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RBI Forecast Vs. GARCH-Based ARIMA Forecast for Indian Rupee-US Dollar
Exchange Rate: A Comparison
-- Kanchan Datta and Chandan Kumar Mukhopadhyay
Foreign exchange risk management is a new challenging area. After globalization, the perfection in exchange
rate forecasting is very essential for hedging decisions. In this paper, an attempt has been made to estimate
the parameters of Autoregressive Integrated Moving Average (ARIMA) and Generalized Autoregressive
Conditional Heteroscedasticity (GARCH) and apply them to simulate and predict the rupee/US dollar exchange rates.
The emphasis of these methods is not on constructing single equation or simultaneous-equation models but on
analyzing the probabilistic or stochastic properties of economic time series on their own under the philosophy of letting
the data speak for themselves. As a matter of fact, many econometric time series exhibit periods of unusually
large volatility, followed by periods of relative tranquility. In such circumstances, the assumption of homoscedasticity
is inappropriate. It is a particular kind of the Heteroscedasticity in which the variance of the regression
error depends on the volatility of the errors in the recent past. Engle suggested the use of Autoregressive
Conditional Heteroscedasticity (ARCH) model to take care of such Heteroscedasticity in order to raise the efficiency
of forecasts. Many of the lagged values of unconditional error variance can be replaced with one or two lagged
values of conditional error variance. This leads to the GARCH model. The main objective of this paper is to study
the GARCH-based minimum mean squared error ARIMA forecast for rupee/dollar exchange rate and draw a
comparison between ARIMA, GARCH-based ARIMA and RBI forecasting.
© 2010 IUP. All Rights Reserved.
Basel I and Basel II Norms:
Some Empirical Evidence
for the Banks in India
-- Neelam Dhanda and Shalu Rani
The recent financial sector crisis and the failure of banking system even in the developed countries like US
have forced the policy makers and researchers to look into the details of such failures. Capital adequacy is an
indicator of the financial health of the banking sector. It is measured by the Capital to Risk Weighted Asset Ratio
(CRAR), defined as the ratio of a bank's capital to its total risk-weighted assets. Financial regulations generally impose
a capital adequacy norm on their banking and financial system in order to provide a buffer to absorb
unforeseen losses due to risky investments. The CRAR is the most widely employed measure for the soundness of a
bank. Globally, the CRAR ranges between 7.1% and 34.9%. The overall CRAR of the Indian scheduled
commercial banks at the end of March, 2007 was 12.3%, as against the Indian regulatory requirement of 9%, which itself
was higher than the Basel norm of 8%. This study presents the status of Capital Adequacy Ratio (CAR) of
different categories of banks and also ascertains the impact of application of Basel II norms on CAR of selected banks.
© 2010 IUP. All Rights Reserved.
A Discriminant Model for Assessing Entrepreneurial Talent:
A Case Study of Jharkhand
-- Tarak Nath Shaw
The entrepreneurial quality and management competence of an entrepreneur play an important role in
the success of an enterprise. The evaluation of an entrepreneur is therefore a prerequisite while appraising a
project for financial assistance. Banks and financial institutions in India employ purely judgmental appraisal procedures
to assess the capabilities of the entrepreneur. As a part of the research study on the influencing factors with
regard to the effectiveness of entrepreneurs, research data pertaining to some `successful' and `unsuccessful'
small business entrepreneurs of Jharkhand state situated in the eastern part of India have been used to develop
the Discriminant Model. It has been postulated in the research that entrepreneurial success is a function
of entrepreneurial traits, attitude and business skills. The Discriminant Model obtained by the use of SPSS
package was able to classify 96.2% of the entrepreneurs correctly as `successful' or `unsuccessful'. The value of
Wilk's Lambda (0.176) suggesting good discriminating power of the model, the Standardized Canonical
Discriminant Function Coefficients for entrepreneurial traits (0.751), attitude (_0.059) and business skills (0.647) suggest
that entrepreneurial traits and business skills are better predictors of `successful' and `unsuccessful'
entrepreneurs. The Discriminant Model developed herein can be used as a quantitative tool to assess entrepreneurs,
provide financial assistance to the right kind of entrepreneurs and thereby reduce the chances of loans becoming
Non-Performing Assets (NPAs).
© 2010 IUP. All Rights Reserved.
Is the Modern Economy Heading Toward a Cashless and Checkless One? Evidence from the Payments System in Canada
-- Weinian Liao and Jagdish Handa
The recent innovations in the payments technology have resulted in considerable replacement of cash
payments by non-cash ones, and of paper-based payment instruments by electronic ones. Do these innovations mean
that the modern economy is heading toward one without currency and checks? This paper uses Canadian data
from 1983 to 2001 to find answer to this question. It relies on Gompertz and logistic S-curve growth analyses to
model the future replacement of cash payments by non-cash ones and of paper-based payment instruments by
electronic ones and predict the saturation levels. Under current technology, while card payments will continue to
further substitute for cash at the Point of Sale (POS), their share in total retail payments will saturate at around less
than 40%. By comparison, the predicted satiation level for the replacement of checks by electronic payments is
about 80%. Hence, under the current technologies, Canada will almost do away with checks, but will continue to
use currency to a substantial extent.
© 2010 IUP. All Rights Reserved.
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