(1.174)
0.075
(0.824)
0.065
(0.714)
-0.181
(1.989)
0.02
(0.222)
-0.155
(1.722)
-0.03
(0.337)
-0.17
(1.910)
-0.068
(0.764)
0.129
(1.433)
-0.112
(1.244)
0.069
(0.758)
-0.026
(0.286)
0.029
(0.319)
-0.263
(2.859)
0.03
(0.326)
-0.151
(1.641)
0.069
(0.742)
-0.169
(1.817)
-0.053
(0.564)
Correlation
0.101
(1.063)
-0.071
(0.747)
-0.032
(0.340)
-0.232
(2.468)*
-0.096
(1.021)
0.104
(1.118)
0.049
(0.527)
0.071
(0.772)
0.028
(0.304)
0.203
(2.207)*
0.105
(1.154)
-0.165
(1.813)
-0.099
(1.088)
-0.152
(1.670)
0.018
(0.198)
-0.009
(0.098)
0.011
(0.120)
-0.016
(0.174)
-0.063
(0.677)
-0.002
(0.022)
-0.021
(0.223)
-0.084
(0.894)
0.01
(0.106)
0.05
(0.526)
-0.055
(0.579)
Correlation
0.004
(0.040)
0.113
(1.141)
0.112
(1.131)
0.041
(0.418)
-0.012
(0.122)
0.117
(1.206)
-0.024
(0.247)
-0.16
(1.667)
-0.179
(1.865)
0.004
(0.042)
-0.146
(1.537)
-0.42
(4.468)*
-0.365
(3.883)*
-0.335
(3.564)*
-0.105
(1.105)
-0.17
(1.789)
-0.075
(0.781)
-0.149
(1.552)
-0.048
(0.495)
-0.015
(0.155)
-0.041
(0.418)
-0.032
(0.327)
-0.139
(1.404)
-0.063
(0.636)
0.038
(0.380)
Correlation
0.047
(0.495)
0.013
(0.138)
-0.003
(0.032)
0.094
(1.000)
0.072
(0.774)
0.171
(1.839)
0.148
(1.609)
0.031
(0.337)
-0.112
(1.217)
0.013
(0.143)
0.235
(2.582)*
0.012
(0.132)
-0.072
(0.800)
-0.002
(0.022)
0.027
(0.297)
0.079
(0.868)
-0.084
(0.913)
-0.021
(0.228)
-0.074
(0.804)
-0.118
(1.269)
-0.052
(0.559)
-0.03
(0.319)
-0.05
(0.532)
-0.057
(0.606)
0.035
(0.368)

Table No. 9 Correlation and T values of ER and NIFTY for the period 2002 to 2005
Lag
-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
II half of 2002 I half of 2003 II half of 2003 I half of 2004

Correlation
Correlation Correlation
Correlation
0.109
0.078
0.053
-0.092
(1.147)
(0.813)
(0.570)
(0.968)
-0.069
-0.093
-0.139
-0.045
(0.734)
(0.969)
(1.495)
(0.474)
-0.079
-0.002
0.109
0.056
(0.840)
(0.021)
(1.185)
(0.596)
-0.057
-0.053
0.063
-0.026
(0.606)
(0.558)
(0.685)
(0.277)
-0.004
-0.078
-0.025
0.055
(0.043)
(0.830)
(0.272)
(0.585)
-0.027
-0.074
0.008
0.018
(0.290)
(0.787)
(0.088)
(0.194)
0.073
0.087
-0.009
-0.241
(0.793)
(0.926)
(0.099)
(2.591)*
-0.067
-0.088
0.146
-0.141
(0.728)
(0.946)
(1.604)
(1.533)
-0.102
-0.008
-0.038
0.001
(1.109)
(0.086)
(0.422)
(0.011)
0.088
-0.102
-0.189
-0.181
(0.967)
(1.109)
(2.100)*
(1.967)
0.093
-0.075
-0.112
-0.172
(1.022)
(0.815)
(1.258)
(1.890)
-0.111
0.103
-0.014
-0.101
(1.220)
(1.120)
(0.157)
(1.110)
-0.112
0.004
-0.091
0.132
(1.231)
(0.043)
(1.022)
(1.451)
0.035
-0.082
-0.083
-0.003
(0.385)
(0.891)
(0.922)
(0.033)
0.095
0.039
-0.145
0.027
(1.033)
(0.419)
(1.611)
(0.293)
0.029
-0.141
0.016
0.045
(0.315)
(1.516)
(0.176)
(0.489)
0.045
-0.099
-0.022
0.034
(0.489)
(1.053)
(0.242)
(0.366)
-0.028
0.063
0.018
0.069
(0.301)
(0.670)
(0.198)
(0.742)
0.017
-0.093
-0.096
0.006
(0.183)
(0.989)
(1.043)
(0.064)
0.124
-0.086
0.061
-0.009
(1.319)
(0.905)
(0.663)
(0.096)
-0.134
0.025
0.119
-0.002
(1.426)
(0.263)
(1.293)
(0.021)
-0.058
-0.028
0.035
-0.022
(0.617)
(0.292)
(0.376)
(0.232)
II half of 2004
Correlation
-0.016
(0.168)
0.091
(0.968)
-0.002
(0.021)
0.043
(0.457)
0.039
(0.419)
-0.158
(1.699)
0.081
(0.880)
0.126
(1.370)
-0.113
(1.228)
0.007
(0.077)
0.043
(0.473)
-0.169
(1.857)
-0.014
(0.154)
-0.154
(1.692)
0.076
(0.826)
-0.02
(0.217)
0.019
(0.207)
0.068
(0.731
-0.038
(0.409)
0.173
(1.840)
-0.009
(0.096)
-0.093
(0.989)
I half of 2005
Correlation
0.008
(0.073)
-0.004
(0.037)
0.006
(0.056)
-0.113
(1.046)
-0.019
(0.178)
-0.148
(1.383)
0.159
(1.500)
-0.107
(1.019)
-0.047
(0.448)
-0.024
(0.231)
-0.222
(2.135)*
-0.063
(0.612)
0.003
(0.029)
-0.035
(0.337)
-0.032
(0.305)
0.038
(0.362)
0.179
(1.689)
-0.014
(0.131)
0.08
(0.748)
0.022
(0.204)
-0.128
(1.185)
0.179
(1.642)
11
-0.049
(0.516)
0.018
(0.188)
0.119
(1.280)
0.163
(1.716)
-0.018
(0.189)
0.044
(0.400)
12
0.175
(1.842)
0.012
(0.124)
0.195
(2.074)*
-0.008
(0.083)
0.021
(0.221)
0.116
(1.055)

Interpretation:
From the above tables, it is clear that in the year 2000, there is no
relationship between the variables. In the year 2001 there was cyclical
relation between the variables. In the year 2002 and first half 2003
there was no significant relationship between the variables. In the
second half 2003 ER affects NIFTY on the second day. In the first half
of 2004 ER leads NIFTY at five day length and NIFTY leads ER at five
day length. In the first half of 2005 fluctuations in ER are reflected in
NIFTY on the next day.
So finally we can find that there is no systematic pattern of lead or lag
between the variables in this period. This also shows that SENSEX and
NIFTY are moving in the same direction.
Table No. 10 Correlation and T values of ER and CNX IT

I half of 2000 II half of 2000
Lag
-12
-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
error
Correlation
-0.059
(0.615)
-0.019
(0.198)
-0.021
(0.221)
0.064
(0.674)
0.003
(0.032)
0.159
(1.691)
0.071
(0.755)
0.255
(2.742)*
0.09
(0.968)
0.074
(0.804)
-0.094
(1.022)
-0.066
(0.717)
-0.091
(1.000)
-0.009
(0.098)
-0.123
(1.337)
0.1
(1.087)
-0.08
(1.087)
-0.099
(1.065)
-0.114
(1.213)
-0.219
(2.330)*
-0.202
(2.149)*
-0.102
(1.074)
-0.121
(1.274)
-0.157
(1.635)
-0.152
(1.583)
Correlation
-0.044
(0.468)
0.042
(0.452)
0.155
(1.667)
0.121
(1.315)
-0.057
(0.620)
0.101
(1.098)
0.137
(1.505)
0.128
(1.407)
-0.175
(1.923)
0.041
(0.456)
-0.150
(1.667)
0.067
(0.753)
-0.147
(1.652)
-0.069
(0.775)
0.128
(1.422)
-0.063
(0.700)
-0.060
(0.659)
0.022
(0.242)
0.086
(0.945)
-0.254
(2.761)*
0.052
(0.565)
-0.160
(1.739)
0.082
(0.882)
-0.143
(1.538)
0.028
(0.298)
I half of 2001
Correlation
0.136
(1.432)
-0.077
(0.811)
0.025
(0.266)
-0.212
(2.255)*
-0.123
(1.309)
0.052
(0.559)
0.158
(1.699)
0.036
(0.391)
0.098
(1.065)
0.147
(1.598)
0.186
(2.044)*
-0.144
(1.582)
-0.111
(1.220)
-0.129
(1.418)
-0.107
(1.176)
-0.022
(0.239)
0.099
(1.076)
-0.026
(0.283)
-0.151
(1.624)
-0.053
(0.570)
-0.007
(0.074)
-0.06
(0.638)
-0.014
(0.149)
0.032
(0.337)
-0.02
(0.211)
II half of 2001 I half of 2002

Correlation
-0.123
(1.230)
-0.03
(0.303)
-0.039
(0.394)
-0.044
(0.449)
-0.013
(0.133)
0.154
(1.588)
-0.021
(0.216)
-0.05
(0.521)
-0.191
(1.990)
-0.124
(1.305)
-0.116
(1.221)
-0.477
(5.074)*
-0.295
(3.138)*
-0.248
(2.638)*
-0.021
(0.221)
-0.13
(1.368)
-0.018
(0.188)
-0.064
(0.667)
-0.075
(0.773
-0.031
(0.320)
-0.046
(0.469)
-0.048
(0.490)
-0.126
(1.273)
-0.055
(0.556)
0.037
(0.370)
Correlation
-0.020
(0.211)
0.022
(0.234)
-0.006
(0.064)
0.023
(0.245)
0.017
(0.183)
0.135
(1.452)
0.162
(1.761)
0.065
(0.707)
-0.059
(0.641)
-0.143
(1.571)
0.152
(1.670)
-0.029
(0.319)
-0.069
(0.767)
-0.048
(0.527)
0.185
(2.033)*
0.097
(1.066)
-0.035
(0.380)
-0.007
(0.076)
0.041
(0.446)
-0.132
(1.419)
-0.139
(1.495)
-0.042
(0.447)
0.000
(0.000)
-0.102
(1.085)
-0.030
(0.316)
Numbers with in brackets indicate T values = correlation/ standard

Table No. 11 Correlation and T values of ER and CNX IT

Lag
-12
-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
error
II half 2002 I half 2003
II half 2003
I half 2004
II half 2004
I half 2005
-0.114
0.058
(1.200)
(0.598)
0.082
0.085
(0.863)
(0.885)
-0.012
0.003
(0.128)
(0.031)
-0.033
0.006
(0.351)
(0.063)
-0.085
0.061
(0.904)
(0.642)
0.073
0.031
(0.785)
(0.330)
-0.07
-0.110
(0.753)
(1.170)
0.003
0.068
(0.033)
(0.723)
-0.167
0.013
(1.815)
(0.140)
-0.062
-0.049
(0.674)
(0.527)
0.248
-0.074
(2.725)*
(0.804)
0.043
0.024
(0.473)
(0.261)
-0.052
-0.023
(0.571)
(0.250)
-0.199
0.024
(2.187)*
(0.261)
0.068
0.026
(0.747)
(0.283)
0.065
-0.069
(0.707)
(0.742)
0.117
-0.054
(1.272)
(0.581)
0.018
-0.085
(0.196)
(0.904)
-0.053
0.057
(0.570)
(0.606)
0.022
-0.056
(0.237)
(0.596)
0.186
-0.111
(1.979)
(1.168)
-0.023
0.061
(0.245)
(0.642)
-0.076
-0.070
(0.809)
(0.729)
-0.023
0.016
(0.242)
(0.167)
0.175
0.010
(1.842)
(0.103)
Correlation
-0.062
(0.660)
0.073
(0.785)
-0.141
(1.516)
0.089
(0.967)
0.02
(0.217)
-0.077
(0.837)
-0.028
(0.308)
0.095
(1.044)
0.137
(1.505)
0.096
(1.067)
-0.087
(0.967)
-0.012
(0.135)
0.01
(0.112)
-0.035
(0.393)
-0.055
(0.611)
-0.215
(2.389)*
0.034
(0.374)
0.055
(0.604)
-0.001
(0.011)
-0.037
(0.402)
0.081
(0.880)
0.006
(0.065)
0.01
(0.108)
0.074
(0.796)
0.165
(1.755)
Correlation
0.059
(0.615)
-0.179
(1.884)
0.03
(0.316)
0.022
(0.234)
0.174
(1.851)
-0.044
(0.468)
0.003
(0.032)
-0.061
(0.656)
-0.021
(0.228)
-0.002
(0.022)
-0.036
(0.391)
0.002
(0.022)
0.001
(0.011)
0.041
(0.451)
0.097
(1.054)
0.079
(0.859)
0.044
(0.478)
-0.01
(0.108)
0.065
(0.699)
-0.039
(0.415)
-0.046
(0.489)
-0.121
(1.287)
-0.079
(0.832)
0.056
(0.589)
-0.101
(1.052)
Correlation
-0.101
(1.063)
-0.029
(0.305)
0.024
(0.255)
-0.018
(0.191)
0.052
(0.553)
0.073
(0.785)
-0.047
(0.505)
0.017
(0.185)
0.154
(1.674)
-0.037
(0.402)
0.082
(0.901)
0.030
(0.330)
-0.031
(0.341)
0.005
(0.055)
-0.144
(1.582)
0.090
(0.978)
-0.079
(0.859)
-0.044
(0.478)
-0.014
(0.151)
0.012
(0.129)
0.223
(2.372)*
-0.113
(1.202)
-0.005
(0.053)
-0.070
(0.737)
0.080
(0.842)
Correlation
0.111
(1.009)
-0.052
(0.473)
-0.039
(0.358)
0.009
(0.083)
-0.095
(0.880)
-0.087
(0.813)
-0.091
(0.850)
0.179
(1.689)
-0.066
(0.629)
-0.037
(0.352)
-0.058
(0.558)
-0.116
(1.115)
-0.09
(0.874)
0.093
(0.894)
-0.015
(0.144)
-0.03
(0.286)
-0.01
(0.095)
0.213
(2.009)*
0.022
(0.206)
0.058
(0.542)
0.015
(0.139)
-0.144
(1.333)
0.227
(2.083)*
0.112
(1.018)
0.062
(0.564)

Interpretation:
From the above tables, it is clear that in the year 2000, T value at -5,
+7and at +8 lag is statistically significant. This shows that variables
were randomly related. In the year 2001 there was cyclical relationship
between the variables. The year 2002 CNX IT had influenced ER at
two day lag and ER also influenced IT index after two days. In the
years 2003 and 2004 IT had not at all affected by ER fluctuations. In
the year 2005 IT leads ER on fifth and tenth day, but it has not affected
by ER.
So we find that there was no noticeable relation between the variables.
As there was no systematic pattern of lead or lag.
Table No. 12 Correlation and T values of ER and BANKEX for the period 2002 to 2005
I half 2002 II half 2002 I half 2003
Lag
-12
-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
error
II half 2003 I half 2004 II half 2004 I half 2005
Correlation Correlation Correlation Correlation Correlation Correlation Correlation

0.111
0.121
-0.031
0.018
-0.056
-0.06
0.052
(1.168)
(1.274)
(0.320)
(0.191)
(0.583)
(0.632)
(0.473)
0.059
-0.098
-0.052
0.047
-0.216
0.034
-0.04
(0.628)
(1.032)
(0.542)
(0.505)
(2.274)*
(0.358)
(0.364)
-0.096
-0.045
0.101
-0.163
-0.111
0.112
0.03
(1.021)
(0.479)
(1.052)
(1.753)
(1.168)
(1.191)
(0.275)
0.137
0.037
-0.01
0.146
0.074
-0.04
-0.088
(1.457)
(0.394)
(0.105)
(1.587)
(0.787)
(0.426)
(0.815)
0.12
-0.051
-0.107
0.104
0.023
-0.033
-0.003
(1.290)
(0.543)
(1.126)
(1.130)
(0.245)
(0.351)
(0.028)
0.241
-0.010
0.096
-0.051
0.069
0.069
0.009
(2.591)*
(0.108)
(1.021)
(0.554)
(0.734)
(0.742)
(0.084)
0.182
0.037
-0.052
0.024
0.024
-0.172
-0.06
(1.978)
(0.398)
(0.553)
(0.264)
(0.258)
(1.849)
(0.561)
0.003
0.017
0.061
-0.088
-0.199
-0.019
0.123
(0.033)
(0.185)
(0.649)
(0.967)
(2.140)*
(0.207)
(1.160)
-0.037
-0.028
-0.02
0.043
-0.157
0.042
-0.146
(0.402)
(0.304)
(0.215)
(0.473)
(1.707)
(0.457)
(1.390)
0.16
0.067
-0.018
-0.083
0.026
-0.158
-0.066
(1.758)
(0.728)
(0.194)
(0.922)
(0.283)
(1.717)
(0.629)
0.146
0.065
-0.06
-0.182
-0.197
-0.005
0.025
(1.604)
(0.714)
(0.652)
(2.022)*
(2.141)*
(0.055)
(0.240)
0.003
-0.075
-0.041
-0.092
-0.229
0.029
-0.209
(0.033)
(0.824)
(0.446)
(1.034)
(2.516)*
(0.319)
(2.010)*
0.009
-0.084
0.041
0.002
-0.144
-0.075
-0.159
(0.100)
(0.923)
(0.446)
(0.022)
(1.582)
(0.824)
(1.544)
0.079
0.034
0.125
-0.071
0.139
0.015
0.031
(0.868)
(0.374
(1.359)
(0.798)
(1.527)
(0.165)
(0.298)
-0.01
-0.014
-0.076
-0.034
0.004
-0.243
-0.033
(0.110)
(0.154)
(0.826)
(0.378)
(0.043)
(2.670)*
(0.317)
-0.183
0.091
0.005
-0.06
0.035
0.101
0.038
(2.011)*
(0.989)
(0.054)
(0.667)
(0.380)
(1.098)
(0.362)
0.04
0.068
0.145
0.033
-0.002
-0.023
-0.054
(0.435)
(0.739)
(1.559)
(0.363)
(0.022)
(0.250)
(0.514)
0.1
-0.130
-0.168
-0.111
0.033
-0.006
0.251
(1.087)
(1.413)
(1.787)
(1.220)
(0.355)
(0.065
(2.368)*
-0.11
-0.055
0.206
0.04
0.071
0.132
0.021
(1.196)
(0.591)
(2.191)*
(0.440)
(0.763)
(1.419)
(0.196)
-0.158
0.078
-0.046
-0.105
0.010
-0.12
0.048
(1.699)
(0.839)
(0.489)
(1.141)
(0.106)
(1.290)
(0.449)
-0.051
-0.076
-0.484
-0.044
0.020
0.132
-0.027
(0.548)
(0.809)
(5.095)*
(0.478)
(0.213)
(1.404)
(0.250)
0.03
0.054
0.395
0.186
-0.019
-0.096
-0.146
(0.319)
(0.574)
(4.158)*
(2.022)*
(0.202)
(1.021)
(1.352)
0.01
0.011
0.02
0.012
-0.008
-0.084
0.196
(0.106)
(0.117)
(0.208)
(0.129)
(0.084)
(0.894)
(1.798)
0.062
-0.025
-0.058
0.084
0.176
-0.018
-0.004
(0.660)
(0.263)
(0.604)
(0.903)
(1.853)
(0.189)
(0.036)
-0.069
-0.005
-0.051]
-0.015
0.000
-0.103
0.136
(0.726)
(0.053)
(0.526)
(0.160)
(0.000)
(1.084)
(1.236)

Interpretation:
From the above tables, it is clear that in the year 2002,t value at -7 and
at +3 lag is statistically significant and in the second half of 2002 there
was no relationship between the variables. In the first half of 2003 T
value at +6 lag is statistically significant and T value at -2 lag in the
second half of 2003 is significant. So there was a little affect on one
variable from the other variable. In the first half of 2004 T value at -1 , 2 ,-5 and -11 lag is statistically significant. So in this period ER affects
BANKEX. In the second half of 2004 there was negligible relationship
between the variables. In the first half of 2005 T value at -1 lag and at
+5 lag is significant.
So we find that there was no noticeable relation between the variables.
As there was no systematic pattern of lead or lag.
Table No. 13 Correlation and T values of ER and IMPORT for the period 2000 to 2002
Lag
-12
-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
error
I half 2000
II half 2000
I half 2001
II half 2001
I half 2002
Correlation
0.129
(0.510)
0.049
(1.421)
0.135
(0.221)
-0.021
(0.415)
0.039
(0.777)
0.073
(0.585)
0.055
(0.129)
0.012
(1.247)
0.116
(1.793)
0.165
(0.891)
0.082
(0.380)
0.035
(0.473)
0.043
(0.272)
0.025
(1.000)
0.092
(0.402)
0.037
(0.108)
0.01
(0.656)
0.061
(0.468)
0.044
(0.777)
0.073
(0.234)
-0.022
(0.379)
0.036
(1.558)
-0.148
(0.229)
-0.022
(1.000)
-0.096
(0.000)
Correlation
-0.032
(0.340)
0.087
(0.935)
0.127
(1.366)
-0.043
(0.467)
-0.097
(1.054)
0.107
(1.163)
0.000
(0.000)
-0.014
(0.154)
-0.129
(1.418)
-0.132
(1.467)
-0.004
(0.044)
-0.096
(1.079)
-0.153
(1.719)
0.082
(0.921)
0.072
(0.800)
-0.088
(0.978)
-0.030
(0.330)
0.086
(0.945)
-0.186
(2.044)*
-0.141
(1.533)
-0.014
(0.152)
-0.039
(0.424)
-0.030
(0.323)
-0.133
(1.430)
-0.073
(0.777)
Correlation
0.003
(0.032)
-0.074
(0.779)
-0.169
(1.798)
-0.23
(2.447)*
0.162
(1.723)
0.08
(0.860)
0.186
(2.000)*
0.036
(0.391)
0.103
(1.120)
0.137
(1.489)
-0.033
(0.363)
-0.146
(1.604)
-0.026
(0.286)
-0.064
(0.703)
0.069
(0.758)
-0.023
(0.250)
-0.048
(0.522)
-0.077
(0.837)
-0.04
(0.430)
0.003
(0.032)
-0.096
(1.021)
0.024
(0.255)
-0.001
(0.011)
-0.043
(0.453)
-0.05
(0.526)
Correlation
Correlation
0.010
(0.105)
0.021
(0.223)
0.060
(0.638)
0.118
(1.255)
0.088
(0.946)
0.139
(1.495)
0.057
(0.620)
-0.070
(0.761)
-0.123
(1.337)
-0.003
(0.033)
0.215
(2.363)*
0.031
(0.341)
-0.062
(0.689)
-0.023
(0.253)
-0.057
(0.626)
0.065
(0.714)
-0.137
(1.489)
-0.087
(0.946)
-0.097
(1.054)
-0.069
(0.742)
-0.064
(0.688)
-0.031
(0.330)
0.001
(0.011)
-0.021
(0.223)
0.039
(0.411)
0.093
(0.930)
0.093
(0.939)
0.079
(0.939)
0.051
(0.520)
-0.029
(0.296)
0.038
(0.392
-0.047
(0.485)
-0.178
(1.854)
-0.228
(2.375*
-0.045
(0.474)
-0.08
(0.842)
-0.292
(3.106)*
-0.309
(3.287)*
-0.263
(2.798)*
-0.107
(1.126)
-0.121
(1.274)
-0.12
(1.250)
-0.142
(1.479)
-0.138
(1.423)
0.021
(0.216)
-0.035
(0.357)
-0.081
(0.827)
-0.093
(0.939)
-0.05
(0.505)
0.134
(1.340)

Table No. 14 Correlation and T values of ER and IMPORT for the period 2002 to 2005
II half 2002
I half 2003
II half 2003
I half 2004
II half 2004 I half 2005
Lag
-12
-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
error
Correlation
0.041
(0.432)
0.106
(1.116)
-0.041
(0.436)
-0.144
(1.532)
-0.009
(0.096)
-0.048
(0.516)
-0.067
(0.720)
0.066
(0.717)
0.057
(0.620)
-0.144
(1.565)
-0.037
(0.407)
0.178
(1.956)
-0.147
(1.615)
-0.142
(1.560)
0.011
(0.121)
0.047
(0.511)
-0.089
(0.967)
0.048
(0.522)
0.058
(0.624)
-0.013
(0.140)
0.031
(0.330)
-0.082
(0.872)
-0.104
(1.106)
-0.018
(0.189)
0.145
(1.526)
Correlation
0.060
(0.619)
0.010
(0.104)
-0.197
(2.052)*
-0.055
(0.579)
-0.040
(0.421)
-0.178
(1.894)
-0.001
(0.011)
-0.008
(0.085)
-0.085
(0.914)
0.086
(0.925)
-0.139
(1.511)
-0.052
(0.565)
0.074
(0.804)
-0.155
(1.685)
-0.093
(1.011)
0.145
(1.559)
-0.112
(1.204)
-0.062
(0.660)
0.084
(0.894)
-0.103
(1.096)
0.014
(0.147)
0.058
(0.611)
-0.052
(0.542)
0.059
(0.615)
0.007
(0.072)
Correlation
-0.058
(0.617)
0.069
(0.742)
-0.041
(0.441)
0.066
(0.717)
-0.053
(0.576)
-0.023
(0.250)
-0.034
(0.374)
-0.049
(0.538)
0.145
(1.593)
-0.052
(0.578)
-0.177
(1.967)
-0.065
(0.730)
0.009
(0.101)
-0.144
(1.618)
-0.026
(0.289)
-0.043
(0.478)
-0.025
(0.275)
-0.095
(1.044)
0.040
(0.440)
-0.058
(0.630)
0.103
(1.120)
0.159
(1.728)
0.117
(1.258)
0.163
(1.753)
0.186
(1.979)
0.018
0.044
(0.188)
(0.463)
-0.045
-0.100
(0.474)
(1.053)
-0.035
0.027
(0.368)
(0.287)
0.031
-0.009
(0.330)
(0.096)
-0.042
0.118
(0.447)
(1.255)
0.016
0.002
(0.170)
(0.022)
0.015
-0.117
(0.161)
(1.258)
-0.205
0.047
(2.204)*
(0.511)
-0.149
0.080
(1.620)
(0.870)
-0.044
-0.122
(0.478)
(1.326)
-0.202
-0.031
(2.196)*
(0.341)
-0.206
-0.005
(2.264)*
(0.055)
-0.086
-0.233
(0.945)
(2.560)*
0.083
-0.061
(0.912)
(0.670)
-0.019
-0.111
(0.207)
(1.220)
0.063
0.082
(0.685)
(0.891)
0.031
-0.008
(0.337)
(0.087)
0.055
0.032
(0.591)
(0.348)
0.035
0.033
(0.376)
(0.355)
0.003
-0.044
(0.032)
(0.473)
0.004
0.108
(0.043)
(1.149)
0.019
0.092
(0.202)
(0.979)
0.001
-0.075
(0.011)
(0.798)
0.145
-0.032
(1.526)
(0.337)
-0.008
0.081
(0.083)
(0.853)

Correlation
0.086
(0.782)
-0.022
(0.200)
0.015
(0.138)
0.000
(0.000)
-0.100
(0.926)
-0.110
(1.028)
-0.074
(0.692)
0.044
(0.415)
-0.080
(0.762)
-0.072
(0.686)
-0.063
(0.606)
-0.254
(2.442)
0.001
(0.010)
0.102
(0.981)
-0.028
(0.269)
-0.075
(0.714)
0.001
(0.010)
0.170
(1.604)
-0.039
(0.364)
0.070
(0.654)
0.076
(0.704)
-0.070
(0.648)
0.129
(1.183)
0.016
(0.145)
0.167
(1.518)
Interpretation:
From the above tables, it is clear that in the year 2000 there was no
interrelation between the variables. In the first half of 2001, there was
negative effect of ER on index at 9 day lag and direct effect of index on
ER at 6 day lag.
In the second half of 2001, there was cyclical relation between the
variables unlike other variables.
In all the other periods there was no significant relation between the
variables.
Table No. 15 Correlation and T values of ER and EXPORT for the period 2000 to 2002
-12
-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
error
I half 2000
II half 2000
I half 2001
II half 2001
I half 2002
Correlation
0.037
(0.385)
-0.026
(0.271)
-0.046
(0.484)
-0.009
(0.095)
0.026
(0.277)
-0.012
(0.128)
0.130
(1.383)
0.084
(0.903)
0.222
(2.387)*
0.129
(1.402)
0.095
(1.033)
-0.079
(0.859)
-0.049
(0.538)
-0.041
(0.446)
0.040
(0.435)
-0.126
(1.370)
0.090
(0.968)
-0.036
(0.387)
-0.089
(0.947)
-0.090
(0.957)
-0.162
(1.723)
-0.201
(2.116)*
-0.057
(0.600)
-0.089
(0.927)
-0.159
(1.656)
Correlation
0.162
(1.723)
-0.027
(0.290)
0.067
(0.720)
0.148
(1.609)
0.141
(1.533)
-0.033
(0.359)
0.158
(1.736)
0.102
(1.121)
0.145
(1.593)
-0.2
(2.222)*
0.016
(0.178)
-0.167
(1.876)
0.03
(0.337)
-0.166
(1.865)
-0.035
(0.389)
0.123
(1.367)
-0.052
(0.571)
-0.066
(0.725)
0.023
(0.253)
0.059
(0.641)
-0.241
(2.620)*
0.001
(0.011)
-0.147
(1.581)
0.057
(0.613)
-0.146
(1.553)
Correlation
-0.017
(0.179)
0.134
(1.411)
-0.046
(0.489)
0.020
(0.213)
-0.242
(2.574)*
-0.126
(1.355)
0.044
(0.473)
0.175
(1.902)
0.039
(0.424)
0.076
(0.826)
0.130
(1.429)
0.152
(1.670)
-0.200
(2.198)*
-0.121
(1.330)
-0.167
(1.835)
-0.085
(0.924)
0.005
(0.054)
0.126
(1.370)
-0.037
(0.398)
-0.172
(1.849)
-0.078
(0.830)
0.023
(0.245)
-0.069
(0.734)
-0.039
(0.411)
0.017
(0.179)
Correlation
-0.096
(0.960)
0.009
(0.091)
-0.004
(0.040)
-0.007
(0.071)
-0.014
(0.143)
0.126
(1.299)
0.011
(0.113)
-0.079
(0.823)
-0.141
(1.469)
-0.114
(1.200)
-0.112
(1.179)
-0.465
(4.947)*
-0.344
(3.660)*
-0.306
(3.255)*
-0.104
(1.095)
-0.148
(1.558)
-0.076
(0.792)
-0.169
(1.760)
-0.170
(1.753)
-0.060
(0.619)
-0.077
(0.786)
-0.062
(0.633)
-0.138
(1.394)
-0.074
(0.747)
0.044
(0.440)
Correlation
-0.005
(0.053)
-0.016
(0.170)
-0.031
(0.330)
0.061
(0.649)
0.069
(0.742
0.187
(2.011)*
0.138
(1.500)
0.026
(0.283)
-0.084
(0.913)
-0.071
(0.780)
0.191
(2.099)*
-0.037
(0.407)
-0.096
(1.067)
-0.002
(0.022)
0.179
(1.967)
0.079
(0.868)
-0.105
(1.141)
-0.031
(0.337)
0.008
(0.087)
-0.162
(1.742)
-0.172
(1.849)
-0.115
(1.223)
-0.042
(0.447)
-0.035
(0.372)
-0.015
(0.158)

Table No. 16 Correlation and T values of ER and EXPORT for the period 2000 to 2005
II half 2002
I half 2003 II half 2003
I half 2004
II half 2004
I half 2005
Lag
-12
-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
error
Correlation
-0.066
(0.695)
0.081
(0.853)
-0.071
(0.755)
-0.029
(0.309)
-0.126
(1.340)
0.058
(0.624)
0.028
(0.301)
0.044
(0.478)
-0.139
(1.511)
-0.063
(0.685)
0.201
(2.209)*
0.063
(0.692)
-0.105
(1.154)
-0.094
(1.033)
0.031
(0.341)
0.067
(0.728)
0.111
(1.207)
0.059
(0.641)
-0.003
(0.032)
0.006
(0.065)
0.133
(1.415)
-0.081
(0.862)
-0.084
(0.894)
0.003
(0.032)
0.163
(1.716)
Correlation
0.031
(0.320)
0.105
(1.094)
-0.032
(0.333)
-0.009
(0.095)
0.043
(0.453)
0.008
(0.085)
-0.102
(1.085)
0.038
(0.404)
0.002
(0.022)
-0.088
(0.946)
-0.030
(0.326)
0.074
(0.804)
-0.078
(0.848)
-0.004
(0.043)
-0.003
(0.033)
-0.012
(0.129)
-0.064
(0.688)
-0.100
(1.064)
0.054
(0.574)
-0.098
(1.043)
-0.104
(1.095)
0.030
(0.316)
-0.104
(1.083)
0.042
(0.438)
-0.006
(0.062)
Correlation
-0.008
(0.085)
0.067
(0.720)
-0.098
(1.054)
0.125
(1.359)
0.008
(0.087)
-0.047
(0.511)
-0.015
(0.165)
0.100
(1.099)
0.120
(1.319)
0.030
(0.333)
-0.101
(1.122)
-0.014
(0.157)
-0.058
(0.652)
-0.101
(1.135)
-0.116
(1.289)
-0.189
(2.100)*
0.022
(0.242)
-0.021
(0.231)
0.010
(0.110)
-0.059
(0.641)
0.070
(0.761)
-0.014
(0.152)
0.027
(0.290)
0.125
(1.344)
0.192
(2.043)*
Correlation
0.006
(0.063)
-0.066
(0.695)
-0.049
(0.516)
0.013
(0.138)
-0.041
(0.436)
0.073
(0.777)
0.021
(0.226)
-0.173
(1.860)
-0.135
(1.467)
0.078
(0.848)
-0.139
(1.511)
-0.078
(0.857)
-0.034
(0.374)
0.088
(0.967)
-0.042
(0.457)
0.009
(0.098)
0.022
(0.239)
0.047
(0.505)
0.053
(0.570)
-0.035
(0.372)
0.036
(0.383)
0.023
(0.245)
-0.031
(0.326)
0.173
(1.821)
0.019
(0.198)
Correlation
-0.111
(1.168)
-0.064
(0.674)
0.071
(0.755)
0.017
(0.181)
0.082
(0.872)
-0.008
(0.086)
-0.075
(0.806)
0.052
(0.565)
0.136
(1.478)
-0.061
(0.663)
0.062
(0.681)
-0.050
(0.549)
-0.055
(0.604)
-0.019
(0.209)
-0.165
(1.813)
0.104
(1.130)
-0.038
(0.413)
-0.045
(0.489)
-0.057
(0.613)
0.037
(0.398)
0.249
(2.649)*
-0.099
(1.053)
-0.048
(0.511)
-0.061
(0.642)
0.054
(0.568)
Correlation
0.044
(0.400)
-0.037
(0.336)
-0.013
(0.119)
0.006
(0.056)
-0.174
(1.611)
-0.093
(0.869)
-0.141
(1.318)
0.145
(1.368)
-0.040
(0.381)
0.011
(0.105)
-0.040
(0.385)
-0.192
(1.846)
-0.076
(0.738)
0.060
(0.577)
-0.072
(0.692)
-0.089
(0.848)
0.056
(0.533)
0.207
(1.953)
0.022
(0.206)
0.020
(0.187)
0.000
(0.000)
-0.119
(1.102)
0.179
(1.642)
0.045
(0.409)
0.056
(0.509)

Interpretation:
From the above tables, it is clear that in the year 2000, t value at -4lag
and at +9 lag is statistically significant. In the second half of 2000, t
value at -3 and at +8 lag is statistically significant and in the year 2001
there was significant interrelationship between the variables like with
other indices. In the first half of 2002, t value at -2 and -7 lag is
significant and in the second half, t value at -2 lag is significant. But in
all the other periods there was no significant relationship between the
variables.
So for both import and export indices there were no normal or special
impact of ER on index values.
The results show that there is no zero order or lead lag relation
between the two variables so six Multi national companies are
considered in the study. These companies were selected fron CNX
MNC list. The companies are ABB, BATA, Colgate Palmolive, Glaxo
smithkline, Hindustan Lever Ltd. and Mico.
For all the six companies the test shows that the share prices of these
companies are not influenced by the exchange rate fluctuations. The
sample o two companies among six are analyzed below.
Table No.17: Correlation and T values of ER and ABB

for the period 2000 to 2005
YEAR
Lag
2000
Correlation.
2001
Correlation
2002
Correlation
2003
Correlation
2004
Correlation
2005
Correlation
-10
0.041
(0.631)
-0.011
(0.164)
0.041
(0.631)
0.073
(1.123)
0.051
(0.785)
-0.044
(0.407)
-9
-0.005
(0.077)
0.006
(0.090)
0.069
(1.062)
0.154
(2.369)*
0.02
(0.308)
0.019
(0.176)
0.09
(1.385)
0.091
(1.400)
0.021
(0.323)
0.056
(0.875
0.145
(2.197)*
0.163
(2.470)*
0.036
(0.545)
-0.083
(1.258)
-0.013
(0.200)
0
(0.000)
-0.013
(0.200)
0.042
(0.656)
0.072
(1.108)
-0.021
(0.323)
-0.071
(1.092)
-0.024
(0.369)
0.104
(0.972)
-0.01
(0.093)
-0.152
(1.434)
0.015
(0.143)
0.029
(0.453)
-0.01
(0.156)
0.041
(0.641)
0.039
(0.609)
0.004
(0.063)
0.069
(1.078)
-0.076
(1.188)
0.02
(0.313)
-0.073
(1.141)
0.058
(0.906)
-0.149
(2.292)*
-0.013
(0.200)
-0.058
(0.892
-0.053
(0.815)
0.004
(0.062)
-0.018
(0.273)
-0.039
(0.591)
-0.183
(2.773)*
-0.111
(1.708)
-0.061
(0.938)
-0.087
(1.338)
-0.068
(1.030)
0.004
(0.061)
-0.049
(0.742)
0.091
(1.379)
-0.026
(0.394)
0.032
(0.485)
-0.065
(0.985)
-0.053
(0.791)
0.023
(0.343)
0.002
(0.031)
0.05
(0.769)
0.017
(0.262)
-0.03
(0.462)
-0.101
(1.578)
0.012
(0.188)
-0.02
(0.313)
-0.092
(1.438)
-0.027
(0.422)
-0.085
(1.328)
0.045
(0.703)
-0.055
(0.859)
0.087
(1.359)
-0.068
(1.063)
-0.076
(1.188)
0.012
(0.185)
-0.007
(0.108)
0.107
(1.646)
-0.01
(0.154)
-0.094
(1.446)
-0.061
(0.953)
-0.08
(1.250)
-0.057
(0.891)
-0.066
(1.031)
-0.029
(0.453)
0.011
(0.172)
-0.095
(1.484)
0.02
(0.313)
-0.054
(0.844)
-0.096
(1.477)
-0.002
(0.031)
-0.032
(0.492)
0.002
(0.031)
-0.004
(0.062)
-0.05
(0.769)
-0.068
(0.648)
-0.236
(2.269)*
-0.116
(1.115)
-0.054
(0.524)
0.12
(1.165)
0.084
(0.816)
0.015
(0.144)
0.095
(0.913)
0.08
(0.762)
-0.07
(0.667)
-0.034
(0.321)
-0.008
(0.075)
0.082
(0.766)
0.115
(1.065)
-0.146
(1.352)
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
error
0.009
(0.141)
0.033
(0.516)
0.121
(1.891)
0.061
(0.953)
0.085
(1.328)
0.011
(0.172)
-0.1
(1.563)
-0.004
(0.063)
-0.004
(0.062)
0.009
(0.138)
0.03
(0.462)
-0.003
(0.046)
0.037
(0.569)
-0.061
(0.938)

* indicates t values greater than 2, @ 5% significance level.
From the above table we can find that, in the year 2000 t value at +6
lag is statistically significant, but this does not mean that ABB share
prices at zero date influences 6th day Exchange Rate as individual
companys share prices can not influence the exchange rate. And there
is no impact of ER on ABB share prices during the year 2000.
In the year 2001, t value at -2,-7 and -8 lag is statistically significant
i.e., ER of today has a direct effect on 2nd, 7th and 8th day share prices
of ABB. ER leads the share prices of ABB.
In 2002 and 2004, ABBs share prices has not at all affected by
exchange rates.
In 2003, t value at -9 lag is statistically significant, means ER on zero
date has impact on 9th days share prices of ABB.
In 2005, t value at -3 lag is greater than 2, so ER at zero date
influenced 3rd days ABBs share price.
So finally in all the years the share prices

of ABB are not very significantly affected by
exchange rates. The impact of exchange rates
on ABBs share prices has not been seen in
the years 2000 to 2005.
Table No.18 Correlation and T values of ER and BATA

for the period 2000 to 2005
YEAR
Lag
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
error
2000
Correlation.
0.012
(0.18)
0.002
(0.03)
0.014
(0.22)
-0.009
(0.14)
-0.058
(0.89)
0.036
(0.56)
-0.036
(0.56)
-0.038
(0.59)
-0.006
(0.09)
0.033
(0.52)
-0.004
(0.06)
-0.05
(0.78)
0.025
(0.39)
-0.039
(0.61)
-0.002
(0.03)
0.017
(0.27)
-0.157
(2.42)*
0.041
(0.63)
-0.104
(1.60)
-0.078
(1.20)
-0.007
(0.11)
2001
Correlation
0.005
(0.075)
-0.018
(0.269)
0.073
(1.106)
0.032
(0.485)
0.021
(0.318)
0.026
(0.394)
0.087
(1.318)
-0.034
(0.515)
-0.152
(2.303)*
-0.123
(1.892)
-0.097
(1.492)
-0.042
(0.646)
-0.038
(0.576)
-0.015
(0.227)
-0.071
(1.076)
0.031
(0.470)
0.054
(0.818)
-0.005
(0.076)
0.032
(0.485)
0.016
(0.239)
0.019
(0.284)
2002
Correlation
-0.02
(0.31)
0.01
(0.15)
0.034
(0.52)
0.071
(1.09)
0.099
(1.52)
0.05
(0.77)
-0.018
(0.28)
0
(0.00)
0.04
(0.63)
0.039
(0.61)
-0.022
(0.34)
-0.072
(1.13)
-0.063
(0.98)
0.069
(1.08)
-0.019
(0.30)
0.023
(0.35)
0.033
(0.51)
0.035
(0.54)
-0.013
(0.20)
-0.071
(1.09)
-0.017
(0.26)
2003
Correlation
-0.011
(0.17)
0.147
(2.26)*
0.047
(0.72)
0.092
(1.42)
-0.026
(0.40)
-0.078
(1.22)
-0.088
(1.38)
-0.006
(0.09)
-0.003
(0.05)
-0.001
(0.02)
0.105
(1.64)
0.118
(1.84)
0.009
(0.14)
0.04
(0.63)
0.01
(0.16)
0.096
(1.50)
-0.068
(1.05)
-0.03
(0.46)
0.096
(1.48)
0.054
(0.83)
-0.05
(0.77)
2004
Correlation
0.106
(1.63)
-0.046
(0.71)
-0.054
(0.83)
-0.049
(0.75)
-0.176
(2.71)*
-0.093
(1.43)
0.01
(0.16)
-0.071
(1.11)
-0.138
(2.16)*
-0.157
(2.45)*
0.019
(0.30)
0.036
(0.56)
0.004
(0.06)
-0.02
(0.31)
0.054
(0.84)
0.076
(1.17)
0.063
(0.97)
0.062
(0.95)
0.023
(0.35)
-0.113
(1.74)
0.052
(0.80)
2005
Correlation
0.048
(0.44)
0.049
(0.45)
0.07
(0.65)
-0.047
(0.44)
-0.069
(0.65)
0.083
(0.79)
-0.147
(1.40)
-0.004
(0.04)
-0.128
(1.23)
-0.064
(0.62)
0.001
(0.01)
-0.192
(1.86)
0
(0.00)
-0.021
(0.20)
0.118
(1.12)
0.052
(0.50)
0.016
(0.15)
0.049
(0.46)
0.004
(0.04)
-0.059
(0.55)
-0.002
(0.02)

From the above table we can find that, in the year 2000 t value at +6
lag is statistically significant, but this does not mean that BATAs share
prices at zero date influences 6th day Exchange Rate as individual
companys share prices can not influence the exchange rate. And there
is no impact of ER on BATAs share prices during the year 2000.
In the year 2001, t value at -2 lag is greater than 2, i.e. ER of today has
a direct effect on 2nd days share prices of BATA.
In 2002 and 2005, BATA has not at all affected by exchange rates.
In 2003, t statistic at -9 lag is greater than 2, this means ER on zero
date has impact on 9th days share prices of BATA.
In 2004, t value at -1,-2 and at -6 lag is greater than 2, so ER at zero
date influenced next, second and sixth days BATA share prices.
So finally in all the years the share prices

of BATA are not very significantly affected
by exchange rates. The impact of exchange
rates on BATAs share prices has not been
seen in the years 2000 to 2005.
From the study we can analyze that there was no one way or two way
relationship between the variables between ER and Colgate Palmolive
In the year 2000, 2002 and 2004.
In the year 2001, t statistic at -1, -2 and at +8 lag is greater than 2 that
means Colgate share prices on first and second day are influenced by
zero days Exchange Rate.
In 2003, t statistic at -3 lag and at +10 lag are greater than 2, means
ER on zero date has impact on 3rd days Colgate share prices. In 2005
there was no impact of ER on share prices of Colgate.
So, finally it is clear there is no noticeable relation between these two
variables during the period of 2000 to 2005.
From the study it is clear that, In the year 2000, there was no one way
or two way relationship between the ER and Glaxo share prices.
In the year 2001, t value at -10 lag is statistically significant, this shows
that zero date ER has an impact on 10th days Glaxo share prices. In
the year 2002, t value at -8lag, +5 lag and +10 lag is greater than 2,
this shows that zero date ER influences 8th days Glaxo share prices
and zero date Glaxo influences fifth and tenth day ER.
In the year 2003, t value at -3 lag is greater than 2 and Glaxo share
price on the 3rd is influenced by zero date ER. But there is no other way
impact.
In the year 2004, t values at -3 lag and +1 lag are greater than 2, this
shows that zero date ER influences 3rd days Glaxo share prices.
In the year 2005, t value at -1 lag and at +2 lag is statistically
significant, this shows that ER influences next days Glaxo share price.
Finally we can see that there is no systematic pattern in their
relationship, so there is no causal relationship between the two
variables.
From the study, it is clear that: In the year 2000, t value at +10lag is
greater than 2, this does not mean HLL share price has an impact on
10 day ER because individual companys share prices cannot affect
the ER.
In the year 2001, t value at -4 lag is greater than 2, this shows that
todays ER affects 4th days share price.
In the year 2002, there is no relation between the two variables.
In the year 2003, t values at -2 lag and at -10 lag satisfies the condition
and we can say that ER at Zero date has an impact on second and
tenth day HLL share prices.
In the year 2004, there is an impact of one variable on other on the
same day.
In the year 2005, there is no relation between the two variables.
Finally, it is clear that there is no same pattern of leads or lags between
the two variables for six periods so we can conclude that these
relationships has occurred due to chance factor but not due to cause
factor.
From the study it is clear that, in the year 2000, the t statistic at +3 lag
is greater than 2, this does not mean that zero date share prices of
MICO influences third day ER.
In the year 2003, the t statistic at -2 lag is greater than 2, this shows
that zero date ER influences second days share prices of MICO.
In the rest of the years i.e. in 2001, 2002, 2004 and 2005, there is no
either ways impact.
So from this study it is clear that there is no systematic or causal effect
of ER fluctuations on the MNCs share prices.
Discussions
Theory says that exchange rates should have a direct impact on
the companies with heavy import or export activities and thus affecting
the profitability and hence the stock prices. An exchange rate has two
effects on stock prices, a direct effect through Multi National Firms and
an indirect effect through domestic firms.
As the index is nothing but weighted average of the share prices
of various companies from different sectors, the sensex has been
considered to see the impact of ER on it. Both Sensex and Nifty are
considered to see where they move in the same direction or not. Both
sensex and nifty constitutes companies from different industries, to see
whether the ER influences share prices of companies of particular
sector due to their participation in international trade and market,
Bankex and CNX IT were considered.
ER fluctuations reflect more in the share prices of companies
which are involved in either imports or exports, so to check this
statement a separate import and export index is constructed by taking
fifteen companies which have more exposure to foreign trade.
After analyzing the data by using correlation coefficient, we
found that in the short run ER does not affect the share prices. The
results show that there was no significant relationship between the ER
and any index, except in the second half of 2001.
As this is like a puzzle, means ER does not affect even a single
index, six MNCs were taken from CNX MNC list to see whether ER
affects individual Multi national company. But results show there is no
effect of ER fluctuations
on these companys share prices.
From the results obtained by carrying out various tests, we can

see that there is very less relation exists between exchange rates
and stock prices. The possible reasons for such behavior could be
as follows:
One interpretation could be that investors do not use all freely

available information, like past changes in the rupee and the
past relation and firm performance, assets and liabilities of
company, etc, to predict changes in firm value. More specifically,
at the end of fiscal quarter investors observe the change in the
value of rupee over the period and see what impact the rupee
changes has on firm performance, assets and liabilities. Based
upon this information, investors should be able to form an
unbiased expectation about the economic impact of the recent
change in rupee on the firm and incorporate this effect into firms
value and share prices. However, at the end of fiscal quarter,
investors systematically underestimate or perhaps overlook this
impact.
This underestimation may be corrected only when additional
information that directly relates to the impact of past change in
rupee on the firm performance, asset and liabilities is disclosed
during the following quarter.
On the other hand, it can be said that because of using only a

single variable, namely exchange rate, the impact on stock
prices was not felt. If more of independent variables like interest
rates, money supply etc. could be added, then possibly a very
good relation could have been established.
In reality, stock prices and exchange rate are affected by a

myriad of factors such as fiscal and monetary policy, interest
rates, inflation, money supply, political factors, international

events,
fundamental
performance,
forex
reserves,
BOP,
exchange control, etc.
The non-existence of relationship may also be because of Indian

markets not yet being highly integrated or sensitive to the new
information. Also the Indian companies comparatively may not
be exposed to a lot of forex exposure, like companies in
developed countries.
Alternatively Indian managers are highly cautious and hedge to

a good extent of their forex exposure.
Another very important reason can be that Indian stocks are

highly sentiment driven and stocks of certain companies may
start soaring for no reason. There are few qualitative factors that
influence stock prices like speculation and investor confidence
level.
High volatility introduced in the exchange market due to floating

rate regime nurtures the speculative activities, makes it difficult
to pinpoint the precise effect of exchange rates on stock prices.
Conclusions
From the data analysis and findings, we can conclude that
There is no significant cause and effect relationship between the

two variables. As the relationship occurred between the
variables during different periods is because of chance factor
and not because of cause factor.
In the second half of 2001, there was very significant

relationship between the exchange rates and all the indices.
During this period, all the indices have also influenced the
exchange rates at one day lag. There was also a very good
cyclical relationship of lead and lag between the variables.
This is due to Forex reserves had expanded by $11.8 billion,
which is twice greater than its preceding year. In October
December 2001, there was an overall surplus in current account
after 22 years of deficit. The world economy experienced one of
the worst shocks in the aftermath of September 11, 2001 event
in US affected forex market in India. Developments after
September 11, 2001 event had an adverse effect on the Indias
financial markets.
In order to stabilize the domestic financial market, RBI had
announced
some
measures
which
also
influenced
this
relationship.
There is no significant relationship between any of the company

share prices with exchange rates individually.
There is no lead or lag relationship between all the indices or

any of the companys share prices and exchange rates.
The study has considered CNX IT, Bankex, import and export
index purposefully to check whether any relation exists between
different sectors which have more exposure to foreign
exchange, by the analysis made it was found that the
relationship does not change with different sectors.
The study has also considered six MNCs to see whether we can
establish relationship between individual companys share
prices and exchange rates. But we found that there is no
relationship between both the variables.
Bibliography
Text Books
Multinational Business Finance,

o -David K. Eieteman, Arthur I. Stonehill and Michel H.
Moffett, (Tenth Edition)
Research Methodology
o -Donald Cooper and Pamela Schindler , (Eighth Edition)
Financial markets and services

o Gordon and Natrajan, (Second Edition)
Websites
www.investopedia.com
www.nseindia.com
www.bseindia.com
www.exchangerate.com
www.emeclai.com
www.icicidirect.com
www.iciciresearch.com
www.easy-forex.com
www.indiainfoline.com
Database of Capital Market Publishers (India) Ltd., Capitaline 2000
REFERENCES
o Articles of ICFAI
(The Institute of Chartered Financial Analysts of India)
Integration between Foreign Exchange and Capital Markets in

India: An empirical exploration"
by Golka C Nath and G P
Samanta, the ICFAI Journal of Applied Finance vol. 9 No. 6, Pg.

29 to 40
Dynamic Relationship between Exchange rates and stock

Prices: an empirical study in the Indian context by Meera
Pratap Thakker and Vijay R Chary, the ICFAI Journal of Applied
Finance vol.10 No.8 Pg. 54 to 68
Causality between stock prices and exchange rates: some

evidence for India by M Venkateshwaralu and Rishab Tiwari ,
the ICFAI Journal of Applied Finance vol.11 No.3, Pg. 5 to 15
Stock Prices and Exchange Rates interlinkages in emerging

financial markets: the Indian perspective by Alok Kumar Mishra
the ICFAI Journal of Applied Finance vol.11 No.4,Pg. 31 to 48
Sensex closing values for the period 2005

DATE
31/5/2005
30/5/2005
27/5/2005
26/5/2005
25/5/2005
24/5/2005
23/5/2005
20/5/2005
19/5/2005
18/5/2005
17/5/2005
16/5/2005
13/5/2005
12/5/05
11/5/05
10/5/05
9/5/05
6/5/05
5/5/05
4/5/05
3/5/05
2/5/05
29/4/2005
28/4/2005
27/4/2005
26/4/2005
25/4/2005
22/4/2005
21/4/2005
20/4/2005
19/4/2005
18/4/2005
15/4/2005
13/4/2005
12/4/05
11/4/05
8/4/05
7/4/05
6/4/05
5/4/05
4/4/05
31/3/2005
30/3/2005
29/3/2005
28/3/2005
24/3/2005
23/3/2005
22/3/2005
21/3/2005
CLOSING
6715.11
6663.55
6707.72
6670.78
6597.6
6565.37
6539.83
6499.5
6478.94
6447
6466
6528.03
6451.54
6456.82
6445.13
6454.71
6481.35
6388.48
6359.65
6289.55
6216.77
6195.15
6154.44
6284.2
6278.5
6339.98
6377.85
6346.57
6299.2
6243.74
6134.86
6156.78
6248.34
6467.92
6464.61
6397.52
6479.54
6545.64
6606.41
6550.29
6604.42
6492.82
6381.4
6367.86
6510.74
6442.87
6454.46
6535.45
6656.69
P1/P0
1.0077
0.9934
1.0055
1.0111
1.0049
1.0039
1.0062
1.0032
1.0050
0.9971
0.9905
1.0119
0.9992
1.0018
0.9985
0.9959
1.0145
1.0045
1.0111
1.0117
1.0035
1.0066
0.9794
1.0009
0.9903
0.9941
1.0049
1.0075
1.0089
1.0177
0.9964
0.9853
0.9661
1.0005
1.0105
0.9873
0.9899
0.9908
1.0086
0.9918
1.0172
1.0175
1.0021
0.9781
1.0105
0.9982
0.9876
0.9818
0.9935
Log Normal of
P1/P0
0.0077
-0.0066
0.0055
0.0110
0.0049
0.0039
0.0062
0.0032
0.0049
-0.0029
-0.0095
0.0118
-0.0008
0.0018
-0.0015
-0.0041
0.0144
0.0045
0.0111
0.0116
0.0035
0.0066
-0.0209
0.0009
-0.0097
-0.0060
0.0049
0.0075
0.0088
0.0176
-0.0036
-0.0148
-0.0345
0.0005
0.0104
-0.0127
-0.0101
-0.0092
0.0085
-0.0082
0.0170
0.0173
0.0021
-0.0222
0.0105
-0.0018
-0.0125
-0.0184
-0.0065
18/3/2005
17/3/2005
16/3/2005
15/3/2005
14/3/2005
11/3/05
10/3/05
9/3/05
8/3/05
7/3/05
4/3/05
3/3/05
2/3/05
1/3/05
28/2/2005
25/2/2005
24/2/2005
23/2/2005
22/2/2005
21/2/2005
18/2/2005
17/2/2005
16/2/2005
15/2/2005
14/2/2005
11/2/05
10/2/05
9/2/05
8/2/05
7/2/05
4/2/05
3/2/05
2/2/05
1/2/05
31/1/2005
28/1/2005
27/1/2005
25/1/2005
24/1/2005
20/1/2005
19/1/2005
18/1/2005
17/1/2005
14/1/2005
13/1/2005
12/1/05
11/1/05
10/1/05
7/1/05
6/1/05
5/1/05
4/1/05
6700.34
6669.52
6746.88
6752.45
6810.04
6853.73
6907.65
6892.82
6915.09
6878.98
6849.48
6784.72
6686.89
6651.08
6713.86
6569.72
6574.21
6582.5
6589.41
6534.68
6584.32
6589.29
6607.78
6670.06
6679.33
6633.76
6577.83
6593.53
6544.77
6535.17
6618.23
6619.97
6530.06
6552.47
6555.94
6419.09
6239.43
6162.98
6106.43
6183.24
6173.32
6192.35
6194.07
6173.82
6221.06
6102.74
6222.87
6308.54
6420.46
6367.39
6458.84
6651.01
1.0046
0.9885
0.9992
0.9915
0.9936
0.9922
1.0022
0.9968
1.0052
1.0043
1.0095
1.0146
1.0054
0.9906
1.0219
0.9993
0.9987
0.9990
1.0084
0.9925
0.9992
0.9972
0.9907
0.9986
1.0069
1.0085
0.9976
1.0075
1.0015
0.9874
0.9997
1.0138
0.9966
0.9995
1.0213
1.0288
1.0124
1.0093
0.9876
1.0016
0.9969
0.9997
1.0033
0.9924
1.0194
0.9807
0.9864
0.9826
1.0083
0.9858
0.9711
0.9958
0.0046
-0.0115
-0.0008
-0.0085
-0.0064
-0.0078
0.0021
-0.0032
0.0052
0.0043
0.0095
0.0145
0.0054
-0.0094
0.0217
-0.0007
-0.0013
-0.0010
0.0083
-0.0076
-0.0008
-0.0028
-0.0094
-0.0014
0.0068
0.0085
-0.0024
0.0074
0.0015
-0.0126
-0.0003
0.0137
-0.0034
-0.0005
0.0211
0.0284
0.0123
0.0092
-0.0125
0.0016
-0.0031
-0.0003
0.0033
-0.0076
0.0192
-0.0195
-0.0137
-0.0176
0.0083
-0.0143
-0.0293
-0.0042
DATE
4-Jan
5-Jan
6-Jan
7-Jan
10-Jan
11-Jan
12-Jan
13-Jan
14-Jan
18-Jan
20-Jan
24-Jan
25-Jan
26-Jan
27-Jan
28-Jan
1-Feb
2-Feb
3-Feb
7-Feb
8-Feb
9-Feb
10-Feb
11-Feb
14-Feb
15-Feb
16-Feb
17-Feb
18-Feb
22-Feb
23-Feb
24-Feb
25-Feb
28-Feb
1-Mar
2-Mar
3-Mar
4-Mar
7-Mar
8-Mar
9-Mar
10-Mar
11-Mar
14-Mar
15-Mar
16-Mar
17-Mar
18-Mar
21-Mar
22-Mar
Exchange Rates for the year 2005

Rs/US$
P1/P0
Log Normal of P1/P0
43.49364
43.63293
1.0032
0.0032
43.78201
1.0034
0.0034
43.65672
0.9971
-0.0029
43.84261
1.0043
0.0042
43.72259
0.9973
-0.0027
43.56188
0.9963
-0.0037
43.53863
0.9995
-0.0005
43.58271
1.0010
0.0010
43.58263
1.0000
0.0000
43.75279
1.0039
0.0039
43.70195
0.9988
-0.0012
43.72211
1.0005
0.0005
43.66984
0.9988
-0.0012
43.67276
1.0001
0.0001
43.66156
0.9997
-0.0003
43.71259
1.0012
0.0012
43.33247
0.9913
-0.0087
43.32255
0.9998
-0.0002
43.44269
1.0028
0.0028
43.65185
1.0048
0.0048
43.65189
1.0000
0.0000
43.71111
1.0014
0.0014
43.74456
1.0008
0.0008
43.70121
0.9990
-0.0010
43.73176
1.0007
0.0007
43.70216
0.9993
-0.0007
43.71217
1.0002
0.0002
43.74031
1.0006
0.0006
43.67757
0.9986
-0.0014
43.62018
0.9987
-0.0013
43.6291
1.0002
0.0002
43.63162
1.0001
0.0001
43.60753
0.9994
-0.0006
43.67468
1.0015
0.0015
43.65224
0.9995
-0.0005
43.66786
1.0004
0.0004
43.64942
0.9996
-0.0004
43.6569
1.0002
0.0002
43.60364
0.9988
-0.0012
43.60555
1.0000
0.0000
43.52817
0.9982
-0.0018
43.48405
0.9990
-0.0010
43.49608
1.0003
0.0003
43.52628
1.0007
0.0007
43.56387
1.0009
0.0009
43.6074
1.0010
0.0010
43.59846
0.9998
-0.0002
43.66779
1.0016
0.0016
43.67592
1.0002
0.0002
23-Mar
24-Mar
25-Mar
28-Mar
29-Mar
30-Mar
31-Mar
1-Apr
4-Apr
5-Apr
6-Apr
7-Apr
8-Apr
11-Apr
12-Apr
13-Apr
14-Apr
15-Apr
18-Apr
19-Apr
20-Apr
21-Apr
22-Apr
25-Apr
26-Apr
27-Apr
28-Apr
29-Apr
2-May
3-May
4-May
5-May
6-May
9-May
10-May
11-May
12-May
13-May
16-May
17-May
18-May
19-May
20-May
23-May
24-May
26-May
27-May
31-May
43.7356
43.70206
43.7043
43.73386
43.7519
43.74548
43.67049
43.68055
43.69338
43.76521
43.70378
43.72772
43.67612
43.66781
43.7005
43.70595
43.69394
43.77805
43.70308
43.73003
43.65527
43.72473
43.69043
43.66869
43.65923
43.65038
43.70642
43.52396
43.50566
43.58325
43.45578
43.37845
43.39546
43.47917
43.3979
43.24308
43.35403
43.39835
43.43531
43.4499
43.48287
43.48538
43.39281
43.39335
43.39922
43.49058
43.49993
43.6672
1.0014
0.9992
1.0001
1.0007
1.0004
0.9999
0.9983
1.0002
1.0003
1.0016
0.9986
1.0005
0.9988
0.9998
1.0007
1.0001
0.9997
1.0019
0.9983
1.0006
0.9983
1.0016
0.9992
0.9995
0.9998
0.9998
1.0013
0.9958
0.9996
1.0018
0.9971
0.9982
1.0004
1.0019
0.9981
0.9964
1.0026
1.0010
1.0009
1.0003
1.0008
1.0001
0.9979
1.0000
1.0001
1.0021
1.0002
1.0038
0.0014
-0.0008
0.0001
0.0007
0.0004
-0.0001
-0.0017
0.0002
0.0003
0.0016
-0.0014
0.0005
-0.0012
-0.0002
0.0007
0.0001
-0.0003
0.0019
-0.0017
0.0006
-0.0017
0.0016
-0.0008
-0.0005
-0.0002
-0.0002
0.0013
-0.0042
-0.0004
0.0018
-0.0029
-0.0018
0.0004
0.0019
-0.0019
-0.0036
0.0026
0.0010
0.0009
0.0003
0.0008
0.0001
-0.0021
0.0000
0.0001
0.0021
0.0002
0.0038

Shilpa BS-0347-Exchange Rates &amp; Stock Prices

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EXCHANGE RATES & STOCK PRICE:

ITS RELATIONSHIP IN IND

UNDER THE GUIDANCE OF:

I hereby declare that the research work embodied in the dissertation

RELATIONSHIP IN INDIAN CONTEXT is the result of research work

I hereby declare that the research work embodied in the dissertation

RELATIONSHIP IN INDIAN CONTEXT is the result of research work

the guidance of Dr. Nagesh

Malavalli, M.P.Birla Institute of Management, Associate Bharatiya

the guidance of Dr. Nagesh

Malavalli, M.P.Birla Institute of Management, Associate Bharatiya

The completion of the research would have been impossible without

Data analysis and

Discussions and conclusions

Correlation and T value for ER and CNX IT

Correlation and T value for ER and Import

Correlation and T value for ER and Export

Correlation and T value for ER and ABB

Correlation and T value for ER and BATA

liberalization of capital account, reduction of customs duties, the

Purpose of the Study

To analyze the relationship between stock market and exchange

To find out whether the relationship changes with the different

To find out which variable is leading and which variable is

Hypothesis of the study

There is no significant relation between stock prices and

There is significant relation between stock prices and exchange

There is no significant lead and lag relationship between stock

Limitations of the study

The study is limited to six indices and six Multi National

The study is limited to Indian rupee versus US dollar only

The study is limited to a period of five years

financial markets are pervasive in nature since financial transactions

Industrial Securities Market

Government Securities Market

Long Term Loans Market

Industrial Securities Market

Primary Market or New Issues Market

Secondary Market or Stock Exchange

It serves as an important source for the productive use of

It provides incentives to saving and facilitates capital

It provides avenue for investors to invest in financial assets.

It facilitates increase in production and productivity in the

A healthy market consisting of expert intermediaries

It serves as an important source for technological

Foreign Exchange Market

Foreign exchange market spans the globe, with prices moving

Transfer purchasing power between countries,

Minimize exposure to the risks of exchange rate changes

Foreign Exchange Market participants

Bank and nonblank foreign exchange dealers

Currency trading is quite profitable for commercial and

Individuals and firms conducting commercial or investment

Speculators and arbitragers

Central banks and treasuries

commitments entered into through membership in joint float

Foreign exchange brokers

Foreign exchange transactions

1) Corporate earnings, forecast and actual;

Political Factors: All exchange rates are susceptible to political

Exchange rates are also influenced by the flow of capital between

which in turn affect the

competitiveness of a firm and its stock prices a depreciation

Shilpa BS-0347-Exchange Rates & Stock Prices

Shilpa BS-0347-Exchange Rates & Stock Prices