Foreign exchange trading in London, the world’s currency hub, surged as worries over the eurozone crisis grew last autumn, figures released on Monday showed. Average daily turnover for trade in global currencies in the UK was just less than $2tn in October last year, according to a semi-annual survey by the Foreign Exchange Joint Standing Committee that gathers information from 30 separate financial institutions.

That represented a 17 per cent rise in foreign exchange trading on the previous year, but a slight dip of 3 per cent from April 2011, according to the six-monthly survey. The decrease in turnover was driven by a 9 per cent fall in foreign exchange swap activity, the report said, while spot turnover rose 2 per cent to a record high. Trading the euro against the dollar was by far the most popular currency pair on the spot market, the survey found, followed by the pound against the dollar – popularly known as “cable” by foreign exchange traders – with the Australian dollar against the US currency in third place.

Traders said the fall in October could be the effect of a particularly busy April last year following the Japanese tsunami and the co-ordinated intervention by the G7 to weaken the yen in March. Currency trading over the summer was unusually high as tensions mounted over the eurozone crisis, with July and August, traditionally quieter months for the foreign exchange markets, seeing strong trading volumes.

Investment banks have also reported more interest in trading foreign exchange as a proxy for other types of investment, with equity investors trading currency pairs to hedge risk more cheaply. The search for havens from the eurozone crisis last year also resulted in unusual activity in the foreign exchange market, with both Japan and Switzerland intervening to weaken their currencies, creating spikes in volatility. “A lot of the tensions playing out between economies are playing out in the foreign exchange markets,” said Kevin Rodgers, global head of foreign exchange spot trading at Deutsche Bank. London is the centre of global foreign exchange trading, according to the Bank of International Settlements, which releases a triennial survey of the market. The last survey, in April 2010, found that $4tn a day was traded across the global foreign exchange market.
 

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ICICIdirect expects the US dollar to attract some selling pressure on rallies against the INR. ``Utilize the highs in the USD/INR February contract to sell below 49.22 with target of 49.06/48.98 and a stop loss of 49.30,`` it says.

``In the currency futures market, the most traded near-month dollar-rupee contract on the NSE closed at 48.95. The USD/INR February open interest was up by 3.7%. The March contract witnessed an increase in open interest by 5.5%,`` it notes.

SMC Global Research:
> The euro weakened against 14 of its 16 major counterparts before Greek leaders respond today to demands by international creditors on economic measures.

> European leaders maintained pressure on Greece to accept terms demanded by international lenders during a weekend of talks to avert a financial collapse.

> The trade deficit in the US probably widened in December to a six-month high as imports climbed faster than exports, economists said a report this week will show.

> Canada`s dollar advanced for a fourth week against its US counterpart, its longest stretch of wins since October, as stronger economic data from the nation`s biggest trade partner helped fuel appetite for riskier assets.

> Asian currencies snapped a four-day advance on concern recent gains underestimated the risks to global growth from Europe`s still unresolved debt crisis.

Emkay Global Services:
``Overseas indication for positive for the dollar this morning. The Euro was down almost 0.20% to a dollar while the yen was also lower by a similar magnitude. Cues for the equity markets were positive and this could add could limit the rise in the rise in the dollar in morning trade.``

Commenting on the strategy on USDINR Futures December Series, broking firm Emkay Global said, ``The USD is showing strength internationally but it is possible that may not translate into significant strength in the Indian markets. Local sentiments are very positive over Indian growth and economy and this has resulted in improved dollar flows into the Indian markets. But on an intraday basis we could see a pullback in the USDINR if equity markets turn negative, which in our opinion is possible today. Hence, the buy recommendation.``

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Patna: Police today arrested two inter-state gang members and seized Fake Currency Notes of the face value of Rs four lakh in two bags from them, SSP (Patna) Alok Kumar said. Acting on a tip-off, police raided a place in Karbigahiya and arrested the two persons allegedly involved in illicit trade of Indian Fake Currency Notes (IFCNs), Kumar told reporters.

They were identified as Prabhat Kumar Agrawal from Belaganj in Gaya district and another Prakash Maurya from Aurangabad district, he said. Two mobile phones were also seized from them, the SSP added.

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NEW YORK (Reuters) - U.S. equities and the euro slid on Tuesday after weaker-than-expected U.S. economic data added to gloom over ebbing hopes for a Greek debt restructuring deal. Markets had started the session on a more optimistic note, with Greek Prime Minister Lucas Papademos saying late on Monday that he hoped to reach a deal with private creditors over restructuring 200 billion euros of debt by the end of the week. But that optimism faded as traders saw little progress in resolving the euro zone sovereign debt crisis after a summit of regional leaders on Monday.

A steeper-than-expected decline in U.S. home prices in November and a souring in consumer confidence in January weighed further on markets, highlighting the hurdles for the economic recovery in the United States, the world's largest economy. With a muddled outlook for corporate earnings in coming weeks, investors pulled back from riskier assets such as stocks and the euro.

"Every time there is a summit, there is a market hope of progress on the European debt crisis, but while they agreed on the financial bailout fund, the problems of Greece and now Portugal are unsolved. There is no solution in immediate sight," said Joseph Trevisani, chief market strategist at Worldwide Markets, in Woodcliff Lake, New Jersey. Near-bankrupt Greece struggled to show its foreign lenders it can ram through spending cuts and labor reform in exchange for a crucial debt swap deal and a 130 billion euro bailout package needed to avoid an unruly default in March.

The euro fell 0.4 percent against the dollar to $1.3073, but it was on track to close out January up about 0.9 percent against the greenback, its first monthly advance since October. Against the yen, the euro fell to 99.67, for a rise of 0.14 percent this month. The dollar also fell against the yen, under pressure after the U.S. Federal Reserve said last week it was likely to keep interest rates near zero until late 2014. The greenback slipped as low as 76.13 yen, its lowest since Japan intervened in currency markets in late October, stoking fears the central bank could step into markets again.

More recently, the dollar was off 0.09 percent at 76.22 yen. The dollar's 0.9 percent loss against the yen in January extended two straight down months against the Japanese currency. On Wall Street, stocks mostly fell, hurt by the disappointing economic data and by an unclear earnings season picture. Stocks have rallied sharply since last year, partly on hopes the U.S. economy will dodge a recession in Europe.

"The consumer confidence decline sort of lends credence to this argument that the bears have been using - that the only thing that has been creating better economic numbers has been inventory restocking and once the restocking is done the feeling is that it was a temporary blip," said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.

"So once you start to get some negative numbers, especially around the consumer, it lends to the argument that GDP growth is not really there and it is going to go back to zero."The Dow Jones industrial average dropped 20.81 points, or 0.16 percent, to 12,632.91. The Standard & Poor's 500 Index dropped 0.60 point, or 0.05 percent, to 1,312.41. The Nasdaq Composite Index gained 1.90 points, or 0.07 percent, to 2,813.84.

Earnings of Exxon Mobil Corp, the world's largest publicly traded oil company, narrowly beat expectations, but production fell short of some estimates and its shares fell 1.9 percent. According to Thomson Reuters data, only 60 percent of companies in the S&P 500 that have reported results have topped Wall Street expectations, below the beat rate in recent quarters at this stage of earnings season.

For the month, the Dow ended up 3.4 percent, the S&P 500 ended up 4.4 percent and the Nasdaq ended up 8 percent. Robert Sluymer, a technical analyst at RBC Capital in New York, said depressed U.S. interest rates and a stall in gains in the price of copper, a key industrial metal, are pointing to a short-term reversal in economically sensitive sectors, such as materials and banks, that have led the rally.

"More evidence of the pullback or pause continues to develop, led by banks, with global growth themes, represented by copper, just beginning to pause under resistance at its 200-day moving average," he wrote in a research note. "Bond yields have still yet to confirm the pro risk rebound."The benchmark 10-year U.S. Treasury note was up 14/32, the yield at 1.7953 percent. European stocks closed higher on renewed hopes for a Greek debt deal, though the weak U.S. data capped gains.

The FTSEurofirst 300 index of top European shares rose 0.6 percent to close at 1,037.05 and post a 3.6 percent gain in January. MSCI's all-country world stock index rose 0.27 percent to 316.53, buoyed by an early rally in Asia. Emerging markets continued to rally, up 1.1 percent. Brent crude and U.S. crude prices wavered as the disappointing U.S. data reined in prices. U.S. crude oil futures fell for a third straight day, settling at $98.48 a barrel. Brent crude oil futures for March delivery settled higher at $110.98 a barrel.

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Australia’s core inflation rate accelerated above the middle of the central bank’s 2 percent to 3 percent annual target range last quarter, prompting traders to pare bets on another interest-rate reduction next month.

The annual trimmed mean, which diminishes sharp price swings, quickened to 2.6 percent from the third quarter, when it rose a revised 2.4 percent that was faster than previously reported, the Bureau of Statistics said in Sydney today. The overall inflation rate was unchanged last quarter from the prior three months as the price of bananas plunged 46 percent.

The currency rose as futures traders saw about a 50-50 chance Reserve Bank of Australia Governor Glenn Stevens will reduce the benchmark rate for a third straight meeting to 4 percent, compared with 21 of 22 economists surveyed by Bloomberg News who predict a cut. Stevens lowered borrowing costs in November and December as Europe’s debt crisis dimmed prospects for global growth.

“Europe may still push them over the line but the inflation numbers don’t seem to be a trigger for another back- to-back cut,” said Kieran Davies, Sydney-based chief economist at Royal Bank of Scotland Group Plc and the only one not predicting a rate increase on Feb. 7. “You saw another revision to history from the underlying inflation.”

The nation’s currency rose to $1.0531 at 1:18 p.m. in Sydney compared with $1.0470 immediately before the report. The so-called Aussie appreciated 5.7 percent last quarter. Traders are pricing in a 52 percent chance Stevens will cut by a quarter percentage point, down from 60 percent before the report.

Core Rate
Core inflation measures, which exclude the largest price increases and declines, showed more price pressure in the second half of 2011 than economists had previously forecast. The unchanged main inflation rate last quarter was slower than the 0.2 percent increase estimated by economists and was the weakest figure in three years. It gained 3.1 percent in the fourth quarter from a year earlier, today’s report showed.

The cost of food, which at 16.8 percent is the second- biggest component in the consumer-price basket, dropped 1.5 percent as supply of fruit benefitted from resumed shipments from Queensland after floods and storms in the northeastern state wrecked crops and sent the price of bananas soaring 138 percent in the second quarter. Health costs declined 1.2 percent as the price of pharmaceuticals fell 5.6 percent, the report showed.
Housing Gains

In contrast, the costs of housing, which includes rent, home purchases and utilities, and at 22.3 percent is the biggest component of the index, gained 0.4 percent last quarter, today’s report showed.
Apartment rents climbed 5 percent in Australia’s eight capital cities in November from a year ago, while rents for houses rose 4.3 percent, according to real estate researcher RP Data. Communication increased 1.1 percent, and recreation and culture gained 0.8 percent, today’s report showed.

The statistics bureau also released a seasonally adjusted consumer-price index that showed a 0.2 percent increase last quarter, for an annual increase of 3 percent. “This tells us that inflation pressures were contained in the second half of 2011 and it certainly leaves the door open for the RBA to consider further rate cuts,” said Paul Bloxham, chief economist for HSBC Holdings Plc in Sydney and a former central bank official.
‘Sigh of Relief’

“The RBA will probably be breathing a huge sigh of relief at the moment,” he said. “They had one observation of inflation in the third quarter, it was surprisingly low, they moved rates on the back of not feeling concerned about inflation because of that one observation.”Australia’s consumer prices are stronger than those in neighboring commodity exporter New Zealand, where they dropped 0.3 percent from the third quarter, government data showed last week.

Australia’s growth is being driven by a surge in investment by resource companies that are supplying emerging economies including China and India with coal, iron ore and natural gas. Other parts of the economy, including tourism and manufacturing, are struggling because of the currency’s strength.
The so-called two-speed nature of Australia’s economy was reflected in the loss of 29,300 jobs in December, capping the worst year for employment since 1992. Consumer and business confidence have eased as Europe’s debt crisis deepens.

The RBA has more scope to cut borrowing costs than the central banks of New Zealand, Norway, Sweden, Canada and the euro region, where benchmark policy rates range from 1 percent to 2.5 percent. Rates in Japan and the U.S. are near zero. The International Monetary Fund yesterday cut its forecast for global growth and warned that the European debt crisis threatens to derail the world economy.

The fund, in an update of its World Economic Outlook report, lowered its estimate for global growth this year to 3.3 percent from a September forecast of 4 percent. The expansion next year will be 3.9 percent, down from 4.5 percent. The euro area may enter a “mild recession” in 2012 as it shrinks 0.5 percent. The U.S. outlook was unchanged at 1.8 percent growth.

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The Iranian currency, the rial, tumbled Monday in blackmarket trading to a new record low against the dollar, news agencies said, as the EU moved to impose an oil embargo and fresh sanctions on Tehran.
The unofficial rate in central Tehran was around 20,500 rials for the greenback, the official IRNA news agency reported.

The rate showed a 12-percent rise for the US currency since last Wednesday when it was changing hands at 18,000 rials on the blackmarket. The Tehran government has tried to shore up the rial by imposing a lower rate in banks and currency exchange bureaux, while also banning transactions outside of such outlets, leading to the blackmarket operations.

Last week, Iran's central bank banned the possession of and transactions in foreign currencies, including the dollar, without an official invoice, warning that offenders would be prosecuted. The bank has introduced a dual rate of 11,300 rials for state business and imports, and 14,000 for Iranian travellers.

But many exchange bureaux have refused to buy or sell dollars at the imposed rates, prompting the operation of a blackmarket despite police efforts to enforce the ban. In late October, it cost about 12,500 rials to buy a dollar in Tehran. A rush for gold and other non-currency assets has since taken hold, with the price of gold coins in Iran rising by 25 percent since January 18.

The currency crisis comes at a time when the United States and European countries are ratcheting up punitive measures against Iran to curb its controversial nuclear programme. Although the Iranian government has insisted there is no connection between the rial's slide and new sanctions, some officials have admitted a "psychological" impact as international sanctions spook ordinary Iranians.

Economy Minister Shamseddin Hosseini and central bank chief Mahmoud Bahmani have vowed before the Iranian parliament to bring the exchange rate under control. A sudden acceleration in the slide was seen after US President Barack Obama at the end of December signed into law more sanctions hitting Iran's central bank and targeting foreign firms which do business with the Islamic republic.

On Monday, the European Union agreed to slap an embargo on Iran's oil exports as the West ramped up pressure on Tehran's nuclear drive and urged it to return to the negotiating table. A compromise agreement, due to be formally announced later the same day, provides for an immediate ban on importing Iranian crude and a gradual phase-out of existing contracts between now and July 1, diplomats in Brussels told AFP.

EU ministers were set to also target the country's central bank, petrochemicals and gold. The sanctions would make it even more difficult for Iran, OPEC's second largest producer, to be paid in foreign currency for its oil exports, worth more than 100 billion dollars in 2011. Previous rounds of EU and US sanctions targeting Iran's financial system have already caused a shortage of foreign currency. Tehran insists its nuclear work is designed to master civilian applications of the technology, despite suspicions in the West that Israel's arch-foe is developing an atomic weapons programme.

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Indian students are having to rethink their plans for a foreign education after a sharp slide in the Indian rupee against major Western currencies, and banks cutting back slightly on loans for overseas study because of a perception that the graduate jobs market is tightening.

With the rupee depreciating, foreign education becomes more expensive, and this might reduce the take-up of education abroad loans as students may prefer cheaper higher education in India, according to M Narendra, chair and managing director of Indian Overseas Bank.

But for now, some students are deferring overseas courses. KS Arvind applied to several American universities for an undergraduate degree but the depreciation of the rupee against the dollar has forced has forced him to wait. “I was supposed to join this January. But I have deferred it to next year in the hope that the rupee will become stronger by then,” he said.

Even if the tuition fee increases marginally in a year, it could cost him less in living expenses if the exchange rate improves, he said. The rupee has fallen over 18% against the dollar in the last year. It was Rs44.72 to the dollar in January 2011, and ended at a low of Rs53.07 to the dollar at the year-end. This means a typical student loan of around Rs1.5 million rupees raised from a bank in India would yield US$28,000 instead of US$33,000.

Sunaina Ghosh, a final year student at Delhi University, said she would need an extra Rs538,000 (US$10,600 at current exchange rates) in 2012 compared to 2011. “I am in two minds on going to the US for a masters course. The current status of the rupee versus the dollar has pushed up my course fee by almost 20%. I will also have to spend extra on living expenses,” she said

For students willing to spend the extra money, obtaining a loan could be a challenge. According to the Reserve Bank of India, lending on education loans grew only by 17% in October 2011, compared to 24% in October 2010.

“Banks may now see higher risks for students in terms of job potential and the ability to pay back the loan,” said Prashant Bhonsle, country head of Credila Financial Services, who felt that global uncertainty could have led to the slowing in education loan growth.

“Even when the rupee was strong, Indian banks were cautious in giving out education loans. With the rupee depreciating, students will find it difficult to convince banks to part with loans of larger value,” said Naresh Gulati, chief executive of Oceanic Consultants, an agency that helps Indian students with admissions abroad.

Indian banks lend up to a maximum of Rs2 million for higher education study abroad. While there is no collateral for loans up to Rs400,000, loans between Rs400,000 and 750,000 require a third-party guarantor.

Credit above Rs750,000 needs to be backed by tangible collateral security such as property, preferably houses, government securities, gold, shares or a third party with assets matching the loan amount.

However, Renuka Raja Rao, country coordinator for EducationUSA Advising Services at the United States-India Educational Foundation, said students would not find it difficult to get bank loans as long as they were going to accredited US institutions, and met the conditions set by the banking system in terms of margin, guarantors and-or collateral security.

She said EducationUSA had not observed any decrease in student interest in American programmes as a result of the costlier dollar. “Students choose the US as a study destination after careful research and they thus make well-informed choices. Besides, the increase is marginal, and is unlikely to affect the majority of students.”

Overseas education consultants said students are either looking at alternative sources of funding like scholarships or picking up campus part-time jobs to tide over this funding crunch. For many who are not able to arrange either, waiting for the rupee to cool off is the only option.

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Last week's selling in the euro currency, due to increasing worries that the euro zone economy will continue to weaken, took prices to more than a 16-month low against the U.S. dollar. Pressure on the euro resulted after the Federal Statistics Office said Germany's economy probably contracted in the fourth quarter by .25% from the third quarter, while the European Union reduced their euro zone growth estimate to .1% in the third quarter from the .2% growth they had previously estimated. In addition, a Bloomberg survey showed the euro zone economy will probably shrink by .2% this year.

Another ominous indicator of the future of the euro zone's economic outlook was the shocking results of a German Treasury bill auction. Germany sold six-month Treasury bills at a negative yield for the first time ever. The 3.9 billion euro offering, maturing this July, was sold at a negative .01% yield. This unprecedented negative yield is a clear sign that investors are attempting to preserve wealth, rather than to maximize income, as evidence grows that the euro zone will enter into a recession. In addition, some of the recent weakness in the currency of the euro zone was attributed to last week's lukewarm demand for the 10-year German bund auction.

The future of the euro currency came more into question on Monday when the euro zone's bailout fund, the European Financial Stability Facility, lost its top credit rating. This took place after Standard and Poor's downgraded the debt of France and Austria by one level on January 13. The new rating from S&P for the EFSF is now AA+, which compares to their previous rating of AAA. In addition, the German retail sales report last week, reinforced ideas that the euro zone is headed for recession. German retail sales declined .9% in November, when a .2% increase was anticipated.

Recent employment news has been mixed. The November unemployment rate in Italy increased to 8.6% and joblessness in Spain advanced to a record 22.9% in November. On the bullish side, German unemployment declined in December by more than analysts expected. The Federal Labor Agency reported unemployment in Germany declined 22,000 to total 2.89 million. A 10,000 decline in unemployment had been predicted by economists.
 
Not all of the euro zone sovereign debt auctions have been bearish. For example, several of the more recent euro zone sovereign debt auctions were well received. Spain sold 9.98 billion euros of debt, which was almost two times the target of 5 billion euros that had been planned and Italy sold 8.5 billion euros of debt at a yield that was much lower than dealers had anticipated.  

Some traders have been encouraged by the recent well-received debt auctions in the euro area. However, much of the demand for all of this debt is probably coming from banks that have recently accepted massive amounts of three-year loans from the European Central Bank. Therefore, the recent better than expected euro area debt offerings may not be that bullish for the euro after all. Some of the strength in the debt offerings was due to comments from European Central Bank President Mario Draghi when he said his strategy to avert the euro area's financial crisis is working.

Also supportive, at least on a short-term basis, to the euro were some of the economic reports that were stronger that analysts had anticipated. For example, there was news that German investor confidence improved from a very low level in January. The ZEW Center for European Economic Research said its index of expectations for business conditions improved to -21.6 from -53.8 in December. A reading of -49.4 was anticipated. In spite of the better number, the economic outlook remains dire.

CONCLUSION
Although there is no shortage of economic and political problems in the U.S., it appears that the strains on the financial system in the euro area are much more severe. The ongoing financial problems in the euro area, including fears that the euro zone economy will enter into a recession are likely to remain well into 2012. There is likely to be increased motivation for market participants to move out of the euro currency and into the relative safety of the U.S. dollar. In the longer term, the euro is likely to continue to be pressured by increasing prospects of a recession in Europe, sovereign debt downgrades, along with bearish interest rate differentials. The main trend for the euro currency is lower, with the next downside psychological chart objective coming in at 1.2500 to be followed by a test of the 1.2000 level. 

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 Iran's currency value has kept critical depreciation against foreign currency in the recent weeks. On Wednesday, Iran's rial hit a new record against the U.S. dollars in the street market in Tehran. On the day, one U.S. dollar was exchanged for about 18,000 rials compared to 16,800 rials on Monday, the lowest ever value of Iranian rial.

The new slump in Iran's currency rate comes days ahead of EU foreign ministers' meeting on Jan. 23. The EU foreign ministers are expected to discuss further sanctions on Iran's oil exports. The Iranian currency came under heavy pressure earlier in January after the U.S. sanctions on Iran's Central Bank was announced.

On Jan. 2, one dollar was exchanged for 17,800 rials in the street market in Tehran which showed almost 2,300 rials difference, slightly over 10 percent, in comparison with its rate two days earlier on which one dollar was exchanged for 15,500 rials in Tehran's street market.

On Dec. 31, 2011, U.S. President Barack Obama signed a wide- ranging defense funding bill, calling for new sanctions against financial institutions doing business with Iran's state banking institutions.

The bill, approved by U.S. Congress earlier in December, aimed at reducing Tehran's oil revenues but gives the U.S. president powers to waive penalties as required.

According to an amendment contained in the sweeping bill, foreign financial institutions doing business with Iran's central bank are banned from opening or maintaining correspondent operations in the United States.

The ban only applies to foreign central banks for transactions that involve the sale or purchase of petroleum or petroleum products. The penalties do not go into effect for six months, according to the bill.

On Jan. 3, Iran's Foreign Ministry spokesman Ramin Mehmanparast said that the depreciation of Iran's currency value has nothing to do with recent U. S. sanctions on Iran's central bank.

Mehmanparast said that the slump of Iranian rial against the U. S. dollar is not linked to new U.S. sanctions, adding that new U.S. sanctions have not been put in practice yet. The decline of the value of Iranian currency has other causes and the problem has its roots in economic issues, he said.

During the recent weeks, while the Iranian government has tried to shore up the value of rial by imposing a lower rate, of one U.S. dollar for 14,000 rials in official currency exchange centers, and banned tradings in the blackmarket and as the rial rebounded after the Central Bank announced that it would step in to stabilize the market, the boost in the rial's value started to decline again.

On Wednesday, Iranian Central Bank announced that the currency trading in the balckmarket is illegal and the foreign currency in the possession of the people should be documented, implying that people should receive documents for their foreign currency purchase with the exchange rate and the amount of the traded money written in the documents, the state IRIB TV website reported.

The supervisory deputy of Iran's Central Bank, Ebrahim Darvishi, told IRIB on Wednesday that the foreign currency tradings should be documented and those who are in possession of undocumented foreign currency have to deposit their money in the banks or to sell them at the official rate in the banks before Feb. 4.

Otherwise, the undocumented foreign currency at the hands of its holders would be considered as illegal and as the case of money-laundering, Darvishi was quoted as saying.

The official rate imposed recently on the legal currency exchange centers by Iranian Central Bank is one U.S. dollar for 14, 000 rials which shows over 25 percent difference with the black market figures.

Also, Darvishi told local Mehr news agency on Wednesday that the local police, in different attire other than police uniforms, and some other supervisory agents are tasked to confront those cases of violation of the officially set regulations in the currency market.

On Wednesday, local media reported that a considerable number of illegal currency traders in Tehran's blackmarket were arrested by the local security forces.

Iranian rial has lost over 60 percent of its value against dollar in comparison to its trading value in December 2010, which stood at around 10,700 rials.

In the face of further Western sanctions on Iran's oil exports over the country's controversial nuclear program, the economists say Iran's currency fears more slumps.

Iranian officials has threatened to close the strategic Strait of Hormuz if their oil exports are sanctioned. The Islamic republic heavily relies for its annual revenue on crude exports and its by-products.

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The finance ministry has ruled out a currency swap deal with China for now. After India inked a $15-billion currency swap deal with Japan last month, there was a buzz that the government might go for similar agreements with countries having large foreign exchange reserves, such as China. A ministry official told Business Standard, “There have been suggestions that India enters into a currency swap with China, the way we did with Japan. However, as of now there is no plan to enter into a currency swap with any other country.”

For political and strategic reasons also, it was not appropriate to enter into that kind of deal with China, said another official. According to Srikanth Kondapalli, chairperson, Centre for East Asian Studies in Jawaharlal Nehru University, there is a lack of trust between China and India, one reason that hampers a swap. (CURRENCY FLOWS)

An official said the $15-billion currency swap deal with Japan was enough. “We can explore it with other countries at a later stage, if required, but there is no immediate need. We will have to see which countries have a dollar surplus,” he said.

Anis Chakravarty, director, Deloitte, Haskins and Sells, said India’s trade dynamics with China and Japan were completely different. “With Japan, the currency swap made sense because we are working with the country on many projects,” an official in the finance ministry said. “Most of our trade with China was in raw material and small-cost final products.”In swap agreements, one central bank could borrow a currency from the other, offering an equivalent amount of its own as collateral.

According to Sridhar Venkiteswaran, executive director, Avalon Consulting, the Japanese yen is a globally traded currency, unlike the Chinese yuan, so it makes sense to go for a swap with Japan instead of China. “Until we have significant business with China, a swap won’t work,” he said. China has swap deals with Asean countries. Besides, it recently concluded such a deal with Pakistan. “China has investment in those countries,” said Venkiteswaran.

According to Kondapalli, China has minuscule investment in India; “it just gives credit in the form of low-interest rate loans.” Indian investment in China is much higher. According to the department of industrial policy and promotion, China contributed just 0.06 per cent to the foreign direct investment inflows in India between April 2000 and October 2011.

“China finances the power sector in India. As coal production has fallen, the dealings with China have reduced,” said Venkiteswaran. He said once coal production stabilised, there would be demand for the yuan and then a swap would make sense.

India’s trade with China was worth $63.1 billion in 2010-11, with the balance in favour of China. It has emerged as the largest trading partner of India, if individual countries are considered. Since 2008, China has been on a currency swap agreement spree with various nations. At least 14 countries have signed a bilateral currency swap agreement with China.

China has the highest forex reserves in the world — worth $3,201 billion — and Japan has forex reserves of $1,295 billion, according to the latest data. “A swap deal is just a marginal connect. In the long term, we need stability in the currency market,” said Kondapalli. The rupee would stabilise against the dollar if disinvestment happened, said an official. Of Rs 40,000 crore target set for disinvestment this financial year, only a little above Rs 1,100 crore has materialised.

The country’s foreign exchange reserves dipped to a 13-month low to $293.5 billion for the week ended January 6, down by $3.1 billion from the previous week. According to economists, intervention by the central bank in the foreign exchange market to arrest the fall of the rupee has been the main reason for the drop in foreign currency assets.

RBI has been selling dollars to prevent a sharp fall in the rupee. The Indian currency has depreciated 13.9 per cent against the dollar as on January 13, compared with its value against the greenback as on March 31, 2010. In between, it had depreciated as much as 20.1 per cent against the value on the last day of 2010-11.

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