1. CH:-1 INTRODUCTION
Different countries or regions, like the Eurozone, U.S.A., and India use different
currencies. These currencies generally float against each other, meaning that their relative
prices are set by traders on foreign exchange markets, although sometimes they are fixed
(meaning just that the central bank acts on the market to keep its exchange rate where it
wants it). Changes in exchange rates are normal and are driven by a number of factors,
such as interest rates in different countries: a higher interest rate creates demand for a
currency, and as with most things higher demand leads to a higher price meaning that
currency has greater value. More generally, a currency’s value should be related to the
long-term attractiveness of the economic opportunities available in that currency.
There is no exact definition of a financial crisis, but it generally involves a rapid fall in
the value of one or more currencies. It is more likely to happen in an emerging market
economy that has borrowed a lot of money in foreign currency. For E.G. If I’m a big
Indian institutional investor, I may not want to buy bonds denominated in American
dollar, because I don’t know what the dollar will be increasing in the future, but I may be
willing to buy bonds denominated in dollar.
v What is financial crisis?
A situation in which the value of financial institutions or assets drops down rapidly. A
financial crisis is often associated with a panic or a run on the banks, in which investors
sell off assets or withdraw money from savings accounts with the expectation that the
value of those assets will drop if they remain at a financial institution.
In financial crisis mainly three things happens.
1. Investors withdraw their money from savings accounts
2. An economy of country may falls down.
3. A stock market may crash down.

2. A financial crisis is defined as speculative pressures in the foreign exchange markets. To
identify periods of a currency crisis, we need to identify both successful and unsuccessful
speculative attacks on domestic currency. The basic idea is that when there are
speculative runs on currency, the government has three policy choices.
1. Government can make exchange rate depreciate. This is successful currency attack
since the monetary authority gives up a pegged exchange rate system after a series
of speculative attack.
2. Government can intervene in the foreign exchange markets by selling international
reserves.
3. It can be increase interest rates to increase capital flows to decrease speculative
pressure on domestics currency and market
Some countries may use a combination of these three policy options to absorb speculative
pressures or attacks.
History itself is a witness of major financial crisis European Monetary System
(EMS) crisis 1192-1993, the Mexican crisis in 1994–1995 (which is spread to a number
of South American countries), and the Asian crisis in 1997–1998.
CH:-2 Review of literature
1. The impact of global financial crisis on India’s Gross Domestic Product (GDP) is
investigated upon in an aggregate demand framework using quarterly data for the
period from Q2 of 1996 to Q1 of 2010. GDP, consumption expenditure, capital
formation and export were found to be co-integrated. Co-integration estimation re-
affirms that domestic consumption remains the key driver of India’s GDP growth.
Our analysis establishes thatthough India’s trade sector dwindled and investment

3. activity declined in the aftermath of global financial crisis, its GDP growth
slackened only marginally as domestic consumption provided the necessary buffer
in limiting the adverse impact of global financial crisis on the Indian economy.
-Raj Rajesh, SanjibBordoloi
(2008)
2. The turmoil in the international financial markets of advanced economies that
started around mid-2007 has exacerbated substantially since August 2008. The
financial market crisis has led to the collapse of major financial institutions and is
now beginning to impact the real economy in the advanced economies. As this
crisis is unfolding, credit markets appear to be drying up in the developed world.
With the substantive increase in financial globalization, how much will these
developments affect India and other Asian emerging market economies (EMEs)?
India, like most other emerging market economies, has so far, not been seriously
affected by the recent financial turmoil in developed economies. In my remarks
today, I will, first, briefly set out reasons for the relative resilience shown by the
Indian economy to the ongoing international financial markets’ crisis. This will be
followed by some discussion of the impact till date on the Indian economy and the
likely implications in the near future. I then outline our approach to the
management of the exposures of the Indian financial sector entities to the collapse
of major financial institutions in the US. Orderly conditions have been maintained
in the domestic financial markets, which is attributable to a range of instruments
available with the monetary authority to manage a variety of situations. Finally, I
would briefly set out my thinking on the extent of vulnerability of the Asian
economies, in general, to the global financial market crisis.
-Global Financial Crisis and Key Risks Impact on India and Asia
Rakesh Mohan
(October 9, 2008)

4. CH:-3 RESEARCH METHODOLOGY
v PROBLEM STATEMENT:
To focus on the study of examine “U.S. financial crisis and its impact on India
affecting by macroeconomic factors.”
v RESEARCH QUESTIONS:
1. How the U.S. financial crisis affects Gross Domestic Products (GDP)?
2. How the U.S. financial crisis affect balance of payment (BOP)?
3. Is Foreign Direct Investment (FDI) and foreign Institutional Investment (FII) is
affected by U.S. financial crisis?
4. What policy is followed by the government while financial crisis (Indian)?
v RESEARCH OBJECTIVES :
1. To know the effect of financial crisis on FII and FDI.
2. To know how financial crisis affect the GDP and BOP.
v LIST OF INFORMATION NEEDED:
1. Data of balance of payment since 2007 to 2012.
2. Data of GDP growth rate from 2007 to 2012.
3. Data of FDI and FII from 2007 to 2012.
4. Data of American stock market indices (Dow Jones) needed from 2007 to
2012.
v Hypothesis:
H0 1: There is no relationship between Dow Jones and NSE indices.
H1 1: There is significance relationship between Dow Jones and NSE indices.
H0 2: There is no relationship between GDP and BOP.
H0 2: There is significance relationship between GDP and BOP.

5. v VARIABLES:
A. Independent variables:
1. American Stock market (Dow Jones)
B. Dependent variables:
1. GDP (Gross Domestic Product)
2. BOP (Balance Of Payment)
C. Interdependent variables :
1. FDI (Foreign Direct Investment)
2. FII ( Foreign Institutional Investment)
v RESEARCH DESIGN:
For this research researcher used the ‘Descriptive Research Design’, as name
suggests; the main objective is to describe the situation of global financial crisis
and its impact on India .At this stage the researcher builds some idea about
sampling methods.
v DATA COLLECTION
1. That data are collected from various website for making concept very clear.
2. The period of data collected is from year 2007 to 2012.
3. This period is selected for the study because at least 5 years data are required for
understanding the relationship between the variables.
4. The data collected are of interval scale.

6. ¸ Analysis of secondary data computing following tools:
Multiple Regression Analysis, multiple co-relations Analysis.
The reasons for applying the above tests are:
A. The data are interval in nature.
B. There is 1 dependent, 2 independent and 2 are interdependent variable.
To know the predictability of dependent variables from independent variable
v DATA ANALYSIS PLAN:
Data will be analyzed using SPSS (Statistical Package for Social Sciences) package v
16.0 by IBM. The data analysis tools applied here are Multiple Regression Analysis.
v SCOPE AND BENEFITS OF THE STUDY:
1. This study seeks to provide the information of financial crisis which occurs in
2008.
2. It is found that whether the macroeconomic factors influence the crisis or not.
v LIMITATIONS TO THE STUDY:
1. There are many other factors which affect the financial crisis. In this report the
researchers have just taken six factors namely Balance of Payment, GDP, FII,
FDI, Export and Imports.
2. Time, money, energy are scarce resource and hence major constraints.
3. Due to lack of experience on researcher’s side, there is a possibility of human
error.
4. The findings and suggestion is may be relevant with time.
5. We have considered American stock market as only Dow Jones not any Other.

7. Ch4:- DATA ANALYSIS AND INTERPRETATION
1. Multiple Correlation:-
Descriptive Statistics
Mean Std. Deviation N
DOW_JON_OP_IND 1.143648E
1.6817835E3 70
4
NSE_op_IND 4.831928E
857.1231783 70
3
FDI_IN_USD 2.81E4 13495.149 6
FII_IN_RS 4.013337E
6.7897178E4 6
4
GDP_IND 7.550 2.0226 6
bop_QTR_ind -
1.049083E 9.1191496E3 21
4

8. Correlations
DOW_JON_O NSE_op_I FDI_IN_US
P_IND ND D FII_IN_RS GDP_IND bop_QTR_ind
DOW_JON_OP_IND Pearson ** **
1 .539 -.548 -.407 -.169 .677
Correlation
Sig. (2-tailed) .000 .260 .423 .750 .001
N 70 70 6 6 6 21
NSE_op_IND Pearson **
.539 1 -.493 -.733 -.328 -.104
Correlation
Sig. (2-tailed) .000 .321 .098 .526 .655
N 70 70 6 6 6 21
FDI_IN_USD Pearson
-.548 -.493 1 -.195 -.131 -.196
Correlation
Sig. (2-tailed) .260 .321 .711 .804 .710
N 6 6 6 6 6 6
FII_IN_RS Pearson
-.407 -.733 -.195 1 .644 .265
Correlation
Sig. (2-tailed) .423 .098 .711 .168 .612
N 6 6 6 6 6 6
GDP_IND Pearson
-.169 -.328 -.131 .644 1 .618
Correlation
Sig. (2-tailed) .750 .526 .804 .168 .191
N 6 6 6 6 6 6
bop_QTR_ind Pearson **
.677 -.104 -.196 .265 .618 1
Correlation
Sig. (2-tailed) .001 .655 .710 .612 .191
N 21 21 6 6 6 21
**. Correlation is significant at the 0.01 level (2-tailed).
Interpretation: The above table shows correlation between variables. Dow Jones is
strongly correlated with NSE (0.539) indices and BOP (.0677) and negatively correlated
with FDI (0.-548), FII (-0.407) and GDP(-0.169).

9. 2. Multiple Regression:
c
Model Summary
Adjusted R Std. Error of the
Model R R Square Square Estimate
a
1 .169 .028 -.214 2.2290
b
2 .363 .131 -.448 2.4335
a. Predictors: (Constant), DOW_JON_OP_IND
b. Predictors: (Constant), DOW_JON_OP_IND, NSE_op_IND
c. Dependent Variable: GDP_IND
Interpretation: The above table shows linear regression equation according to above
summery table model 2 is the best for predicting the dependent variable because in model
2 R and R square is grater then 1st model.
3. Anova:
c
ANOVA
Model Sum of Squares df Mean Square F Sig.
a
1 Regression .581 1 .581 .117 .750
Residual 19.874 4 4.968
Total 20.455 5
b
2 Regression 2.690 2 1.345 .227 .809
Residual 17.765 3 5.922
Total 20.455 5
a. Predictors: (Constant), DOW_JON_OP_IND
b. Predictors: (Constant), DOW_JON_OP_IND, NSE_op_IND
c. Dependent Variable: GDP_IND
Interpretation: The above table shows the analysis of variance that the significance
value of both models is 0.750 and 0.809 that is more than 0.5 so that it is fail to accept
H01.

10. Findings
1. There is strongly positive relationship between Dow Jones, NSE indices and BOP
and negative relationship between FII, FDI and GDP with respect of Dow Jones as
independent variables which mean increase or decrease of one variable affected to
other.
2. The multiple Regression model used for predicting the dependent variable that is
GDP (GROSS DOMESTIC PRODUCT) so that in model 2 the value of R and
adjusted R is high so model 2 is best.
3. The ANOVA table shows that the significance level of model 1 (0.750) and model
2 (0.809) both are higher than0.5 so we fail accepting the H0 1 that is there is no
relationship between Dow jones and NSE indices.
Conclusion
India is now fastest growing country but India’s economy was fall down in
2008 financial crisis when majority of foreign institutional investment (FII)
was driven out after the receiving 17.7 billion dollars net equity investment
inflow in 2007.
This was the most probably reason for crashing economy is major financial
institution of America is registered bankruptcy. After the crashing Indian
economy are stabilized and able to receive growth rate (GDP) of 6.77 in
2009, 10.09 in 2010 and 7.2 in 2011.
But it is now around 5 to 6 % in 2012 due to Eurozone sovereign debt crisis.
It’s affected by declaration of export, current account deficit. Government of
India is takes action to fulfill the deficit by attracting foreign investors.