1. Market Graph Currency Market Dynamics Market Graph www.market-graph.com www.marketgraph.wordpress.com

2. INDEX Euro, Pound & Yen Quotation & Conversion Contract Specifications Cross Currency Market Types of Cross Currency Benefits of Cross Currency Algebra of Cross Currency Cross Currency Rates Exercises Indian Cross Currency Market Correlation Matrix Volatility Trending Strategies

3. The name euro was officially adopted on 16 December 1995. The euro was introduced to world financial markets as an accounting currency on 1 January 1999, replacing the former European Currency Unit (ECU) at a ratio of 1:1. Euro coins and banknotes entered circulation on 1 January 2002. The euro (€) is the official currency of the European Union, and is currently in use in 16 of the 27 Member States Since its introduction, the euro has been the second most widely-held international reserve currency after the U.S. dollar. The share of the euro as a reserve currency has increased from 17.9% in 1999 to 26.5% in 2008.As of October 2009, with more than €790 billion in circulation. EURO

4. The GBP currency was introduced as paper money in 1694, with the establishment of the Bank of England. The pound sterling of the United Kingdom was originally the value of one Troy pound of sterling silver, hence the name: Pound Sterling. The Pound Sterling is the currency of the United Kingdom. The GBP currency is the world's oldest currency that is still in use. It is the fourth most-traded currency in the foreign exchange market after the Euro, US dollar and Japanese yen. The Pound Sterling is the third-largest reserve currency, after the US dollar and the Euro. POUND

5. The yen (sign: ¥; code: JPY) is the currency of Japan. It is the third most-traded currency in the foreign exchange market after United States dollar and the euro. It is also widely used as a reserve currency after the U.S. dollar, the euro and the pound sterling. As is common when counting in East Asia, large quantities of yen are often counted in multiples of 10,000 in the same way as values in Western countries are often quoted in thousands. YEN

6. Quotation & Conversion

7. IN-DIRECT QUOTES : “Price of one Unit of Foreign Currency in terms of Domestic Currency” e.g. USD/INR = 45.7700 / 45.7725 Buy One USD at 45.7700 Sell One USD at 45.7725 Spread 0.0025 In the international market, almost all currencies are quoted indirectly.

8. DIRECT QUOTES : “Price of one Unit of Domestic Currency in terms of Foreign Currency” e.g. INRUSD =0.0218 / 0.0219 Buy One Rupee at 0.0218 Sell One Rupee at 0.0219 Spread 0.0001 Five Currencies are quoted in Direct Terms Pound Sterling Euro Australian Dollar New Zealand Dollar Irish Punt

9. 9 Conversion of two way quotes Bid (INR/USD) =1/Ask (USD/INR ) Ask (INR/USD) =1/Bid (USD/INR ) Take the inverse of each rate (bid and ask) and switch them around. Ex : USD/INR 45.75 – 45.80 INR/USD 1/45.80 1/ 45.75 0.0218 - 0.0219

10. Appreciation & Depreciation of Currencies The current exchange, (USD/INR) = 45.75, in 1 month INR/USD = 0.0219 Has the US dollar appreciated or depreciated? By what % has the exchange rate changed? Convert INR/USD = 0.0219 to USD/INR = 1/ INR/USD = 45.80 Now we see that US dollar has appreciated. The % change per month is:

11. Cross Currency Market

12. Cross currency trading refers to forex transactions that do not include the US dollar (USD). A cross rate refers to a currency pair that excludes the US dollar. An example of a cross rate is GBP/INR, in which the two currencies being traded are the British Pound and Indian Rupee.

13. Types of Cross Currency pairs Historically, forex transactions had to involve the US dollar. When two non-USD currencies had to be traded, the trader was required to first convert the currency he/she was holding into US dollars and then convert US dollars into the desired currency. Cross currency trading bypasses this step. There are two types of Cross Currency pairs. 1.Pairs involving the Euro as the reference currency, such as Euro/Japanese Yen (EUR/JPY), Euro/Swiss Francs (EUR/CHF) and Euro/British Pound (EUR/GBP). Cross rates that involve the Euro are known as Euro crosses. 2. Pairs that involve neither the Euro nor the US dollar, such as British pound /Indian Rupee (GBP/INR) and Japanese Yen /British pound /Indian Rupee (JPY/INR). These are called cross currency pairs or cross rates.

14. Benefits of Cross Currency Cross currency pairs simplify forex trading. A trader can directly convert one currency into another, without first converting money into US dollars. This saves time and avoids unnecessary hassles. Advantages of cross currency trading are: 1.Price fluctuations in cross currency pairs are usually lower than in pairs involving the US dollar. Cross currency pairs are, thus, suitable for traders who are new to the forex market. 2.Cross currency pairs can be used to diversify the portfolio. 3.Cross currency trading offers high profit potential.

15. EXAMPLE Identify the two underlying rates for the required cross rate. For example if the cross rate is JPY/INR the two required rates are USD/INR and USD/JPY For each underlying rate get the spot price and the swap points for the required forward period as inputs Ensure that the forward value dates for each underlying rate is the same as that for the cross rate Derive the forward outright price for each underlying rate

16. Volatility In Cross Currencies Average Daily Volatility (in %) Spot Rates Start DateEnd DatePeriodUSDINRGBPINREURINRJPYINR Apr-09Oct-096 M0.61%0.80%0.61%1.06% Oct-08Oct-091 Yr0.74%1.12%0.86%1.34% Oct-07Oct-092 Yr0.63%0.98%0.85%1.24% Oct-06Oct-093 Yr0.56%0.85%0.74%1.11% Oct-05Oct-094 Yr0.50%0.77%0.68%0.99% Average Daily Volatility (in %) Spot Rates Start DateEnd DatePeriodUSDINRGBPINREURINRJPYINR Apr-09Oct-096 M0.61%0.80%0.61%1.06% Oct-08Oct-091 Yr0.74%1.12%0.86%1.34% Oct-07Oct-092 Yr0.63%0.98%0.85%1.24% Oct-06Oct-093 Yr0.56%0.85%0.74%1.11% Oct-05Oct-094 Yr0.50%0.77%0.68%0.99%

17. -51.441 12.1364 18.6258 -12.3 LOW 79.36% 25.473619.662419.7770 USDINR / EURINR CURRENCY PAIRSLASTMEANHIGHCORRELATION GBPINR / EURINR-9.1883-8.3003-3.025180.38% USDINR / GBPINR28.572531.703843.257580.35% USDINR / JPYINR -45.111-47.783-44.839 -59.70% Spreads Crosses

18. Jobbing

19. WATCHINGCONSIDERING CONVERTED VALUE Vs MCX-SX VALUE EURUSD USDINREURINR GBPUSDUSDINRGBPINR USDJPYUSDINRJPYINR

20. GLOBAL PAIR DOMESTIC PAIR SP. SPREAD CONTRACTFORMULA DERIVING PAIR MCX-SX CONTRAC T ABCDE = (A*D)F GBPUSD (MAR CH) USDINR (JAN)JANMARCHB+C GBPINR (MARCH)GBPINR 1.618645.750.2045.9574.374774.2500

21. GLOBAL PAIR DOMESTIC PAIR SP. SPREAD CONTRACTFORMULA DERIVING PAIR MCX-SX CONTRACT T ABCDE = (D / A)F USDJPY (MARCH) USDINR (JAN)JANMARCHB+C JPYINR (MARCH) JPYINR 91.0445.750.2045.950.50470.502

22. SEBI CIRCULAR Currency Futures on Additional Currency Pairs SEBI/DNPD/Cir- 52 /2010 January 19, 2010 CONTRACT SPECIFICATION

23. Thank you Technical Analysis Team Market Graph www.market-graph.com