Prof. Jayanth R. Varma's Financial Markets Blog

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Prof. Jayanth R. Varma's Financial Markets Blog, A Blog on Financial Markets and Their Regulation

© Prof. Jayanth R. Varma
jrvarma@iima.ac.in

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Tue, 28 May 2013

Currency versus stocks

In India we are accustomed to see the rupee and the stock market moving in the same direction as both respond to foreign investment flows. In recent weeks, the pattern has changed as a weakening rupee has coincided with a rising stock market. Another country with the same pattern is Japan where some commentators have argued that the pattern makes sense if foreign investors are hedging the currency risk while buying stocks. This is an interesting idea with potential relevance to India – foreigners can be long the private sector (equities) and short the government (currency).

Posted at 14:28 on Tue, 28 May 2013     4 comments     permanent link

Comments...

SHWETA SINGH wrote on Thu, 30 May 2013 16:53

Re: Currency versus stocks

i agree with u.

Deepak Shenoy wrote on Sun, 02 Jun 2013 09:42

Re: Currency versus stocks

Doesn't quite make sense in India because when you come in, you sell dollars to buy rupees in order to buy stocks. To hedge, you sell rupees and buy dollars. The net impact should be zero. The difference for Japan is that Yen is internationally traded, and Big Japanese companese are listed internationally too.