IMPACT OF INCREASE IN

U.S INTEREST RATES IN

EMERGING ECONOMIES

EMERGING MARKET

DEFINITION?? • The term “Emerging Markets” was coined by

Antoine Van Agtmael & dates back to 1981.

• The countries that are restructuring their

economies along market-oriented lines and

offer a wealth of opportunities in trade,

technology transfers and foreign direct

investment.

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EMERGING MARKET

Emerging market contains BRICS• Brazil

• Russia

• India

• China

• South Africa

These 5 countries are worlds biggest & fastest growing emerging markets.

Including Poland , Taiwan ,Mexico, Egypt, Argentina there are total of 45(app.) emerging countries.

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EMERGING MARKET

CHARATCERISTICS

• Good Education System

• Growing middle class

with young population

• Availability of Skilled

Labor

• Natural resources

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Why USA’s Economy Effecting the world

• The US dollar is used in most international transactions, so it stands to reason

that anything that happens with the US economy will affect international

finances in a substantial way.

• As the United States Federal Reserve raises interest rates, the foreign

exchange value of the dollar usually goes up as well.

• One of the biggest ways the US affects the world’s economy, though, is its buying power. With gas

prices going up and the dollar not worth as much as it used to be, Americans are buying less.

• Many countries that export goods to the US will have a reduction in demand for their products

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Why USA’s Economy Effecting the world

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WHY IT MATTERS IN EMERGING MARKETS

• There are a number of emerging economy which link what happens at the US Federal Reserve

building in Washington like China and Brazil, India.

• Rising US interest rates is likely to strengthen the dollar. That could cause pain for companies and

countries that have raised debt in dollars. If they earn much of their income in a local currency, then

servicing a debt in dollars will become more expensive as the dollar rises.

• Rising US interest rates affects how investors view risk. If they can earn a more attractive return on

investments in the US, they might ignore investments in remote place and riskier nations.

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WHY IT MATTERS IN EMERGING MARKETS

• companies and governments in the emerging world could find it harder to attract investment, or refinance existing debts.

• higher interest rates also come at a bad time for many emerging economies, particularly those that rely on exporting commodities. The price of oil, metals and agricultural commodities have fallen dramatically.

• companies and governments could face higher borrowing costs at a time when earnings from mining and agriculture are falling.

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IMPACT ON INDIA

Stock markets

This rate hike has been widely anticipated. The FII's(foreign institutional investor) have already been pulling money (around $2.5 bn.) from equity market.

Hence, the correction in the market started long before because of the speculation. This was one of the prevailing reasons for the continuous fall of stock markets.

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IMPACT ON INDIA

Costly education and travel

A weaker rupee implies students end up paying more to buy dollarsto pay for fees, even though the fee in dollar terms remains unchanged.So, study loans might go up. Ditto for foreign travel. A weaker rupee implies vacationers end up paying more to buy dollars to pay for air tickets,hotel tariffs, shopping and other expenses. Even though the tariffs in dollar terms remain unchanged, a lower rupee could force people to buy more foreign exchange before they head out for the vacation.

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IMPACT ON INDIA

Currency and Inflation

Because of an increase in interest rates, thereis a high chance that rupee will depreciate. Although, this will make India more competitivein exports, but because of slowdown,India has not been able to take advantage of the situation. Being an importer of crude oil a depreciating rupee will add pressure on inflation.

It will increase the strength of the US Dollar and make it more difficult for Indian investors to invest in American equity. If you are a normal middle class Indian citizen, you will not feel much of an impact. It will most likely make American manufactured exports more expensive. This means that the prices of imported diamonds, aircraft and electric machinery, and medical instruments could rise because they are india's largest imports from the United States. But again, as a normal middle class Indian, this won't affect you much.

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HOW EMERGING MARKETS COPING?

5• There are differences between emerging market countries on their ability to weather they can

cop up with the impact of higher interest rates.

E.G :- Indonesia and Malaysia have suffered due to the slump in commodities, which have hurt export revenues

• The Indonesian rupiah and the Malaysian ringgit fell sharply in the summer. • Although they have recovered a little since. Still, the risk of renewed currency weakness amid

anticipated dollar strength limits the possibility of additional stimulus somewhat