Exchange Rate

FINDINGS AND CONCLUSION
6.1 FINDINGS

1. Tata consultancy has a significant positive correlation with revenue of0.82527483.This relationship between exchange rate and revenue of Tata consultancy services show an upward inclining trend. There by justifying the positive relationship.

2. Infosys has a significant positive correlation with revenue of 0.860801. This relationship between exchange rate and revenue of Infosys show an upward inclining trend. There by justifying the positive relationship.

3. Wipro has a significant positive correlation with revenue of 0.824813. This relationship between exchange rate and revenue of Wipro show an upward inclining trend. There by justifying the positive relationship.

4. HCL has a significant positive correlation with revenue of 0.606950176. This relationship between exchange rate and revenue of HCL show an upward inclining trend. There by justifying the positive relationship.

5. TCS has a significant positive correlation with revenue of 0.740258. This relationship between exchange rate and EBIT of TCS show an upward inclining trend. There by justifying the positive relationship.

6. Infosys has a significant positive correlation with revenue of 0.860801. This relationship between exchange rate and EBIT of Infosys show an upward inclining trend. There by justifying the positive relationship.

7. Wipro has a significant positive correlation with revenue of 0.765737. This relationship between exchange rate and EBIT of Wipro show an upward declining trend. There by justifying the positive relationship.

8. HCL has a significant positive correlation with revenue of 0.841953703. This relationship between exchange rate and EBIT of HCL show an upward inclining trend. There by justifying the positive relationship.

9. TCS has a significant positive correlation with stock prices of 0.850665. This relationship between exchange rate and closing stock prices of TCS show an upward inclining trend. There by justifying the positive relationship.

10. Infosys has a slight positive correlation with stock prices of 0.15548. This relationship between exchange rate and stock prices of Infosys show an upward inclining trend. There by justifying the positive relationship.

11. Wipro has a slight correlation with revenue of 0.273037. This relationship between exchange rate and stock prices of Wipro show an upward declining trend. There by justifying the positive relationship.

12. HCL has a significant positive correlation with stock prices of 0.814367. This relationship between exchange rate and closing stock prices of HCL show an upward inclining trend. There by justifying the positive relationship.

13. The coefficient of determination of TCS, Infosys, Wipro and HCL with reference to exchange rate show that it is also positively significant thereby showing that exchange rate changes have an impact on the revenue growth. Whereas there are other contributions which also influence the revenue by way of inflation, bank interest rate etc.

14. The coefficient of determination of TCS and HCL with reference to exchange rate show that it is also positively significant thereby showing that exchange rate changes have an impact on the stock prices. Whereas there are other contributions which also influence the revenue by way of inflation, bank interest rate etc.
15. The coefficient of determination of Infosys, and Wipro with reference to exchange rate show that it is also positive significant thereby showing that exchange rate changes have an impact on the revenue growth. Whereas there are other contributions which also influence the revenue by way of inflation, bank interest rate etc.

16. The analysis also explains that the depreciation of Indian currency to that of dollar has resulted in a positive increase of revenue and operating profits (EBIT) and stock prices to some extent.

6.2 SUGGESTIONS

Performance of the Indian Information Technology (IT) industry has been a success story all over the world. The revenue growth of the Industry has been impressive. According to as estimate of National Association of Software and Services Companies' (NASSCOM), growth rate of the industry is at 33% and total revenue (domestic and exports combined) is at USD 64 billion for year ended March 31, 2008. The last five years have witnessed a shift in the power of the various foreign currencies that Indian Rupee trades against. In particular, the US dollar has moved from being the most powerful and important currency to a position of relative non- importance following the crisis of 2008. But in 2013 the US became the most important currency, where it all most of the currencies depreciated against dollar. Indian rupee's depreciation against the US dollar has sent a note of warning to the importers. The beneficiaries of this could be sectors like Software, automobile Industries and etc. This is especially because of the major portion of their earnings (Revenue) is from the overseas market.Nearly 67% of the Revenue is from North America.Firms that have exposure to exchange risk craft well defined strategies for managing foreign exchange volatility risk. The volatility in foreign exchange is a resultof multiplicity of factors, and to fully comprehend volatility a thorough review of the foreign exchange market is necessary.
There is a need to create proper and appropriate demand and supply of domestic and foreign currencies to appreciate and depreciate the values. For this purpose if the central banks feel that Indian Rupee should appreciate then it could sell its foreign exchange reserves of other currency and buy Indian Rupee to create demand for the currency and appreciate its value and in terms of depreciation Indian Rupee is sold to buy more foreign currency there by creating demand for the foreign currency and hence the Indian Rupee depreciates. By doing such a process the central bank will end up restricting the random movement of currency rates based on the demand and supply forces. But in this process the one thing which is of prime importance to central banks is to create stability of the foreign exchange market i.e., it would stabilize itself to an appropriate equilibrium levels. But sometimes this stabilization process can take the form of a dirty float which will hamper the market efficiency. So therefore the government should avoid such stabilization procedures.

6.3 SCOPE FOR FUTURE RESEARCHERS:

' To overcome the data constraint, one can use daily data in order to get more accurate resulst.
' For the factors constraint, future researchers may add more variables, such as interest rate, inflation, and etc in order to test on the impact of each of them on companies' stock prices and their revenues or profits.
' To improve the empirical result, one can use other models like co-relation, Generalized Auto Regressive Conditional Heteroscedasticity (GARCH) model and Ordinary Least Square (OLS), as these economic model are more advance in addressing and solving for econometric problems.
' Future researchers can also try to extend the study by considering various other IT companies, rather than concentrating on 4 IT companies. This would provide more clarity on the industry.
' Future researchers can also try the study on various other sectors like Automobiles, Oil, Pharmaceuticals, and etc.

6.4 CONCLUSION
Revenues of all the four IT companies are increasing.On the relationship with revenue, the study found out that there is a good impact. Further, this also determines that exchange rate is a strong factor in explaining the revenue movements.The study also found that there was an impact on stock prices of all the four companies, though the impact on Infosys and Wipro was very slight. Therefore other factors that explain this trend in revenue: Decline in rupee denominated, in favor of the USD, Hedging currency exposures to minimize volatility impact and pursuing other value based strategies that have helped improve the quality of services and thereby helping maintain growth.

The regression equations obtained help clarify the nature of relationship that exist between INR and USD. It has been found that a depreciation of INR against USD increases revenue, and this can be due to the revenues being billed in dollar and there is positive relationship between exchange rate and revenues.Operating profit has also followed the same trend as revenue, increasing at a decreasing rate. The same follows with the stock prices, though the impact is less. It can be said that foreign exchange rates do impact the firm's profits and prices of its stock.
5.1 Introduction to Data Analysis and Interpretation
In this chapter we measure the impact of exchange rate volatility on the profitability of the IT sector companies' revenue and operating profits and the impact on stock of four companies'.
The relationship between exchange rate volatility and the performance of IT firms is measured by profitability/ (earnings) and Stock prices i.e., how the firms earnings/ profits and stock prices respond to changes in exchange rates between Indian Rupee (INR) and US Dollar (USD) is analyzed.
The analysis will be done on three basic premises:
' Revenue
' Operating profits (Earnings before interest and Tax-EBIT)
' Closing Stock prices
5.2 Research gap:
There have been a number of valuable studies on the change of exchange rate using different methods, however the previous study considered for doing the study was 2012 thus the gap between the study is 1 years. The previous studies have considered the impact of change in foreign exchange on revenues of banks, hedging, on risk exposures like transaction exposure or on policies, therefore the second gap is the study of exchange rate on IT Sector.

Source: Essay UK - http://turkiyegoz.com/free-essays/economics/exchange-rate.php


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