term paper on “currency stability of euro(france) with rest of the world

8/10/2019 TERM PAPER ON CURRENCY STABILITY OF EURO(FRANCE) WITH REST OF THE WORLD

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TERM PAPER ON CURRENCY STABILITY OF

EURO(FRANCE)WITH REST OF THE WORLD

(GROUP-09)


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Submitted to:

Dr. M.Masud Rahman

Chairman

Department of Finance

University of Dhaka

Submi tted By:Group 09

Sl. No. Name Roll No. Country

1 Foroz Ali BBA 15-044, MBA 532 Australia

2 Md Rakib BBA 15-047, MBA 663 USA

3 Sultana Perven Prianka BBA 15-048, MBA 658 Japan

4 Tahmina Akter BBA 15-050, MBA 626 India

Date of Submission:February 02, 2014


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Letter of transmittal

February 02, 2014Dr. M. Masud Rahman

Professor

Department of Finance

University of Dhaka

Dear Sir,

It is an honor and great pleasure for us to present our term paper on Currency stability of

Euro based country (France) with rest of the world. This term paper was assigned to us as

a partial requirement of the F-526: Foreign exchange risk and international risk

managementcourse in MBA 1st semester.

Long project program is an experience of rediscovering our potentials and full of

excitements. This term paper accomplishment gave us an opportunity to apply our theoretical

expertise, sharpen our views, ideas, and communication skills, and bridge them with the real

world of practical experience, which will be a good head start for our future professional

career.

We hope you would find this term paper in appropriate manner. We appreciate your

cooperation and we hope you will call upon us with any queries occasioned by this case

study. Thanking you and looking forward to receive your cordial approval of our submission.

Sincerely yours

Md Rakib

ID No. 15-047

On behalf of Group No-09


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Acknowledgement

First of all we express our gratitude from heart to the Beneficent, the Merciful, & Almighty

Allah for giving us the strength and patience to prepare this report with the scheduled time.

In the different steps of preparing this term paper, we thank our course teacher for providing

us proper guidelines to prepare the assignment. We also thank him for assigning us such a

practical assignment that has boosted our knowledge from different aspects.

We are grateful to our classmates from whom we received cordial guidance, suggestions for

preparing this term paper. We are also very much grateful to our group members because

without their perseverance, exertion and hardworking, this case study will not be possible to

solve.

At last we thank officer-in-charge at Computer lab that provided us important tips in using

various computer applications, software in preparing term paper.


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Table of Content

Executive Summary . 06

Rationale of the study...07

Objective of the study........................................07

Scope of the study...07

Source of study..08

Limitation of the study08

European unification09

Relationship of Euro compared to other countries with US Dollars...12

The variables taken as independent variables are as follows...16

Regression analysis.18.

Conclusion......... 26


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Executive Summary

Today many large countries are facing economic depression due to the currency

devaluation. Currency fluctuation may occur for different variables relative to one country

to other countries together. These factors are balance of trade, government control, or

imposition of tariff rate or import quota and other restriction, inflation, interest rate,

income level, political reason and such other factors. These factors vary from country to

country. In our term paper we have assigned to make an overview of currency stability of

Euro based country (France) with that of rest of the world..In our term paper we have tried

to show the Fance currency satiability with Australia, U.S, Japan and India. We have

identified some common factors- inflation, interest rate, tariff rate, GNI and of last ten

years of France and other respective countries.Through regression analysis we have

showed the significance level of the currency stability of France with other respective

countries variable.


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Rational of the Study

Foreign investment carries enormous significance in a developing country like

Bangladesh. Realizing the importance of foreign investment Bangladesh formulated its

first industrial investment policy in 1973, revised it again in 1974, 1975, and in 1978.

Foreign private investment (Promotion and protection) act, 1980 and the Bangladesh

Export Processing Zones authority act 1980 were enacted. To make the foreign

investment more attractive new industrial policy was announced in 1982

With the passage of time Bangladesh has reformed its regulatory structure in regard to

the FDI to open up the new avenue and to dislodge the compliances related to the FDI.

But the effort of this structural progress has back warded by sudden and unexpected

political influence and changes. The situation becomes worse one in the September

attack on US. Bangladesh had also severely affected by that unwanted changes in the

world scenario. Before going for in depth analysis the flow of FDI in Bangladesh we have

the privilege to have a look on the regional and worldwide flow of FDI in the recent

period.

Objective of the study:

This study is conducted with the objective to get an overall insight in the flow of FDI in

Bangladesh. The total objective is decomposed into several parts to get idea about the

factors affecting the flow of FDI. The specific objectives of this study are:

To give an insight into the theoretical issues relating to FDI

Role of MNC in FDI

The present situation of in FDI in Bangladesh.

To evaluate the status of FDI in Bangladesh

To identify the problem of FDI V & prescribe some issues for their solution.

Scope of the study:

The primary scope of this paper is to get acquainted with the flow of foreign direct

investment. The study will cover the scenario of FDI flow of previously 5 years in

Bangladesh. Comparative analysis of statement of sector wise distribution of FDI in

Bangladesh and sources of FDI has been presented. The findings will be strictly

structured upon the data provided by the Directorate of Board of Investment (BOI).


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Sources of I nformation:

i. Primary data Source:

Primary data sources are used for preparing this project paper is the Board of

Investment (BOI), Bangladesh Bank &Bangladesh Burro of Statistics, Bangladesh Export

Processing Zone, etc.

ii. Secondary data Source:

Secondary data are collecting from various papers supplements like

1. The Financial Express,

2. The Daily Star, etc. newspapers,3. Internet

4. Books are studied.

5. Exchange of views from different people also played a significant role to do the Study.

Limitations of the study:

Although we have tried to find and set the causes that determine the shape of the flow ofFDI on Bangladesh, we believe we are not at the best peak. We have relied extensively on

published data and other secondary sources to precede the report. But some of those

sources were not approachable and we lacked from data of that sources. In analyzing the

report we have presented some factors that determine the shape of the flow of FDI. But

these are not surely the only factors and many important factors may be omitted from the

analysis. And another thing is that the underlying factors are mostly in qualitative factors in

nature.


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European unification

Overview of the EU:

The European Union (EU) is a unification of 27 member states united to create a political and

economic community throughout Europe. Though the idea of the EU might sound simple at the

outset, the European Union has a rich history and a unique organization, both of which aid in its

current success and its ability to fulfill its mission for the 21st Century.

History

The precursor to the European Union was established after World War II in the late 1940s in an

effort to unite the countries of Europe and end the period of wars between neighboring countries.

These nations began to officially unite in 1949 with the Council of Europe. In 1950 the creation of the

European Coal and Steel Community expanded the cooperation. The six nations involved in this

initial treaty were Belgium, France, Germany, Italy, Luxembourg, and the Netherlands. Today these

countries are referred to as the "founding members." During the 1950s, the Cold War, protests and

divisions between Eastern Europe showed the need for further European unification. In order to do

this, the Treaty of Rome was signed on March 25, 1957, thus creating the European Economic

Community and allowing people and products to move throughout Europe. Throughout the decades

additional countries joined the community. In order to further unify Europe, the Single European Act

was signed in 1987 with the aim of eventually In creating a "single market" for trade. Europe was

further unified in 1989 with the elimination of the boundary between Eastern and Western Europe -

the Berlin Wall.

The Modern-Day EU

Throughout the 1990s, the "single market" idea allowed easier trade, more citizen interaction on

issues such as the environment and security, and easier travel through the different countries.

Even though the countries of Europe had various treaties in place prior to the early 1990s, this time isgenerally recognized as the period when the modern day European Union arose due to the Treaty of

Maastricht on European Union which was signed on February 7, 1992 and put into action onNovember 1, 1993.

The Treaty of Maastricht identified five goals designed to unify Europe in more ways than justeconomically. The goals are:

1) To strengthen the democratic governing of participating nations.2) To improve the efficiency of the nations.

3) To establish an economic and financial unification.4) To develop the "Community social dimension."5) To establish a security policy for involved nations.

In order to reach these goals, the Treaty of Maastricht has various policies dealing with issues such asindustry, education, and youth. In addition, the Treaty put a single European currency, theeuro,in theworks to establish fiscal unification in 1999. In 2004 and 2007, the EU expanded, bringing the total

number of member states as of 2008 to 27.
http://geography.about.com/od/lists/a/euro.htmhttp://geography.about.com/od/lists/a/euro.htmhttp://geography.about.com/od/lists/a/euro.htmhttp://geography.about.com/od/lists/a/euro.htm


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In December 2007, all of the member nations signed the Treaty of Lisbon in hopes of making the EUmore democratic and efficient to deal with climate change, national security, and sustainabledevelopment.

How a Country Joins the EU:

For countries interested in joining the EU, there are several requirements that they must meet in

order to proceed to accession and become a member state.

The first requirement has to do with the political aspect. All countries in the EU are required to have agovernment that guarantees democracy, human rights, and the rule of law, as well as protects therights of minorities.

In addition to these political areas, each country must have a market economy that is strong enough to

stand on its own within the competitive EU marketplace.

Finally, the candidate country must be willing to follow the objectives of the EU that deal politics, theeconomy, and monetary issues. This also requires that they be prepared to be a part of the

administrative and judicial structures of the EU.

After it is believed that the candidate nation has met each of these requirements, the country isscreened, and if approved the Council of the European Union and the country draft a Treaty ofAccession which then goes to the European Commission and European Parliament ratification andapproval. If successful after this process, the nation is able to become a member state.

How the EU Works

With so many different nations participating, the governance of the EU is challenging, however, it is

a structure that continually changes to become the most effective for the conditions of the time.

Today, treaties and laws are created by the "institutional triangle" that is composed of the Council

representing national governments, the European Parliament representing the people, and the

European Commission that is responsible for holding up Europe's main interests. The Council is

formally called the Council of the European Union and is the main decision making body present.

There is also a Council President here and each member state takes a six month turn in the position.

In addition, the Council has the legislative power and decisions are made with a majority vote, a

qualified majority, or a unanimous vote from member state representatives. The EuropeanParliament is an elected body representing the citizens of the EU and participates in the legislative

process as well. These representative members are directly elected every five years.

Finally, the European Commission manages the EU with members that are appointed by the Council

for five year terms- usually one Commissioner from each member state. Its main job is to uphold the

common interest of the EU.

In addition to these three main divisions, the EU also has courts, committees, and banks which

participate on certain issues and aid in successful management.

Foreign Exchange rate indicators:


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When a countrys economy falters, consumer spending declines and trading sentiment for its

currency turns sour, leading to a decline in that countrys currency against other currencies with

stronger economies. On the other hand, a booming economy will lift the value of its currency, if

there is no government intervention to restrain it.

Consumer spending is influenced by a number of factors: the price of goods and services

(inflation), employment, interest rates, government initiatives, and so on. Here are some

economic factors you can follow to identify economic trends and their effect on currencies.

1. Interest Rates

"Benchmark"interest rates from central banks influence the retail rates financial institutions

charge customers to borrow money. For instance, if the economy is under-performing, central

banks may lower interest rates to make it cheaper to borrow; this often boosts consumer

spending, which may help expand the economy. To slow the rate of inflation in an overheated

economy, central banks raise the benchmark so borrowing is more expensive.Interest rates are of particular concern to investors seeking a balance between yield returns and

safety of funds. When interest rates go up, so do yields for assets denominated in that currency;

this leads to increased demand by investors and causes an increase in the value of the currency

in question. If interest rates go down, this may lead to a flight from that currency to another.

3. Inflation

Changes in the relative inflation rates can affect international trade activity which influences the

demand for and supply of currencies and therefore influences exchange rates.

4. Trade Balance

A country'sbalance of trade is the total value of its exports, minus the total value of its imports. If

this number is positive, the country is said to have a favorable balance of trade. If the difference

is negative, the country has a trade gap, or trade deficit.

Trade balance impacts supply and demand for a currency. When a country has a trade surplus,

demand for its currency increases because foreign buyers must exchange more of their home

currency in order to buy its goods. A trade deficit, on the other hand, increases the supply of a

countrys currency and could lead to devaluation if supply greatly exceeds demand.

5. Central Bank Actions

A countrys Government can prevent or discourage investment from other countries. Byimposing such restrictions, the Government disrupts investment flows. Among the most

commonly used investment restriction are bureaucratic tangles, projection of intellectual

property right and f\fiscal policy changes. In addition to these, a Government can reduce

its countrys investment by enforcing laws, or a maximum limit that can be invested.
http://fxtrade.oanda.com/analysis/economic-indicators/rateshttp://fxtrade.oanda.com/analysis/economic-indicators/internationalhttp://fxtrade.oanda.com/analysis/economic-indicators/internationalhttp://fxtrade.oanda.com/analysis/economic-indicators/rates


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Relationship of Euro compared to other

countries with US Dollars:

From the table given above it is seen that historical average exchange rate of euro with respect to

U.S. dollar is 0.79 euro per dollar and its standard deviation is 0.10 which is higher than that of Great

Britten pound (GBP) but lower than that of Japanese yen (JPY), Australian dollar (AUD) and Indian

rupee (IRP).

This is shown in the figure bellow:

Standard Deviation of foreign exchange rate of different currency

Year Average EUR/USD Average GBP/USD Average JPY/USD Average AUD/USD Average INR/USD

2002 1.06 0.67 125.14 AUD 1.84 INR 48.56

2003 0.89 0.61 115.93 AUD 1.54 INR 46.63

2004 0.80 0.55 108.16 AUD 1.36 INR 45.27

2005 0.81 0.55 110.18 AUD 1.31 INR 44.05

2006 0.80 0.54 116.31 AUD 1.33 INR 45.27

2007 0.73 0.50 117.77 AUD 1.19 INR 41.21

2008 0.68 0.55 103.44 AUD 1.20 INR 43.49

2009 0.72 0.64 93.54 AUD 1.28 INR 48.36

2010 0.76 0.65 87.71 AUD 1.09 INR 45.72

2011 0.72 0.62 79.70 AUD 0.97 INR 46.682012 0.78 0.63 79.75 AUD 0.97 INR 53.43

2013 0.75 0.64 97.62 AUD 1.04 INR 58.64

Historical AVG 0.79 0.6 102.94 1.26 47.28

Stand. Dev 0.1 0.05 15.27 0.25 4.7

Yearly Average Exchange Rate of Different currencies with respect to US Dollar

0.10

0.05

15.27

0.25

4.70

- 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00

Average EUR/USD

Average GBP/USD

Average JPY/USD

Average AUD/USD

Average INR/USD

Stand. Dev


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So it can be said that from this point of view based one decade fluctuations of the mentioned

currencies;

Euro is less stable than GBP but more stable than JPY, AUD and IRP.

Let us now see the percentage change in the values of those currencies that means how these

currencies appreciates or depreciates against dollar during this period:

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Average EUR/USD

Average GBP/USD

Average JPY/USD

Average AUD/USD

Average INR/USD

Percentage Change in Exchange Rate From 2003 to 2013

Year Average

EUR/USD

Average

GBP/USD

Average

JPY/USD

Average

AUD/USD

Average

INR/USD

2002

2003 -16.51% -8.11% -7.36% -16.27% -3.97%

2004 -9.14% -10.86% -6.71% -11.71% -2.92%2005 0.03% 0.81% 1.87% -3.51% -2.69%

2006 -0.99% -1.24% 5.56% 1.18% 2.77%

2007 -8.33% -8.07% 1.26% -10.04% -8.97%

2008 -6.47% 9.09% -12.17% 0.11% 5.52%

2009 5.19% 17.53% -9.57% 6.93% 11.20%

2010 5.13% 1.12% -6.24% -14.83% -5.45%

2011 -4.85% -3.69% -9.13% -11.00% 2.09%

2012 8.29% 1.19% 0.06% -0.37% 14.48%

2013 -3.29% 1.34% 22.40% 7.34% 9.74%

Average% Change -2.81% -0.08% -1.82% -4.74% 1.98%Stand. Dev. Of

%Change

0.070 0.077 0.094 0.080 0.072


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It is seen from the table that euro got highest appreciation in value with respect dollar in 2003 and it

is almost 16.51% and it got highest depreciation in value with respect to dollar in 2012 and it is

almost 8.21%. It is seen from the table that historically euro appreciates against dollar on an averageof 2.81% every year from 2003 to 2013 whereas average lowest fluctuations in value is shown by

GBP (0.08% appreciation per year) and average highest fluctuations is shown by AUD (4.74% per

year). All currencies except INR have appreciated on an average against dollar during the period.

Now the question is how consistently the value of euro change against dollar over the period. To find

out the consistency of percentage change in value let us now see the magnitude (standard

deviation) of the movements of percentage changes in value of those currencies against dollar

during the period. From the table above it is seen that the standard deviation of percentage change

in value of Euro is lowest among those five currencies. So it can be said that the historical average

appreciation in value of euro against US dollar is more static than that of other four currencies. So

the percentage change in value of euro can be said more consistent than that of other currency

which indicates euro is less stable than other currency.

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

200220032004200520062007200820092010201120122013

Ax

isTitle

Axis Title

Average EUR/USD

-2.81%

-0.08%

-1.82%

-4.74%

1.98%

Average EUR/USD Average GBP/USD Average JPY/USD Average AUD/USD Average INR/USD

Average% Change in Value Per Year

Average% Change


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From the above discussion it can be concluded that from 2003 to 2013 the foreign exchange rate of

euro per unit of US dollar is less stable than that of GBP and more stable than that of JPY, AUD and

INR.

Now let our discussions turn into another way. Up to this level we have discussed relative stability of

exchange rate of euro compare to that of GBP, JPY, AUD and INRwith respect to US dollar during

2003 t0 2013 and we have found that euro's exchange rate with respect to per unit US dollar is

moderately stable. Let us now see which factors may affect this stability and to what extent. To

identify those factors and their magnitude of influence on exchange rate movements, we have taken

some independent variables, that may affect fluctuation, on France, an euro-land country and run a

regression model considering the exchange rate of euro per unit of dollar as a dependent variable.

0.070 0.0770.094

0.080 0.072

Average EUR/USD Average GBP/USD Average JPY/USD Average AUD/USD Average INR/USD

Stand. Dev. Of %Change in Vlue per Year


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The variables taken as independent

variables are as follows:

Variables Definition

1) Inflation, consumer prices (annual %) Inflation as measured by the consumer price index

reflects the annual percentage change in the cost to

the average consumer of acquiring a basket of goods

and services that may be fixed or changed at

specified intervals, such as yearly.

2) Interest Rates, Government Securities,

Government Bonds

The Interest Rate paid on government securities

which is considered risk rate of interest.

3) GNI per capita (Current US$) GNI per capita is gross national income divided bymidyear population. GNI (formerly GNP) is the sum

of value added by all resident producers plus any

product taxes (less subsidies) not included in the

valuation of output plus net receipts of primary

income (compensation of employees and property

income) from abroad. Data are in constant 2005 U.S.

dollars.

4) Tariff rate, applied, simple mean, all

products (%) Simple mean applied tariff is the unweighted

average of effectively applied rates for all

products subject to tariffs calculated for alltraded goods.


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Year Average

EUR/USD

Inflation (annual

%)

Interest

Rates(%)

GNI /capita

(cnst.2005=US$)

Tariff

rate(%)

Yrs EUR/$ Inf% Int% GNI/cpt TR%

2003

0.89 2.11 4.22 33,202.91 2.44

2004 0.80 2.13 4.22 33,903.11 2.46

2005

0.81 1.74 3.58 34,347.99 2.25

2006

0.80 1.68 3.34 35,025.26 2.39

2007

0.73 1.49 4.07 35,591.91 2.35

2008

0.68 2.81 4.15 35,369.82 2.25

2009

0.72 0.09 3.60 34,114.44 2.152010

0.76 1.53 3.52 34,588.35 1.94

2011

0.72 2.12 3.45 35,133.81 1.53

2012

0.78 1.96 3.18 34,823.18 1.50

2013

0.75 1.88 3.08 33,823.83 1.66


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The table given above shows the observations collected on the variables from 2003 to 2013 on

France. Multiple regressions are run on the variables the output of this regression model is as

follows:

Franc-AUD:

Interpretation

Here number of observations = 11, model sum of squares (mss) = 0.05596,

Model degrees of freedom (df_m) = 4,

R-squared (r2)= 0.876455There is high positive correlation among the variables. The

independent variables as a whole can explain only 87.64%variation of the dependent

variable.

Adjusted R-squared (r2_a) = 0.7940 & F statistic (F) = 10.641

Prob > F = 0.006844 which is less than 0.05. the model's independent variables

aggregately explain the dependent variable.

Among the independent variables;

Only variable GNI per Capita shows P>|t|= 0.003391 which is less

than 0.05 indicates that its coefficient -7.5 is significant at 95% confident


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level to the dependent variable Exchange rate of euro with respect to per

AUD.

The other independent variables are not significant at 95% level of

significant.

The intercept is 2.80252 shows p value = 0.002582 less than 0.05 so it issignificant at this level.

Therefore, the regression equation will be

Y (EUR/AUD) = 2.80252 + 0.088718X1 + (-0.0546)X2 + (-7.53X3+ 0.018208X4


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Franc-USD

--------------------------------------------------------------------------

Interpretation

Here number of observations = 11, model sum of squares (mss) = 0.19779,Model degrees of freedom (df_m) = 4,

R-squared (r2)= 0.6334: There is high positive correlation among the variables. The


variable.

Adjusted R-squared (r2_a) = 0.3890 & F statistic (F) = 2.5921,

Prob > F = 0.1428 which isgreater than 0.05. the model's independent variables

cannot aggregately explain the dependent variable.


Only variable GNI per Capita shows P>|t|= 0.037 which is less than

0.05 indicates that its coefficient -5.1285 is significant at 95% confident


dollar.


significant.

The intercept is 2.5063 shows p value = 0.0104 less than 0.05 so it is

significant at this level.


SUMMARY OUTPUT

Regression Statistics

Multiple R 0.795890623

R Square 0.633441884

Adjusted R Square 0.389069806

Standard Error 0.043676683

Observations 11

ANOVA

df SS MS F Significance F

Regression 4 0.019779462 0.004944866 2.59212055 0.142848368

Residual 6 0.011445916 0.001907653

Total 10 0.031225378

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%

Intercept 2.506337863 0.68223483 3.673717252 0.010408122 0.836969377 4.17570635 0.836969377 4.17570635

Inf% 0.028315736 0.023116344 1.224922735 0.266507361 -0.028247921 0.084879393 -0.028247921 0.084879393

Int% -0.054577664 0.054439906 -1.002530469 0.354789803 -0.187787315 0.078631986 -0.187787315 0.078631986

GNI/cpt -5.12858E-05 1.92324E-05 -2.666629781 0.037193439 -9.83459E-05 -4.22571E-06 -9.83459E-05 -4.22571E-06

TR% 0.087296769 0.06075101 1.436959966 0.200758776 -0.061355597 0.235949135 -0.061355597 0.235949135


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Y (EUR/USD) = 2.5063 + 0.0283X1 + (-0.0546)X2 + (-0.0000513X3+ 0.0873X4

Since only variable GNI per Capita is significant at 5% level of significance we can say that

if GNI per capita income increases by 1 dollar the value of euro per dollar will appreciate

against dollar by 0.0000513 euro.

From this output of regression analysis we can say that the stability of euro is influenced by

France's National Income to some extent. Here might some other variables that we could not

count in our analysis have impact on euro's stability because our independent variables can

explained our dependent variable 66.34%and our model is insignificant in aggregate

So as far as stability concern US dollar and British Pound is more stable than Euro. Though

euro shows stability relative to currencies other than US dollar and GBP and though it is

thought that in future euro will be more stable but it is not certain


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FrancJPY:

InterpretationHere number of observations = 11, model sum of squares (mss) = 27.66,


R-squared (r2)= 0.3876There is high positive correlation among the variables. The


variable.

Adjusted R-squared (r2_a) = -0.0206 & F statistic (F) = 0.9494


cannot aggregately explain the dependent variable.Among the independent variables;

No variable shows P>|t less than 0.05 indicates that at 95% confident


JPY.

The intercept is -5.3446 shows p value = 0.7313 greater than 0.05 so it is

not significant at this level.


Y (EUR/JPY) = -5.2446 - 0.2943X1 + (-1.13400)X2 + 4.222X3+ 2.5783X4


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So in this regression model we can say that there is no fluctuation in exchange rate of France due to

above factors. There may be other influential factors that may influence in exchange rate FRAN/JPY

relative to France with Japan.


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FranceINR:

Interpretation:

Here number of observations = 11, model sum of squares (mss) = 2.94505


R-squared (r2)= 0.6641: There is high positive correlation among the variables. The


variable.Adjusted R-squared (r2_a) = 0.4402 & F statistic (F) = 2.965762,


cannot aggregately explain the dependent variable.


no variable P value less than 0.05 indicates relation is insignificant at

95% confident level to the dependent variable Exchange rate of euro with

respect to per INR.



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significant.

The intercept is 2.5063 shows p value = 0.0104 less than 0.05 so it is

significant at this level.


Y (EUR/INR) = 0.04033 + 1.7672X1 + (-0.0006)X2 + (-3.529X3+ (-0.00417)X4.

France became the largest supplier of nuclear fuel and technology to India and remains a large

military and economic trade partner. India's permanent member aspirations in the UN Security

Council have found very strong support from former French President Chirac. The recent decision by

the Indian government to purchase French Scorpne class submarines worth 3 billion USD and

43 Airbus aircraft for Indian Airlines worth 2.5 billion USD has further cemented the strategic, military

and economic co-operation between India and France.

France also became the first country to do nuclear trade with India after NSG waiver on 30 Sept.,

2008.

Though France is one of the largest trading partner countries of India, France

exchange rate has less fluctuation to Indias one in respect of inflation, interest

rate, GNI, tariff rate. Nevertheless we have found 66.64%variation in the dependent

variable. So there may be other factors of India respective to France which can

influence the exchange rate of FRANC/INR.


26/26

Conclusion:

From the above regression analysis and considering the influential factors we can conclude

that, different countries have different reasons to affect their respective exchange rate. In

case of France there is insignificant relationship with the variables of India, USA and India.

And has a strong relationship with respect to Australia. The factor responsible for this

significant relationship is income. And in case of other 3 countries, there shows insignificant

relationship because there may be other factors like- political risk, environmental effect that

influence the exchange rate movement. But because of our time constraint we could not

conclude that in our study.

term paper on “currency stability of euro(france) with rest of the world

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