Currency Market Analysis Assignment

This Currency Market Analysis Assignment report described optimized methods for currency analysis.

Content

• Introduction

• Fundamental Analysis

• Economic Indicator

• Gross Domestic Product

• Inflation

• Production

• Imports and Exports

Cont.

• Employment

• Business Cycle

• Political Environment

• Technical Analysis

Introduction

Currency or money is the most crucial elements of economic science. Properly operated, monetary system is the life blood of the circular flows of income and expenditure. On the other hand a malfunctioning monetary system will lead to serve fluctuations in the economy’s level of output, employment and prices. Currency which is chosen for this assignment is INR or Indian national rupees.

Fundamental Analysis

To understand the market movements, fundamental analysis plays an important role of learning the market trends. In the short term, the results do not always go along with the fundamental analysis. But in the long term, currencies always move along with this analysis. This analysis will serve you to interpret the reasons behind movements.

Economic Indicator

An economic indicator represents financial data of the economy. It depicts the trends of economic activities which influence currency’s value. Some economic indicators of country are

Gross Domestic Product

GDP is defined as the monetary value of all the goods and services produced by an economy over a specified period generally a year. It influences the level of employment, the level of output and people’s standard of living. This statistics provide important background information on which the government can base its decisions.

Inflation

Inflation is defined as an increment in general level of prices of consumer goods and services for a period of time. Wholesale Price Index (WPI) and Consumer Price Index (CPI) are two indices which represent the rate of inflation. The inflation rate means the rate of change of the either indices. The rate of inflation indicates the rate at which purchasing power of money is being eroded.

Production

It is a common practice to divide the totality of economic activities into three broad groups viz ‘Agriculture and related activities’, ‘Industry’ and ‘Service’. Changes in industrial production are reported in the form of changes in an index number called Index of Industrial Production (IIP). This is a representative figure which measures industrial marketing activities in the economy.

Imports and Exports

Import – a good or service consumed in one country which has been bought from another country. If imports go down then the supply of local currency will decrease and hence, increase the value of domestic currency. Export – an economy produces a good or service and sells to another economy which is the actual consumer of that good or service.

Employment

The rate of unemployment is simply the fraction or percentage of workforce that has no gainful employment. This is a key economic indicator. If a country has high unemployment rate that means that country’s economy is not able to provide jobs for living.

Business Cycle

Economic growth is not a continuous process. Upswings and downswings are of varying duration and intensity and are referred to as ‘cycles’. Government attempts to smooth out these fluctuations with the use of monetary and fiscal policies.

Political Environment

Recently, India got third position on corruption rating which impact a bad impression on foreign investors. Corruption scandals have reinforced a negative perception on the rest of the world. It directly affects its import and exports and confidence of foreign investors, which leads to depreciation in value of currency.

Technical Analysis

Technical analysis is a form of market analysis that studies demand and supply for currencies based on trading volume and price studies. Using charts and modeling techniques, technicians attempt to identify the price trends in a market. Technical analysis studies the past price history and makes future prediction for exchange rate. It uses many different methods and forms to calculate future exchange rates.

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