Stock Market

CHAPTER 1
INTRODUCTION
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 statement
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 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
5
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.
CHAPTER-2
REVUEW IF LITERATURE
REVIEW OF 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.
CHAPTER- 3
METHODOLOGY
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 1-1-2002 to 31-5-2007.
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
2002
and
www.exchangerate.com
exchange
rates
information
has
been
taken
from
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.
Housing Development Finance
Corporation
HDFC Bankltd
ltd
Hero Honda Ltd
Hindalco Ltd.
Hindustan Lever Ltd.

Hindustan Petroleum Corporation Ltd
ICICI Bank
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Infosys Technologies Ltd.
I T C Ltd.
Larsen & Toubro Ltd.
Maruthi Udyog
ONGC
Ranbaxy Laboratories Ltd.
Reliance Energy
Reliance Industrries Ltd.
Satyam Computers
State Bank Of India
Tata Motors
Tata Power
Tata Iron And Steel Co. Ltd
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
ABB Ltd.
26
Associated Cement Companies Ltd.
27
ITC Ltd
Bajaj Auto Ltd.
28
Mahanagar Telephone Nigam Ltd.
Bharat Heavy Electricals Ltd.
29
Mahindra and Mahindra Ltd.
Bharat Petroleum Corporation Ltd.
30
Maruti Udyog Ltd.
Bharti Tele-Ventures Ltd.
31
National Aluminium company Ltd
Britania industries Ltd
32
Oil & Natural Gas Corporation Ltd.
Cipla Ltd Ltd.
33
Oriental Bank of Commerce
Colgate-Palmolive (India) India Ltd.
34
Punjab National Bank
10
Dabur India Ltd.
35
Ranbaxy Laboratories Ltd.
11
Dr. Reddy Laboratories Ltd
36
Reliance Energy Ltd
12
GAIL
37
Reliance Industries Ltd.
13
Glaxosmithkline Pharmaceuticals ltd
38
Satyam Computer Services Ltd.
14
Grasim Industries Ltd.
39
Shipping Corporation of India Ltd
15
Gujarat Ambuja Cements Ltd.
40
State Bank of India
16
HDFC Bank Ltd.
41
Steel Authority of India Ltd.Ltd.
17
HCL Technologies Ltd.
42
Sun Pharmaceutical Industries
18
Hero Honda Motors Ltd.
43
Tata Chemicals Ltd.
19
Hindalco Industries Ltd.
44
Tata Iron & Steel Co. Ltd.
20

Hindustan Petroleum corporatio
45
Tata Motors Ltd.
46
Tata Power Co. Ltd.
21
Housing Development
22
Finance Corporation
]47
Tata Tea Ltd.
23
ICICI Bank Ltd.
48
Videsh Sanchar Nigam Ltd.
24
Indian Hotels Company Ltd
49
Wipro Ltd.
25
Indian Petrochemicals Corporation td.
50
Zee Telefilms Ltd.
NX 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.
10.
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.
20.
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.
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.
CHAPTER- 4
ANALYSIS &
INTERPRETATION
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
[(X(i)-mx)*(Y(i-d) my)]
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(N1), x(N+5) = x(5) etc.
Abbreviations
ER:
Exchange rate
Sensex:
Nifty:
BSE Sensex
CNX Nifty
Import:
Import Index
Export:
Export Index
ABB:
Asea Brown Boveri Ltd
HLL:
MICO:
Machine Industries Company Ltd.
Glaxo:
Glaxo Smithkline Pharmaceuticals Ltd.
Colgate:
Colgate Palmolive (India) Ltd.
ER - INDEX
NEGATIVE
LAG
POSITIVE
LAG
LEADING
LAGGING
LAGGING
LEADING
INDEX- ER
Table No. 6 Correlation and T values of ER and SENSEX for the period 2002 to 2004
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 2002
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 2002
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 2003
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 2003
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 2004
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 of ER and SENSEX for the period
2004 to 2007
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
II half 2004
Correlation
-0.047
(0.495)
0.109
(1.147)
-0.07
(0.745)
-0.081
(0.862)
-0.073
(0.777)
-0.007
(0.075)
0.006
(0.065)
0.06
(0.652)
-0.024
(0.261)
-0.082
(0.891)
-0.04
(0.440)
0.137
(1.505)
-0.123
(1.352)
-0.065
(0.714)
-0.011
(0.121)
0.126
(1.370)
-0.01
(0.109)
0.063
(0.685)
0.027
(0.290)
-0.027
(0.290)
0.073
(0.777)
-0.127
(1.351)
-0.086
(0.915)
-0.065
(0.684)
0.174
(1.832)
I half 2005
Correlation
0.024
(0.247)
0.085
(0.885)
-0.111
(1.156)
0.003
(0.032)
-0.056
(0.589)
-0.081
(0.862)
-0.066
(0.702)
0.114
(1.213)
-0.131
(1.409)
-0.014
(0.151)
-0.092
(1.000)
-0.076
(0.826)
0.12
(1.304)
-0.017
(0.185)
-0.106
(1.152)
0.049
(0.527)
-0.151
(1.624)
-0.079
(0.840)
0.086
(0.915)
-0.099
(1.053)
-0.089
(0.937)
0.009
(0.095)
-0.009
(0.094)
0.04
(0.094)
-0.002
(0.021)
II half 2005
Correlation
-0.024
(0.255)
0.085
(0.914)
-0.158
(1.699)
0.066
(0.717)
0.049
(0.533)
-0.025
(0.272)
0.033
(0.363)
-0.034
(0.374)
0.168
(1.846)
-0.042
(0.467)
-0.172
(1.911)
-0.123
(1.382)
-0.012
(0.135)
-0.09
(1.011)
-0.062
(0.689)
-0.16
(1.778)
0.049
(0.538)
-0.048
(0.527)
0.032
(0.352)
-0.09
(0.978)
0.006
(0.065)
0.101
(1.098)
0.025
(0.269)
0.122
(1.312)
0.171
(1.819)
I half 2006
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 2006
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 2007
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 2002, 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 2002 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 2003 SENSEX is affected by ER on first, third and ninth
day. In the second half of 2003 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
2004 and in first half of 2005, ER and SENSEX are not affected by each
other. In the second half 2005 ER affects SENSEX on the second day. In
the first half of 2006 ER leads SENSEX at five day lag and SENSEX
leads ER at five day lag. In the first half of 2007 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 2002 to 2004
I half of 2002 II half of 2002 I half of 2003
II half of 2003 I half of 2004
Lag
Correlation
Correlation
Correlation
Correlation
Correlation
0.039
-0.011
0.101
0.004
0.047
-12
(0.406)
(0.117)
(1.063)
(0.040)
(0.495)
0.043
0.119
-0.071
0.113
0.013
-11
(0.448)
(1.280)
(0.747)
(1.141)
(0.138)
0.1
0.098
-0.032
0.112
-0.003
-10
(1.053)
(1.054)
(0.340)
(1.131)
(0.032)
-0.027
0.135
-0.232
0.041
0.094
-9
(0.284)
(1.467)
(2.468)*
(0.418)
(1.000)
-0.01
-0.078
-0.096
-0.012
0.072
-8
(0.106)
(0.848)
(1.021)
(0.122)
(0.774)
0.067
0.108
0.104
0.117
0.171
-7
(0.713)
(1.174)
(1.118)
(1.206)
(1.839)
0.096
0.075
0.049
-0.024
0.148
-6
(1.021)
(0.824)
(0.527)
(0.247)
(1.609)
0.17
0.065
0.071
-0.16
0.031
-5
(1.828)
(0.714)
(0.772)
(1.667)
(0.337)
0.055
-0.181
0.028
-0.179
-0.112
-4
(0.591)
(1.989)
(0.304)
(1.865)
(1.217)
0.146
0.02
0.203
0.004
0.013
-3
(1.587)
(0.222)
(2.207)*
(0.042)
(0.143)
0.042
-0.155
0.105
-0.146
0.235
-2
(0.457)
(1.722)
(1.154)
(1.537)
(2.582)*
0.033
-0.03
-0.165
-0.42
0.012
-1
(0.359)
(0.337)
(1.813)
(4.468)*
(0.132)
0.036
-0.17
-0.099
-0.365
-0.072
0
(0.396)
(1.910)
(1.088)
(3.883)*
(0.800)
0.04
-0.068
-0.152
-0.335
-0.002
1
(0.435)
(0.764)
(1.670)
(3.564)*
(0.022)
-0.053
0.129
0.018
-0.105
0.027
2
(0.576)
(1.433)
(0.198)
(1.105)
(0.297)
0.132
-0.112
-0.009
-0.17
0.079
3
(1.435)
(1.244)
(0.098)
(1.789)
(0.868)
-0.046
0.069
0.011
-0.075
-0.084
4
(0.495)
(0.758)
(0.120)
(0.781)
(0.913)
-0.051
-0.026
-0.016
-0.149
-0.021
5
(0.548)
(0.286)
(0.174)
(1.552)
(0.228)
-0.069
0.029
-0.063
-0.048
-0.074
6
(0.734)
(0.319)
(0.677)
(0.495)
(0.804)
-0.07
-0.263
-0.002
-0.015
-0.118
7
(0.745)
(2.859)
(0.022)
(0.155)
(1.269)
-0.113
0.03
-0.021
-0.041
-0.052
8
(1.202)
(0.326)
(0.223)
(0.418)
(0.559)
0.001
-0.151
-0.084
-0.032
-0.03
9
(0.011)
(1.641)
(0.894)
(0.327)
(0.319)
-0.096
0.069
0.01
-0.139
-0.05
10
(1.011)
(0.742)
(0.106)
(1.404)
(0.532)
-0.081
-0.169
0.05
-0.063
-0.057
11
(0.844)
(1.817)
(0.526)
(0.636)
(0.606)
-0.161
-0.053
-0.055
0.038
0.035
12
(1.677)
(0.564)
(0.579)
(0.380)
(0.368)

Table No. 9 Correlation and T values of ER and NIFTY for the period 2004 to 2007
Lag
-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
II half of 2004 I half of 2005 II half of 2005 I half of 2006

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)
-0.049
0.018
0.119
0.163
(0.516)
(0.188)
(1.280)
(1.716)
0.175
(1.842)
0.012
(0.124)
0.195
(2.074)*
-0.008
(0.083)
II half of 2006
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)
-0.018
(0.189)
0.021
(0.221)
I half of 2007
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)
0.044
(0.400)
0.116
(1.055)

Interpretation:
From the above tables, it is clear that in the year 2002, there is no
relationship between the variables. In the year 2003 there was cyclical
relation between the variables. In the year 2004 and first half 2005 there
was no significant relationship between the variables. In the second half
2005 ER affects NIFTY on the second day. In the first half of 2006 ER
leads NIFTY at five day length and NIFTY leads ER at five day length. In
the first half of 2007 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

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 2002 II half of 2002 I half of 2003

Correlation
Correlation
Correlation
-0.059
-0.044
0.136
(0.615)
(0.468)
(1.432)
-0.019
0.042
-0.077
(0.198)
(0.452)
(0.811)
-0.021
0.155
0.025
(0.221)
(1.667)
(0.266)
0.064
0.121
-0.212
(0.674)
(1.315)
(2.255)*
0.003
-0.057
-0.123
(0.032)
(0.620)
(1.309)
0.159
0.101
0.052
(1.691)
(1.098)
(0.559)
0.071
0.137
0.158
(0.755)
(1.505)
(1.699)
0.255
0.128
0.036
(2.742)*
(1.407)
(0.391)
0.09
-0.175
0.098
(0.968)
(1.923)
(1.065)
0.074
0.041
0.147
(0.804)
(0.456)
(1.598)
-0.094
-0.150
0.186
(1.022)
(1.667)
(2.044)*
-0.066
0.067
-0.144
(0.717)
(0.753)
(1.582)
-0.091
-0.147
-0.111
(1.000)
(1.652)
(1.220)
-0.009
-0.069
-0.129
(0.098)
(0.775)
(1.418)
-0.123
0.128
-0.107
(1.337)
(1.422)
(1.176)
0.1
-0.063
-0.022
(1.087)
(0.700)
(0.239)
-0.08
-0.060
0.099
(1.087)
(0.659)
(1.076)
-0.099
0.022
-0.026
(1.065)
(0.242)
(0.283)
-0.114
0.086
-0.151
(1.213)
(0.945)
(1.624)
-0.219
-0.254
-0.053
(2.330)*
(2.761)*
(0.570)
-0.202
0.052
-0.007
(2.149)*
(0.565)
(0.074)
-0.102
-0.160
-0.06
(1.074)
(1.739)
(0.638)
-0.121
0.082
-0.014
(1.274)
(0.882)
(0.149)
-0.157
-0.143
0.032
(1.635)
(1.538)
(0.337)
-0.152
0.028
-0.02
(1.583)
(0.298)
(0.211)
II half of 2003 I half of 2004

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

error
* indicates t values greater than 2, @ 5% significance level
Table No. 11 Correlation and T values of ER and CNX IT

II half 2004 I half 2005 II half 2005
I half 2006
Lag
Correlation Correlation Correlation
Correlation
-0.114
0.058
-0.062
0.059
-12
(1.200)
(0.598)
(0.660)
(0.615)
0.082
0.085
0.073
-0.179
-11
(0.863)
(0.885)
(0.785)
(1.884)
-0.012
0.003
-0.141
0.03
-10
(0.128)
(0.031)
(1.516)
(0.316)
-0.033
0.006
0.089
0.022
-9
(0.351)
(0.063)
(0.967)
(0.234)
-0.085
0.061
0.02
0.174
-8
(0.904)
(0.642)
(0.217)
(1.851)
0.073
0.031
-0.077
-0.044
-7
(0.785)
(0.330)
(0.837)
(0.468)
-0.07
-0.110
-0.028
0.003
-6
(0.753)
(1.170)
(0.308)
(0.032)
0.003
0.068
0.095
-0.061
-5
(0.033)
(0.723)
(1.044)
(0.656)
-0.167
0.013
0.137
-0.021
-4
(1.815)
(0.140)
(1.505)
(0.228)
-0.062
-0.049
0.096
-0.002
-3
(0.674)
(0.527)
(1.067)
(0.022)
0.248
-0.074
-0.087
-0.036
-2
(2.725)*
(0.804)
(0.967)
(0.391)
0.043
0.024
-0.012
0.002
-1
(0.473)
(0.261)
(0.135)
(0.022)
-0.052
-0.023
0.01
0.001
0
(0.571)
(0.250)
(0.112)
(0.011)
-0.199
0.024
-0.035
0.041
1
(2.187)*
(0.261)
(0.393)
(0.451)
0.068
0.026
-0.055
0.097
2
(0.747)
(0.283)
(0.611)
(1.054)
0.065
-0.069
-0.215
0.079
3
(0.707)
(0.742)
(2.389)*
(0.859)
0.117
-0.054
0.034
0.044
4
(1.272)
(0.581)
(0.374)
(0.478)
0.018
-0.085
0.055
-0.01
5
(0.196)
(0.904)
(0.604)
(0.108)
-0.053
0.057
-0.001
0.065
6
(0.570)
(0.606)
(0.011)
(0.699)
0.022
-0.056
-0.037
-0.039
7
(0.237)
(0.596)
(0.402)
(0.415)
0.186
-0.111
0.081
-0.046
8
(1.979)
(1.168)
(0.880)
(0.489)
-0.023
0.061
0.006
-0.121
9
(0.245)
(0.642)
(0.065)
(1.287)
-0.076
-0.070
0.01
-0.079
10
(0.809)
(0.729)
(0.108)
(0.832)
-0.023
0.016
0.074
0.056
11
(0.242)
(0.167)
(0.796)
(0.589)
0.175
0.010
0.165
-0.101
12
(1.842)
(0.103)
(1.755)
(1.052)
II half 2006
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)

error
I half 2007
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 2002, T value at -5,
+7and at +8 lag is statistically significant. This shows that variables were
randomly related. In the year 2003 there was cyclical relationship
between the variables. The year 2004 CNX IT had influenced ER at two
day lag and ER also influenced IT index after two days. In the years 2005
and 2006 IT had not at all affected by ER fluctuations. In the year 2007
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 2004 to 2007
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 2004 II half 2004 I half 2005 II half 2005 I half 2006 II half 2006 I half 2007
Correlation Correlation Correlation Correlation Correlatio Correlation Correlation
n-0.056
0.111
0.121
-0.031
0.018
-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)

error
Interpretation:
From the above tables, it is clear that in the year 2004,t value at -7 and at
+3 lag is statistically significant and in the second half of 2004 there was
no relationship between the variables. In the first half of 2005 T value at
+6 lag is statistically significant and T value at -2 lag in the second half of
2005 is significant. So there was a little affect on one variable from the
other variable. In the first half of 2006 T value at -1 , -2 ,-5 and -11 lag is
statistically significant. So in this period ER affects BANKEX. In the
second half of 2006 there was negligible relationship between the
variables. In the first half of 2007 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 2002 to 2004
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 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)
II half 2002
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)
I half 2003
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)
II half 2003
Correlation
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)
I half 2004
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)
Numbers with in brackets indicate T values = correlation/ standard error

Table No. 14 Correlation and T values of ER and IMPORT for the period 2004 to 2007
II half 2004
I half 2005
II half 2005
I half 2006
II half 2006
I half 2007
Lag
Correlation
Correlation
0.041
0.060
-0.058
0.018
0.044
0.086
-12
(0.432)
(0.619)
(0.617)
(0.188)
(0.463)
(0.782)
0.106
0.010
0.069
-0.045
-0.100
-0.022
-11
(1.116)
(0.104)
(0.742)
(0.474)
(1.053)
(0.200)
-0.041
-0.197
-0.041
-0.035
0.027
0.015
-10
(0.436)
(2.052)*
(0.441)
(0.368)
(0.287)
(0.138)
-0.144
-0.055
0.066
0.031
-0.009
0.000
-9
(1.532)
(0.579)
(0.717)
(0.330)
(0.096)
(0.000)
-0.009
-0.040
-0.053
-0.042
0.118
-0.100
-8
(0.096)
(0.421)
(0.576)
(0.447)
(1.255)
(0.926)
-0.048
-0.178
-0.023
0.016
0.002
-0.110
-7
(0.516)
(1.894)
(0.250)
(0.170)
(0.022)
(1.028)
-0.067
-0.001
-0.034
0.015
-0.117
-0.074
-6
(0.720)
(0.011)
(0.374)
(0.161)
(1.258)
(0.692)
0.066
-0.008
-0.049
-0.205
0.047
0.044
-5
(0.717)
(0.085)
(0.538)
(2.204)*
(0.511)
(0.415)
0.057
-0.085
0.145
-0.149
0.080
-0.080
-4
(0.620)
(0.914)
(1.593)
(1.620)
(0.870)
(0.762)
-0.144
0.086
-0.052
-0.044
-0.122
-0.072
-3
(1.565)
(0.925)
(0.578)
(0.478)
(1.326)
(0.686)
-0.037
-0.139
-0.177
-0.202
-0.031
-0.063
-2
(0.407)
(1.511)
(1.967)
(2.196)*
(0.341)
(0.606)
0.178
-0.052
-0.065
-0.206
-0.005
-0.254
-1
(1.956)
(0.565)
(0.730)
(2.264)*
(0.055)
(2.442)
-0.147
0.074
0.009
-0.086
-0.233
0.001
0
(1.615)
(0.804)
(0.101)
(0.945)
(2.560)*
(0.010)
-0.142
-0.155
-0.144
0.083
-0.061
0.102
1
(1.560)
(1.685)
(1.618)
(0.912)
(0.670)
(0.981)
0.011
-0.093
-0.026
-0.019
-0.111
-0.028
2
(0.121)
(1.011)
(0.289)
(0.207)
(1.220)
(0.269)
0.047
0.145
-0.043
0.063
0.082
-0.075
3
(0.511)
(1.559)
(0.478)
(0.685)
(0.891)
(0.714)
-0.089
-0.112
-0.025
0.031
-0.008
0.001
4
(0.967)
(1.204)
(0.275)
(0.337)
(0.087)
(0.010)
0.048
-0.062
-0.095
0.055
0.032
0.170
5
(0.522)
(0.660)
(1.044)
(0.591)
(0.348)
(1.604)
0.058
0.084
0.040
0.035
0.033
-0.039
6
(0.624)
(0.894)
(0.440)
(0.376)
(0.355)
(0.364)
-0.013
-0.103
-0.058
0.003
-0.044
0.070
7
(0.140)
(1.096)
(0.630)
(0.032)
(0.473)
(0.654)
0.031
0.014
0.103
0.004
0.108
0.076
8
(0.330)
(0.147)
(1.120)
(0.043)
(1.149)
(0.704)
-0.082
0.058
0.159
0.019
0.092
-0.070
9
(0.872)
(0.611)
(1.728)
(0.202)
(0.979)
(0.648)
-0.104
-0.052
0.117
0.001
-0.075
0.129
10
(1.106)
(0.542)
(1.258)
(0.011)
(0.798)
(1.183)
-0.018
0.059
0.163
0.145
-0.032
0.016
11
(0.189)
(0.615)
(1.753)
(1.526)
(0.337)
(0.145)
0.145
0.007
0.186
-0.008
0.081
0.167
12
(1.526)
(0.072)
(1.979)
(0.083)
(0.853)
(1.518)

error
Interpretation:
From the above tables, it is clear that in the year 2002 there was no
interrelation between the variables. In the first half of 2003, 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 2003, 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 2002 to 2004
I half 2002
II half 2002
I half 2003
II half 2003
I half 2004
Correlation
Correlation
Correlation
Correlation
Correlation
-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
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)
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)
-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)
-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)

* indicates t values greater than 2, @ 5% significance level error
-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)
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
Table No. 16 Correlation and T values of ER and EXPORT for the period 2004 to 2007
II half 2004
I half 2005
II half 2005
I half 2006
II half 2006
I half 2007
Correlation
Correlation
Correlation
Correlation
-0.066
0.031
-0.008
0.006
-0.111
0.044
(0.695)
(0.320)
(0.085)
(0.063)
(1.168)
(0.400)
0.081
0.105
0.067
-0.066
-0.064
-0.037
(0.853)
(1.094)
(0.720)
(0.695)
(0.674)
(0.336)
-0.071
-0.032
-0.098
-0.049
0.071
-0.013
(0.755)
(0.333)
(1.054)
(0.516)
(0.755)
(0.119)
-0.029
-0.009
0.125
0.013
0.017
0.006
(0.309)
(0.095)
(1.359)
(0.138)
(0.181)
(0.056)
-0.126
0.043
0.008
-0.041
0.082
-0.174
(1.340)
(0.453)
(0.087)
(0.436)
(0.872)
(1.611)
0.058
0.008
-0.047
0.073
-0.008
-0.093
(0.624)
(0.085)
(0.511)
(0.777)
(0.086)
(0.869)
0.028
-0.102
-0.015
0.021
-0.075
-0.141
(0.301)
(1.085)
(0.165)
(0.226)
(0.806)
(1.318)
0.044
0.038
0.100
-0.173
0.052
0.145
(0.478)
(0.404)
(1.099)
(1.860)
(0.565)
(1.368)
-0.139
0.002
0.120
-0.135
0.136
-0.040
(1.511)
(0.022)
(1.319)
(1.467)
(1.478)
(0.381)
-0.063
-0.088
0.030
0.078
-0.061
0.011
(0.685)
(0.946)
(0.333)
(0.848)
(0.663)
(0.105)
0.201
-0.030
-0.101
-0.139
0.062
-0.040
(2.209)*
(0.326)
(1.122)
(1.511)
(0.681)
(0.385)
0.063
0.074
-0.014
-0.078
-0.050
-0.192
(0.692)
(0.804)
(0.157)
(0.857)
(0.549)
(1.846)
-0.105
-0.078
-0.058
-0.034
-0.055
-0.076
(1.154)
(0.848)
(0.652)
(0.374)
(0.604)
(0.738)
-0.094
-0.004
-0.101
0.088
-0.019
0.060
(1.033)
(0.043)
(1.135)
(0.967)
(0.209)
(0.577)
0.031
-0.003
-0.116
-0.042
-0.165
-0.072
(0.341)
(0.033)
(1.289)
(0.457)
(1.813)
(0.692)
0.067
-0.012
-0.189
0.009
0.104
-0.089
(0.728)
(0.129)
(2.100)*
(0.098)
(1.130)
(0.848)
0.111
-0.064
0.022
0.022
-0.038
0.056
(1.207)
(0.688)
(0.242)
(0.239)
(0.413)
(0.533)
0.059
-0.100
-0.021
0.047
-0.045
0.207
(0.641)
(1.064)
(0.231)
(0.505)
(0.489)
(1.953)
-0.003
0.054
0.010
0.053
-0.057
0.022
(0.032)
(0.574)
(0.110)
(0.570)
(0.613)
(0.206)
0.006
-0.098
-0.059
-0.035
0.037
0.020
(0.065)
(1.043)
(0.641)
(0.372)
(0.398)
(0.187)
0.133
-0.104
0.070
0.036
0.249
0.000
(1.415)
(1.095)
(0.761)
(0.383)
(2.649)*
(0.000)
-0.081
0.030
-0.014
0.023
-0.099
-0.119
(0.862)
(0.316)
(0.152)
(0.245)
(1.053)
(1.102)
-0.084
-0.104
0.027
-0.031
-0.048
0.179
(0.894)
(1.083)
(0.290)
(0.326)
(0.511)
(1.642)
0.003
0.042
0.125
0.173
-0.061
0.045
(0.032)
(0.438)
(1.344)
(1.821)
(0.642)
(0.409)
0.163
-0.006
0.192
0.019
0.054
0.056
(1.716)
(0.062)
(2.043)*
(0.198)
(0.568)
(0.509)

* indicates t values greater than 2, @ 5% significance level error
Interpretation:
From the above tables, it is clear that in the year 2002, t value at -4lag
and at +9 lag is statistically significant. In the second half of 2002, t value
at -3 and at +8 lag is statistically significant and in the year 2003 there
was significant interrelationship between the variables like with other
indices. In the first half of 2004, 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 2002 to 2007
YEAR
Lag
-10
2002
Correlation.
0.041
(0.631)
2003
Correlation
-0.011
(0.164)
2004
Correlation
0.041
(0.631)
2005
Correlation
0.073
(1.123)
2006
Correlation
0.051
(0.785)
2007
Correlation
-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)
-8
0.09
(1.385)
0.145
(2.197)*
0.002
(0.031)
-0.013
(0.200)
0.072
(1.108)
0.104
(0.972)
-7
0.091
(1.400)
0.021
(0.323)
0.056
(0.875
0.029
(0.453)
0.163
(2.470)*
0.036
(0.545)
-0.083
(1.258)
-0.018
(0.273)
0.05
(0.769)
0.017
(0.262)
-0.03
(0.462)
-0.101
(1.578)
0 (0.000)
-0.013
(0.200)
0.042
(0.656)
0.012
(0.188)
-0.021
(0.323)
-0.071
(1.092)
-0.024
(0.369)
-0.061
(0.953)
-0.01
(0.093)
-0.152
(1.434)
0.015
(0.143)
-0.068
(0.648)
-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)
-0.039
(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)
0.009
(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)
-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)
-0.08
(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)
-0.236
(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)
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
From the above table we can find that, in the year 2002 t value at +6 lag
Numbers with in brackets indicate T values = correlation/ standard error
* indicates t values greater than 2, @ 5% significance level.
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 2002.
In the year 2003, 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 2004 and 2006, ABBs share prices has not at all affected by
exchange rates.
In 2005, t value at -9 lag is statistically significant, means ER on zero
date has impact on 9th days share prices of ABB.
In 2007, 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 2002 to 2007.
Table No.18 Correlation and T values of ER and BATA

for the period 2002 to 2007
YEAR
Lag
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
2002
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)
2003
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)
2004
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)
2005
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)
2006
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)
2007
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)

error
-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 2002 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 2002.
In the year 2003, 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 2004 and 2007, BATA has not at all affected by exchange rates.
In 2005, 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 2006, 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 2002 to 2007.
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 2002, 2004 and 2006.
In the year 2003, 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 2005, 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 2007
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 2002 to 2007.
From the study it is clear that, In the year 2002, there was no one way
or two way relationship between the ER and Glaxo share prices.
In the year 2003, 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 2004, 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 2005, 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 2006, 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 2007, 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 2002, 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 2003, t value at -4 lag is greater than 2, this shows that
todays ER affects 4th days share price.
In the year 2005, there is no relation between the two variables.
In the year 2005, 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 2006, there is an impact of one variable on other on the
same day.
In the year 2007, 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 2002, 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 2005, 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 2003, 2004, 2006 and 2007, 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 2003.
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 2003, 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 2003, 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, 2003 event in
US affected forex market in India. Developments after September
11, 2003 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
DATE
Sensex closing values for the period 2005

CLOSING
P1/P0
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
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
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
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
24/3/2005
23/3/2005
22/3/2005
21/3/2005
6442.87
6454.46
6535.45
6656.69
0.9982
0.9876
0.9818
0.9935
-0.0018
-0.0125
-0.0184
-0.0065
18/3/2005
6700.34
1.0046
0.0046
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
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
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
-0.0115
-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
43.7356
1.0014
0.0014
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
43.70206
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
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
-0.0008
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

Stock Market

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Stock Market

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CHAPTER 1

liberalization of capital account, reduction of customs duties, the

Purpose of the Study

Objectives 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

prices and exchange rates

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

financial markets are pervasive in nature since financial transactions are

there are standardized

regulations governing their financial dealings. There is also a high degree

Industrial Securities Market

Government Securities Market

Long Term Loans Market

Industrial Securities Market

Primary Market or New Issues Market

It serves as an important source for the productive use of

It provides incentives to saving and facilitates capital

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,

Obtain or provide credit for international trade transactions, and

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

Foreign exchange brokers

1) Corporate earnings, forecast and actual;

Political Factors: All exchange rates are susceptible to political

confidence etc. also affect the exchange rate fluctuations. Confidence in

because facts and existing

used for the

analysis,Quantitative as relationship is examined by expressing variables in

Data gathering procedures and instruments:

Table No.1: BSE SENSEX COMPANIES.

Associated Cement Companies Ltd.

Hindustan Lever Ltd.

Infosys Technologies Ltd.

Table No.2: CNX NIFTY COMPANIES

Infosys Technologies Ltd.

Associated Cement Companies Ltd.

Bajaj Auto Ltd.

Mahanagar Telephone Nigam Ltd.

Bharat Heavy Electricals Ltd.

Mahindra and Mahindra Ltd.

Bharat Petroleum Corporation Ltd.

Maruti Udyog Ltd.

Bharti Tele-Ventures Ltd.

National Aluminium company Ltd

Britania industries Ltd

Oil & Natural Gas Corporation Ltd.

Cipla Ltd Ltd.

Oriental Bank of Commerce