Impact of the Dollar Currency Base Metal on India

encroachment of the Dollar property Base Metal on IndiaAbstract bills next is a prox contract in which specified currentness stub be bought or sell at pre determined set and date. In developed nations like US and UK the gold price maturation relate on physical trade glitz, it decrease it on gold price increment and increase it on up-to-dateness price decrement. desire this, same thing happened in developing nations. In India the tight metallic elements prices so much impacted collectable to capital hereafter price excitableness. In India, the bills prospective duty was started on 29th Aug. 2008 in national Stock Exchange (NSE), in Multi trade good Exchange (MCX) on seventh Oct. 2008 and in Bombay Stock Exchange on 1st Oct. 2008. The objective of this piece is to measure the correlativity coefficient coefficient of group metals with funds future profession i.e. US $. This interrogation paper is an attempt to consider the investor behaviour regarding bi lls future traffic in India. virtually factors which have been considered for research are currency future, bottom metals and price movement in upward or in downward side. The results are analyzed with the help of statistical tools and techniques.IntroductionCurrency Futures means a standardised foreign exchange derivatives contract traded on a recognised stock exchange to buy or sell one currency against a noher on a specified future date, at a price specified on the date of contract, unless does not include a forward contract.Currency derivatives can be described as contracts amid sellers and buyers whose values are derived from the underlying which in this case is the exchange rate. Currency Derivatives are mostly designed for hedgerow purposes, although they are also used as instruments for speculation.Currency Derivatives i.e. Currency Future are standardised in terms of contract sizes, occupation parameters colonization procedures and traded on regulated exchange. The contract size is fixed and is referred to as serve up size. Future contract are traded through exchanges, the occlusion of the contract is guaranteed by the exchange or clearing corporation and hence on that point is no counter party risk. In INDIA the currency future affair was started on 29th Aug. 2008 in National Stock Exchange (NSE), in Multi good Exchange (MCX) on 7th Oct. 2008 and in Bombay Stock Exchange on 1st Oct. 2008.Currency Future calling play a vital utilization in developed nations and developing nations. It makes the so much irritability in metal prices in terms of online trading as comfortably as in physical trading.After the starting of currency future trading in India the excitableness increase in the MCX non precious metal. The entireness number of contract traded before starting of currency future trading in non precious metal are 84186 (lots) and after the starting of currency future trading 69358 (lots). It shows that there is lot of volatility in the metal commercialize sometime it increases the strength or sometime it decrease the volume.Multi Commodity Exchange of India Ltd (MCX) is a state of the art electronic commodity future exchange. The head quartered of MCX in Mumbai. The demutualised exchange set up by monetary Technologies (India) Ltd (FTIL) has permanent recognition from the Government of India to facilitate online trading and clearing and settlement operations for commodity futures across the country.The operations started in Nov 2003. MCX offers more than 40 commodities across various segments such as bullion, ferrous and non ferrous metals and a number of agro-commodities on its platform. The exchange is the worlds largest exchange in Silver, the second largest in Gold and Copper.MCX has been certified to three ISO standards including ISO 9001- 2000 Quality Management schema standard, ISO 14001 2004 environmental Management System standard and ISO 270012005 Information Security Management System standard.L iterature ReviewSince the beginning of trading in financial futures and options in the 1970s, the effect of financial derivatives trading on the underlying post markets has been of spectacular interest to both academics and practitioners. One of the issues comm only investigated by finance researchers is whether futures trading increases the price volatility of underlying markets and thus leads to destabilisation of these markets. Previous studies go away mixed evidence on this issue.To investigating the market behaviours (such as currency price volatility, metal market depth and trading volume) is an important tone of research on the market microstructure literature. Tauchen and Pitts (1983)1 argue that these three variables are almost related. However, most studies deal with mutual contemporaneous relationship between dickens of those three dimensions and reach no consistent results. Very few experiential papers investigate the dynamic nature of the interactions, such as th e feedback effects between those three variables.The relationship between currency future and trading volume has been examined frequently and usually is in a unequivocal correlation between volatility and trading volume. Copeland (1976)2, develop sequential arrival of information models where vernal information flows into market to generate both trading volume and price movement. Karpoff (1987)3, reviews empirical and theoretical research on the relation between price changes and trading volume in financial markets. Eighteen of cardinal empirical papers support the official correlation between volatility and trading volume. Bessembinder and Segun (1993)4 accommodate persistence in the positive relationship on eight futures market by ARCH-GARCH empirical method.In those studies above, it is consistently positive contemporaneous relation between return volatility and trading volume but lacks consistent in the relation between return volatility and market depth or between market d epth and trading volume. Furthermore, there are few studies for the analysis of return volatility and trading volume incorporating with the market depth, which is proven to be fundamentally related to trading activity and market behaviour of return volatility (Bessembinder and Seguin, 1992)5.As suggested by Malliaris (1997)6, the origin of futures markets is related to the necessity to manage the risk associated with volatile note price changes of certain assets. It can also be claimed that futures contracts became more favorite since the economic deregulation in 1970s, which resulted in increased volatility in foreign currencies, debt instruments and stock indexes. Market observers and regulators have generally acknowledged the all-important(a) role that futures markets have in risk transfer and price discovery, but they have often expressed concern over the potential role that futures activity may have in destabilizing the markets.Antoniou and Holmes (1995)7 examined the impact of trading in the FTSE-100 index futures on the spot price volatility and concluded that futures trading improves the quality and speed of information flowing to spot markets. Their evidence suggests that there has been an increase in spot price daily volatility, but that this due to increased information in the market and not to speculators having adverse destabilizing effect.Some studies provide empirical results that support the opinion that trading in futures can destabilize the spot market. For example, Figlewiski (1980)8 investigates the futures contracts for Treasury Bills (GNMA pass through certificates) and provides evidence that futures market activity increases the volatility of cash prices. More recent study by Bae, Kwon and Park (2004)9 focuses on the effect of the introduction of index futures trading in the Korean markets on spot price volatility. The authors concluded that introducing the futures and options trading on the Korean stock exchange resulted in both larg er spot price volatility and greater market efficiency (allowing for quicker fitting of market prices to information).The combined average daily turnover of the currency futures contracts in all the three exchanges (NSE, BSE, MCX) increased from USD 1.1 zillion in March 2009 to 2.5 billion in September 2009 which means a growth of more than cxxv% in just six months period.Objectives of Research PaperTo know the impact of Currency Future US$ on free-base metal with credit to India.Hypothesis of Research PaperNull Hypothesis in that respect is positive impact of currency future US$ on base metals, if US$ increases than the price of base metals increases and vice versa.Data AnalysisThe impact of currency future i.e. US$ on base metals is totally depend on the day to day trading prices of currency as well as metals. To find out the impact of currency on base metals we pack the daily transaction prices, for this we collect it from secondary resources.To find out the correlation of currency future and base metals I summarise the entropy in average form. I store per day USD INR pricing data for xx seven months and metric its average per month. For the base metals, I selected five metals (viz. Aluminium, Copper, Lead, Nickel, and Zinc) collected their pricing data for each day for twenty seven months and calculated its average per month.Here we can see in the table no. 2 there is correlation coefficient between currency future and base metals. Aluminium, Copper, Lead, Nickel and Zinc are inversely correlated to currency future. There is impact on the Aluminium -0.787, the copper -0.267, lead -0.770, nickel -0.897 and surface -0.850. When the currency future prices raise the base metals prices decrease and sometimes the base metals prices increase. It shows that the currency future and base metals are inversely correlated.ConclusionThe data analysis of the currency future and the base metals shows that there is a correlation between them. When there is vol atility in the currency future and base metals it impacts the relation between them. Sometimes it makes the positive relation between currency future and base metals and sometimes it makes the negative relation between them. repayable to this the economic condition of India is so much impacted. When the prices volatility increases in base metals it creates the problem in physical metals trading that impact directly or indirectly to the economic condition of our nation. The data analysis represents the inverse elongate relationship between currency future and base metals.Scope of researchThere is so much scope of this research because it is a new concept in India. Before two years ago the currency future trading was started in India. The currency future trading is a concept which is not very common. People are not so much aware about it. This paper is related with base metals only but further the whole metal market is influenced by it.