The modern world is full of different notions that are considered to be very important for the market and its participants. Undoubtedly, exchange rate is one of such notions. The drastic changes in computerized systems of management have led to the development of a new way of dealing with shares and investments such as high frequency trading HFT. This new trend is developing at a high speed and becoming more and more popular around the world.
Exchange Rates. - A Research Paper
Please join StudyMode to read the full document. International trade and investment decisions become more difficult due to volatile exchange rate because volatility increases exchange rate risk. If the participants in international trade are aware about exchange rate risks, they may prefer to switch to domestic activities where profits are relatively less uncertain rather than continuing trading in foreign markets. Alternatively, international traders may attempt to use forward foreign exchange markets in order to hedge against any possible losses. Thereafter a dual exchange rate system was adopted during March to February which also came to an end and a unified market came into being in March The present exchange rate regime in India is popularly known as managed floating with no fixed target. It is said that because of this regime, India reaps the benefit of flexible exchange rate system on the one hand and less volatility in the foreign exchange market on the other.
There are significant causes why the stock returns of banks can be responsive to interest rate and exchange rate changes. Collin, , 70 Firstly, the instability move hypothesis proposes that random alarms can induce higher instability in financial markets and because of contagion consequences which are largest in more volatile markets, investors as well as banks may gaze overseas to invest in alternate financial assets. If worldwide portfolio diversification furthermore outcomes in a boost in the instability of those come back, then larger exposure to interest rate and exchange rate risks is like to sway the stock returns of banks if really such data is impounded into their stock prices. So the significances of the arbitrage charge idea APT will request if really interest rates and exchange rates are cost components that constitute significant components in the equilibrium cost of stocks.
This coupled with the devaluation of the pound sterling, in a bid to reduce the domestic credit in the UK, brought down the exchange rates against the pound sterling. But there was always an opinion and not wrongly, that the market was predominantly controlled during those days by speculators which was possibly the single largest reason to work against the interests of a pound sterling. Though this was the scene in September , the scene has not undergone drastic changes in terms of operational methods. The number of players in the market, speculators, traders and the countries interacting with one another has all increased.