TABLE OF CONTENTS

1. INTRODUCTION 2. REVIEW OF LITERATURE 3. RATIONALE OF STUDY 4. OBJECTIVES OF THE STUDY 5. RESEARCH METHODOLOGY 6. HYPOTHESES OF THE STUDY

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Introduction
COMMODITY MARKETCommodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts. This article focuses on the history and current debates regarding global commodity markets. It covers physical product (food, metals, electricity) markets but not the ways that services, including those of governments, nor investment, nor debt, can be seen as a commodity. Articles on reinsurance markets, stock markets, bond markets and currency markets cover those concerns separately and in more depth. One focus of this article is the relationship between simple commodity money and the more complex instruments offered in the commodity markets. The trading of commodities consists of direct physical trading and derivatives trading. Exchange traded commodities have seen an upturn in the volume of trading since the start of the decade. This was largely a result of the growing attraction of commodities as an asset class and a proliferation of investment options which has made it easier to access this market. The global volume of commodities contracts traded on exchanges increased by a fifth in 2010, and a half since 2008, to around 2.5 billion million contracts. During the three years up to the end of 2010, global physical exports of commodities fell by 2%, while the outstanding value of OTC commodities derivatives declined by two-thirds as investors reduced risk following a five-fold increase in value outstanding in the previous three years. Trading on exchanges in China and India has gained in importance in recent years due to their emergence as significant commodities consumers and producers. China accounted for more than 60% of exchange-traded commodities in 2009, up on its 40% share in the previous year. Commodity assets under management more than doubled between 2008 and 2010 to nearly $380bn. Inflows into the sector totaled over $60bn in 2010, the second highest year on record, down from the record $72bn allocated to commodities funds in the previous year. The bulk of funds went into precious metals and energy products. The growth in

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prices of many commodities in 2010 contributed to the increase in the value of commodities funds under management. WWW.WIKEPEDIA.COM

INTRODUCTION TO CURRENCYIn economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply. The other part of a nation's money supply consists of bank deposits (sometimes called deposit money), ownership of which can be transferred by means of cheques, debit cards, or other forms of money transfer. Deposit money and currency are money in the sense that both are acceptable as a means of payment.[1] Money in the form of currency has predominated in human civilizations from about 10,000 BCE on.[2] Usually (Indian Rupee or Crude Oil) coins of intrinsic value (commodity money) have been the norm. However, nearly all contemporary money systems are based on fiat money modern currency has value only by government order (fiat). Usually, the government declares the fiat currency (typically notes and coins issued by the central bank) to be legal tender, making it unlawful to not accept the fiat currency as a means of repayment for all debts, public and private. Currency evolved from two basic innovations, both of which had occurred by 2000 BC. Originally money was a form of receipt, representing grain stored in temple granaries in Sumer in ancient Mesopotamia, then Ancient Egypt. This first stage of currency, where metals were used to represent stored value, and symbols to represent commodities, formed the basis of trade in the Fertile Crescent for over 1500 years. However, the collapse of the Near Eastern trading system pointed to a flaw: in an era where there was no place that was safe to store value, the value of a circulating medium could only be as sound as the forces that defended that store. Trade could only reach as far as the credibility of that military. By the late Bronze Age, however, a series of international treaties had established safe passage for merchants around the Eastern Mediterranean, spreading from Minoan Crete and Mycenae in the northwest to Elam and Bahrain in the southeast. Although it is not known what functioned as a currency to facilitate these exchanges, it is thought that ox-hide shaped ingots of copper, produced in Cyprus may have functioned as a currency. It is thought that the increase in piracy and raiding associated with the Bronze Age

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collapse, possibly produced by the Peoples of the Sea, brought this trading system to an end. It was only with the recovery of Phoenician trade in the ninth and tenth centuries BC that saw a return to prosperity, and the appearance of real coinage, possibly first in Anatolia with Croesus of Lydia and subsequently with the Greeks and Persians. In Africa many forms of value store have been used including beads, ingots, ivory, various forms of weapons, livestock, the manilla currency, ochre and other earth oxides, and so on. The manilla rings of West Africa were one of the currencies used from the 15th century onwards to buy and sell slaves. African currency is still notable for its variety, and in many places various forms of barter still apply. WWW.OANDA.COM/CURRENCY/HISTORICAL-RATES

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rFactors Affecting Exchange Rate and Crude Oil Every major development in Indian or world economy affects the Indian currency market. Long gone are the days of the fixed exchange rate regime, when corporate executives used to be ill-informed about international news, movement of oil prices or other factors influencing the currency market. Today, India follows the Liberalized Exchange Rate Management System (LERMS), under which it is absolutely essential for corporate executives to understand how the exchange rate moves, and why. Considering the large volume of transactions, a movement of even 2-3 paisa in the exchange rate can hit the bottom line of any corporate. There are a number of instances when a sudden movement in the exchange rate has made companies lose or gain heavily in foreign currency transactions. There are several factors that influence the currency market. Some of the important ones among them, which have impacted the market recently, are discussed below:

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Crude OilIntroduction
The prices of crude oil and other commodities have become a key concern of consumers, businesses, and policymakers in the United States and abroad. In light of the challenges posed by high commodity prices, several Federal agencies are engaged in the analysis of developments in commodity markets. In an effort to develop, consolidate, and disseminate this knowledge, the Commodity Futures Trading Commission (CFTC or Commission) invited staff from several Federal agencies to participate in an Interagency Task Force on Commodity Markets (Task Force or ITF). The other Task Force participants include staff from the Departments of Agriculture, Energy, and the Treasury, the Board of Governors of the Federal Reserve System, the Federal Trade Commission, and the Securities & Exchange Commission. Each of these agencies brings unique experience and expertise to bear on the analysis of commodity markets. The Task Force is chaired by CFTC staff, which has responsibility for overseeing the U.S. commodity futures and commodity options markets. The Task Force is examining conditions in the commodity markets and will report further on its work later this year. Given the intense interest generated by the recent surge in crude oil prices, the Task Force is issuing an interim staff report limited to the crude oil market. This staff report is preliminary in nature, and the Task Force will continue to study the crude oil market as part of its longer-term activities. 1. We hereby submit the Interagency Task Forces Interim Report on Crude Oil Mixture of naturally occurring hydrocarbons that is refined into diesel, gasoline, heating oil, jet fuel, kerosene, and literally thousands of other products called petrochemicals. Crude oils are named according to their contents and origins, and classified according to their per unit weight(specific gravity). Heavier crudes yield more heat upon burning, but have lower API gravity and market price in comparison to light (or sweet) crudes. WWW.INDEXMUNDI.COM.

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Fundamentals and Crude Oil Prices

On the demand side, world economic activity has expanded at close to 5 percent per year since 2004, marking the strongest performance in two decades. Between 2004 and 2007, global oil consumption grew by 3.9 percent, driven largely by rising demand in emerging markets that are both growing rapidly and shifting toward oil-intensive activities. Also, some of the fastest growing nations also rely on price subsidies that hold down the prices of oil and refined products such as gasoline, which further boosts oil consumption. While global demand has proven strong, oil production growth has not kept pace. In the past three years, non-Organization of Petroleum Exporting Countries (OPEC) production growth has slowed to levels well Executive Summary 3ITF Interim Report on Crude Oil below historical averages, and world surplus capacity has fallen below historical norms. Preliminary inventory data also shows that Organization for Economic Co-operation and Development (OECD) stocks have fallen below 1996-2002 levels. disruptions have adversely affected both world oil production and exports. The imbalance between scarce supply and growing demand, and expectations that this imbalance will persist in the future, have led to upward pressure on oil prices and greater market reactions to any actual or perceived disruptions in available supply. Under such tight market conditions, it is often the case that only large price increases can re-establish equilibrium between supply and demand. Consequently, large or rapid movements in oil prices are not inconsistent with the fundamentals of supply and demand; such price movements, by themselves, do not indicate that prices have become divorced from fundamentals. Further, if speculative positions, rather than fundamentals, were pushing prices upward, then inventories would be expected to rise. To date, there is no evidence of such an Moreover, supply

accumulation; in fact, known inventory levels actually have declined.

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Literature Review
Most studies that try to explain the fluctuations of stock prices and exchange rates are interested in finding a high-frequency, statistical relationship between the two variables. The papers analyzed below pertain to my research in the following way. Ajayi and Mougoue (1996) examine the short run relationship between stock and currency markets in the U.S. and U.K., which are the countries of interest in my paper. Their results support my hypotheses about the expected signs of the two-way relationship. Granger, Huang and Yangs (2000) work further illustrates that the two markets can jointly affect each other. Hsing (2004) and Zietz and Pemberton (1990) develop models with monthly data and simultaneously determined macroeconomic variables. Thus, their approach is particularly relevant to the one undertaken in my study. Ajayi and Mougoue (1996) investigate the shortand long- run relationship between stock prices and exchange rates in eight advanced economies. Of interest to me are the results on short run effects in the U.S. and U.K. markets. They find that an increase in stock prices causes the currency to depreciate for both the U.S. and the U.K., supporting the hypothesis of my paper. Ajayi and Mougoue explain this as follows: a rising stock market is an indicator of an expanding economy, which goes together with higher inflation expectations. Foreign investors perceive higher inflation negatively. Their demand for the currency drops and it depreciates. As to the currency effect on the stock market, the authors find that currency depreciation leads to a decline in stock prices in the short run, also consistent with my hypothesis. The authors explain this negative relationship as follows: exchange rate depreciation suggests higher inflation in the future, which makes investors skeptical about the future performance of companies. As a result, the stock prices drop. This hypothesis is supported by data from the U.K. markets. As visited on 15 Fab 2012 Granger, Huang and Yang (2000) research whether currency depreciation led to lower stock prices or whether declining stock prices led to depreciating currencies during the Asian Crisis of 1997. The data on some of the Asian countries support the case of bivariate causality. Stock prices are expected to react ambiguously to exchange rates. The authors explain this with the effect of currency changes on the balance sheets of multinational companies. Depreciation could either raise or lower the value of a company, depending on whether the company mainly imports or mainly exports. When the stock market index is considered, the net effect cannot be predicted. The other hypothesis is that

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the currency will depreciate if the stock market declines (contrary to my expectation--that currency depreciates if the stock market is booming). This is explained as follows: in markets with high capital mobility, it is the capital flows, and not the trade flows that determine the daily demand for currency. A decline in stock prices makes foreign investors sell the financial assets they hold in the respective currency. This leads to currency depreciation. In my study, it is reasonable to assume that in a period of one to three months, trade flows (current account) also play a role in determining the demand for currency. Therefore, the result observed here is contrary to what I expect because of the different time frame assumptions. Seven of the countries examined by Granger, Huang and Yang (2000) showed a strong relationship between the two marketscausality was unidirectional in some cases and bidirectional in others. Whenever the relationship was unidirectional, it was found to be negative, regardless of which the lead variable was. For four of the countries the authors found evidence of joint causality. The direction (positive or negative) of the dual causality could not be determined, nor could it be specified which the trigger variable was. The reason for the disparity of results between the different countries might be the different degree of the capital mobility, trade volume and economic links among them. Another reason could be an omitted variable biasfor example interest rates may have an influence on stock and currency markets. Granger, Huang and Yangs (2000) results imply that I should use a time period longer than daily time span if I want to capture trade flows as a determinant of the exchange rate. As visited on 15 Fab 2012 The findings of Ajayi and Mougoue (1996) and Granger, Huang and Yang (2000) support my hypothesis that stock prices and exchange rates are jointly determined. Therefore, they can be included as simultaneously determined variables in the same model. Both papers use a two variable VAR model with daily data. I believe this approach does not capture a sound theoretical relationship. In that sense, my study differs fundamentally as it views the same relationship in the context of other variables and uses monthly data. The following papers I review address that issue. Hsing (2004) studies how fluctuations of macroeconomic indicators affect the output in Brazil in order to prescribe monetary and fiscal policy. The article is especially pertinent to my study in its consideration of stock prices in a Mundell-Fleming model. It also uses monthly data, which still provides a short-run insight, but captures more macroeconomic relationships than daily data. The author builds upon the open economy Mundell-Fleming

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framework where net exports depend on the real exchange rate. The model is slightly extended by including variables which research claims as relevantoil prices, domestic and external debt. Stock prices are also included and they are expected to affect output through wealth and investment. Hsing (2004) adopts a structural VAR model originally proposed by Sims (1986), using this method allows for the simultaneous determination of several endogenous variables. Among the seven endogenous variables are output (Y), real interest rate (RR), exchange rate (EX) and the stock market index (ST), which are also the four endogenous variables in my model. The model consists of seven equations where each endogenous variable is expressed as a function of its own lag, the lags of the other six endogenous variables, the two exogenous variables (which are the same for all seven equations), and a white noise term.

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Rationale of study:
The study is conducted to know what are the major factor impact of rupees on crude oil.many researches has done in this content. The study will help in determining the correlation between price of crude oil and currency.

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Objective of the Study

To study the impact of Rupee on Crude Oil To study correlation between price of Crude Oil and Currency

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HYPOTHESIS OF THE STUDY

Study of crude oil and exchange rate help in knowing impact on Inflation rate , G.D.P Growth And Indian economy There are no significance difference between the Price of crude oil and currency rate there is Ho Hypothesis. There is the difference between the price of crude oil and currency rate there is H1 Hypothesis

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RESEARCH METHODOLOGY

RESEARCH METHODOLOGY

The Study

The present study is empirical and analytical in nature designed to analyze the Relationship between Crude Oil and India Rupee in India.

The Study Area

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While the world stock and commodity market is becoming more volatile day by day it increases the risk factor due to uncertainties in the market. This study is confined to effect of price change of Indian Rupee on Crude Oil and Crude Oil on Indian Rupee and how it helps to the investor to invest on it.

Data Collection

Secondary data:
Secondary data is those which have already been collected by someone else and which already been passed through the statistical process. Secondary data pertaining for this study is collected from various journals, research papers, articles and Internet.

Tools used for Analysis

Data Analysis (Time series) analysis Correlation analysis .

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REFERENCE AND WEBLOGRAPHY

Books
2. S.L GUPTA
FINANCIAL DERIVATIVES : THEORY CONCEPT AND PROBLEMS , PUBLISHER : PRENTICE _HALL OF INDIA PVT.LTD.

2 Lucey Brain M, Tully Edel The Evolving Relationship between Indian Rupee and Crude Oil 1978-2002: Evidence from a Dynamic Cointegration Analysis: A Note published in Applied financial Economic Letters (Vol. 2, Issue 1, 2006). 3. Ciner C. On the long run relationship between Indian Rupee and Crude Oil prices, A Note (2001) published in Global Financial Journal 12(2001).

WEBLOGRAPHY
1 .WWW.GOOGLE.COM 2.WWW.INDEXMUNDI.COM 3.WWW.INVESTOPEDIA.COM 4.WWW.WIKEPEDIA.COM 5.WWW.SSRN.COM 6.WWW.OANDA.COM/CURRENCY/HISTORICAL-RATES 7.WWW.MONEYCONTROL.COM

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