This presentation discusses the impact of Euro currency, Chinese Yuan, Japanese Yen, US Dollar and emerging importance of Indian rupee

1. International Finance
Unit 2.4: Impact of Euro Currency, Chinese Yuan
and Japanese Yen and US Dollar, Emerging
Importance of Indian Rupee

2. Agenda
• Impact of Euro Currency, Chinese Yuan and Japanese
Yen and US Dollar
• Emerging Importance of Indian Rupee
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Mrs. Charu
Rastogi, Asst.Professor

3. Impact of EURO
• Origin of Euro: Jan 1999
• Economic Size of Countries that have adopted it
▫ Second largest economy in the world
▫ Fourth most populous; 330 million
• Growth in GDP since adoption of Euro
▫ Historically, from 1995 until 2012, Euro Area GDP
Growth Rate averaged 0.36 Percent reaching an all
time high of 1.30 Percent in June of 1997 and a record
low of -2.50 Percent in March of 2009
• Thought to the successor to the Dollar
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Mrs. Charu
Rastogi, Asst.Professor

4. Impact of EURO
• Impact:
▫ Expected to shield country’s economies from adverse
shocks, smooth consumption, and promote non-in ationary
growth
▫ eliminated currency risk within Euro System
▫ ―Rose effect‖, i.e. the trade effects of currency union
▫ Business cycle synchronization and economic specialization
▫ Loss of monetary autonomy by EMU members
• Impact on EU if a country pulls out of currency union
(Suppose Greece)
▫ Devaluation for local currency
▫ No credit for greek banks and govt
▫ Inflation, unemployment
▫ Bank defaults
▫ Uncertainty/ capital flight in countries that choose to remain
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Mrs. Charu Rastogi,
Asst.Professor

5. Impact of Chinese Yuan/Renminbi
• China is keeping its currency artificially weak (
not allowing the currency to appreciate against
USD) to boost its export competitiveness –
Impact of that:
▫ Creating global imbalances
▫ Holds a lot of US debt and has a trade surplus
• Potential as an international currency (IMF
Article)
5
Mrs. Charu Rastogi,
Asst.Professor

6. Impact of USD
• Since 1944, when nations around the world ratified the Bretton
Woods Agreement, the US dollar has been the most dominant
currency in the world.
• The U.S. dollar is the world's foremost reserve currency. The dollar
remains the dominant currency in foreign exchange reserve
accounts. Foreign governments’ foreign exchange reserve accounts,
essentially the governments’ foreign currency savings, can be large.
In 2009, dollar assets accounted for about two-thirds of the reserve
assets of industrialised and developing countries
• It is an international currency as:
▫ It accounts for a huge share of the official reserves of central banks;
▫ Is used "hand-to-hand" in foreign countries;
▫ Is a currency in which a disproportionate share of international trade is
denominated;
▫ Is dominant currency in international financial markets
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Mrs. Charu Rastogi,
Asst.Professor

7. Impact of USD (contd.)
• Many countries maintain an exchange rate regime that
anchors the value of their home currency to that of the dollar.
• Dollar holdings make up a large share of official foreign
exchange reserves, the foreign currency deposits and bonds
maintained by central banks and monetary authorities.
• In international trade, the dollar is widely used for invoicing
and settling import and export transactions around the world.
• The dollar is a major form of cash currency around the world.
▫ The majority of dollar banknotes are estimated to be held outside
the US. More than 70% of hundred-dollar notes and nearly 60%
of twenty- and fifty-dollar notes are held abroad, while two-thirds
of all US banknotes have been in circulation outside the country
since 1990 (Fed, 2005)
• More info
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Mrs. Charu
Rastogi, Asst.Professor

8. 8
Mrs. Charu
Rastogi, Asst.Professor

9. • Currency of India i.e. Indian rupee is one of well-established
currencies in the world. Importance of Indian rupee in world
market is characterized by the fact that Bhutan and Nepal peg their
currencies to Indian rupee.
• With recent boom in Indian economy & trade and rise in economic
growth, Indian Rupee has grown stronger. Exchange rate of INR to
that of other currencies is managed by floating system where market
mechanisms of demand and supply determine rate of INR in
relation to other currencies. However Reserve Bank of India
intervenes at times by trading INR with other countries to ensure
low volatility in foreign exchange market for INR
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Mrs. Charu Rastogi,
Asst.Professor

10. • ICE Futures U.S. announced that it will launch a new cash-
settled currency futures contract based on the Indian
rupee/U.S. dollar exchange rate on Tuesday, January 22. The
ICE rupee contract will be the first futures contract on the
Indian currency offered by a U.S. exchange. It offers market
participants the ease of doing business in a regulated futures
environment for execution and clearing, alongside ICE’s suite
of more than 60 currency contracts, which includes the U.S.
Dollar Index.
• The listing of the Indian rupee contract recognizes the
increasing importance and integration of India into the world
economy and responds to mounting interest in exchange-
traded products from institutional and professional traders
and money managers, including CTAs and hedge funds.
ICE Launches First Indian Rupee Futures at a U.S.
Exchange on Jan 22 -Barbara Richards at ICE | January 06, 2013
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Mrs. Charu Rastogi,
Asst.Professor

11. • The Indian rupee has grown rapidly to become the
sixteenth most traded currency in the world. With
approximately $70 billion in turnover a day, this is
roughly where the Korean won—then the largest
emerging market currency—was in turnover in 2010. The
rupee ranks among the most actively traded of the
emerging market currencies, in the same class with the
Korean won, Russian ruble, Chinese renminbi and
Mexican peso. From the BIS 2010 survey, in the
emerging market currency category, the rupee ranked
fourth in spot, third in forwards and ninth in swaps. The
offshore market today is as big as the onshore market, as
is the case with other emerging market currencies*.
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Mrs. Charu Rastogi,
Asst.Professor

12. • The ICE rupee contract covers 2,000,000 Indian rupees, around
$40,000**. The tick size is $.000001 per rupee, or $2.00 a contract. The
Exchange symbol for the contract is KIU. Contract listings are monthly for
each of the twelve calendar months for twelve consecutive calendar
months, for a maturity range out one year. At launch, listed contract
months will be from the February 2013 expiry to the January 2014 expiry; a
new contract month is listed for trading on the business day following the
last trading day of the expiring contract month.
• The contract is available for EFP and block trading, with no surcharges for
these transactions beyond the normal emerging market exchange and
clearing fee of $0.30/side.
• The contract is available on the ICE electronic trading platform that offers
state of the art technology with micro-second transaction times. It is open
for trading Monday through Friday from 8pm ET to 5pm ET. Trading closes
for the weekend at 5pm ET on Friday and opens again at 6pm ET on
Sunday. The trading platform is open for order entry a half hour before the
start of trading.
• Source: http://www.theniba.com/nibajournal/13-01-
06/ICE_Launches_First_Indian_Rupee_Futures_at_a_U_S_Exchange_
on_Jan_22.aspx
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Mrs. Charu Rastogi,
Asst.Professor

13. Emerging importance of Indian Rupee
• The Indian rupee has grown rapidly to become the sixteenth
most traded currency in the world.
• Approximately $70 billion in turnover a day
• The rupee ranks among the most actively traded of the
emerging market currencies, in the same class with the
Korean won, Russian ruble, Chinese renminbi and Mexican
peso
• ICE Futures U.S. announced that it will launch a new cash-
settled currency futures contract based on the Indian
rupee/U.S. dollar exchange rate on Tuesday, January 22.
• The listing of the Indian rupee contract recognizes the
increasing importance and integration of India into the world
economy and responds to mounting interest in exchange-
traded products from market participants
• Source
13
Mrs. Charu Rastogi,
Asst.Professor

14. 14
Mrs. Charu
Rastogi, Asst.Professor