Dollar denominated index
Also written Dollar linked index · Dollar denominated indices · USD denominated index · Dollar linked variant
An index built to measure returns on Indian equity in US dollar terms — NIFTY50 USD restates the NIFTY 50 by the ratio of the base-date exchange rate to the current one.
In plain language
If you have landed here looking for the index itself, you want NIFTY50 USD. This page is about the class of index it belongs to, and the other currencies the same idea is built in.
A foreign investor in Indian shares earns two things at once, and only one of them is about shares.
The shares may rise and the rupee may fall. If the rupee falls far enough, a good year in Mumbai becomes a bad year back home.
So the investor needs a yardstick in their own currency. Dollar denominated indices exist for exactly that. The workbook's example is NIFTY50 USD, which it describes simply as NIFTY 50 measured in dollars.
The construction is easy to follow. Take the closing NIFTY 50. Multiply by the exchange rate on the base date. Divide by the exchange rate for the day.
So a weaker rupee makes the day's exchange rate a bigger number, which sits in the denominator, and the dollar index falls. A stronger rupee pushes it up.
The NSE also computes NIFTY 50 in Australian dollars and Canadian dollars. The idea is the same in each case. Only the currency in the two rates changes.
So there is a family here, not a single index. NIFTY50 USD is one member of it — the dollar member, and the one the workbook names.
How it works
Section 10.5.7 gives the purpose and the formula.
The purpose. Foreign investors with an equity exposure in India would like an instrument for measuring returns on their equity investment in dollar terms. To facilitate this, dollar denominated indices are created.
The formula.
NIFTY50 USD = Closing value of NIFTY 50 × Exchange rate as on base date ÷ Exchange rate for the day
The base. The base date of NIFTY50 USD is the same as that of NIFTY 50, being 3 November 1995, and the base index value is 1,000 points.
Other currencies. NIFTY 50 is also computed in Australian Dollar (AUD) and Canadian Dollar (CAD).
How to read the ratio. The exchange rate on the base date is fixed forever. The exchange rate for the day is the only moving part, and it sits in the denominator:
| What happens | Effect on the ratio | Effect on the index |
|---|---|---|
| Rupee weakens (more rupees per dollar) | Denominator rises, ratio falls | Dollar index falls relative to the rupee index |
| Rupee strengthens | Denominator falls, ratio rises | Dollar index rises relative to the rupee index |
| Exchange rate unchanged | Ratio constant | The two indices move identically |
Where it sits among the index variants. Section 10.5 runs through the family: broad based indices, market capitalisation based indices, style indices, capitalisation-and-style indices, sectoral indices, the Total Returns Index, then dollar denominated indices and global equity indices. The variants answer different questions. A total return index adds the dividends a price return index leaves out. A dollar denominated index changes the currency of measurement and nothing else — NIFTY50 USD is still a price-based index of the same 50 free-float market capitalisation weighted constituents.
A related workbook point on cross-country comparison. Section 10.5.9 explains that different index providers follow different methodologies for selecting and weighting securities, which creates comparability problems across countries. That is solved by a provider computing a consistent set of country indices, such as the MSCI India Index with its 86 constituents covering about 85% of the Indian equity universe. Currency conversion and methodological consistency are two different fixes for two different problems.
A worked example
An American pension fund holds a NIFTY 50 tracking portfolio. It reviews two years.
The workbook does not print the base-date exchange rate, so take it as Rs 34.50 per dollar purely to make the arithmetic run. Every conclusion below follows from the ratio, not from that figure.
| Date | NIFTY 50 | Rs per USD | NIFTY50 USD |
|---|---|---|---|
| 31 March 2024 | 22,000 | 83.40 | 22,000 × 34.50 ÷ 83.40 = 9,101 |
| 31 March 2025 | 24,000 | 89.00 | 24,000 × 34.50 ÷ 89.00 = 9,303 |
In rupees the market gained 22,000 → 24,000, which is +9.09%.
In dollars it gained 9,101 → 9,303, which is +2.22%.
Nearly seven percentage points vanished, and not one of them had anything to do with Indian companies. The rupee moved from 83.40 to 89.00, a fall of 6.29%, and the dollar index absorbed it.
Now push the rupee harder. Suppose the rupee had ended at Rs 95.00:
NIFTY50 USD = 24,000 × 34.50 ÷ 95.00 = 8,716
The dollar investor is now down 4.23% on a market that rose 9.09% in rupees. Same shares, same year, opposite result.
And the other way. Had the rupee strengthened to Rs 80.00:
NIFTY50 USD = 24,000 × 34.50 ÷ 80.00 = 10,350
A dollar gain of 13.72% against a rupee gain of 9.09%.
Why an AIF manager cares. A Category III AIF with foreign portfolio investors as unit holders reports its NAV in rupees. Those investors judge it in dollars. Benchmarking the fund against the rupee NIFTY 50 flatters or punishes the manager for a currency move the manager never took a view on — which is precisely why a dollar denominated variant of the same index exists.
Why NISM asks about it
Chapter 10 (Introduction to Indices and Benchmarking), section 10.5.7, is short and almost entirely a formula, which makes it easy to examine.
Expect the formula itself: closing NIFTY 50 times the base date exchange rate divided by the exchange rate for the day. Expect the named example, NIFTY50 USD, the base date of 3 November 1995 shared with NIFTY 50, the base value of 1,000 points, and the other two currencies, AUD and CAD. The conceptual question asks why such an index exists, and the answer is to let foreign investors measure returns on Indian equity in their own currency.
Common exam traps
- The base-date rate is on top and the day's rate is underneath. Inverting the ratio reverses the effect of every currency move, and it is the single easiest mark to lose here.
- A weaker rupee lowers the dollar index. It is counter-intuitive only until you see the day's rate in the denominator.
- The base date is 3 November 1995 with a base value of 1,000 — the same as NIFTY 50, because NIFTY50 USD is the same index restated.
- This is a currency variant, not a return variant. It does not add dividends. For dividends you want the total return index.
- It is not a hedge. The index measures the currency effect; it does not remove it.
- NIFTY 50 is also computed in AUD and CAD, so a question offering three currencies is not wrong.
- Do not confuse it with the dollar index, which measures the US dollar against six major currencies and has nothing to do with Indian equity.
- Dollar denominated index is the category; NIFTY50 USD is the instance. A question naming the index wants that page; a question asking what kind of index it is wants this one.
Where this is taught
Free preparation for NISM Series XIX-CRelated terms
- Dollar indexA measure of the strength of the US dollar against six major currencies, used by commodity analysts as a single gauge of currency movement instead of tracking each one.
- Price Return IndexThe variant of a market index that captures only the price movement — the capital gains — of its constituents, leaving out dividends and interest. Mutual funds were benchmarked to it until 1 February 2018.
- Total Return IndexThe variant of a market index that adds the dividends and interest paid by its constituents to their price movement — the only variant a mutual fund scheme may be benchmarked against since 1 February 2018.
- IndexA statistical indicator that tracks a portfolio of securities representing a market or part of it, expressed as a change from a base value — so the percentage move matters, not the number itself.
- Index constructionChoosing an index's constituent stocks and deciding its calculation methodology — a trade-off between diversification and liquidity, with the final inclusion call taken by an Index Committee.
- Broad based indexA stock index representing an entire market segment and a significant share of that market — e.g. NIFTY 500 — used as the practical proxy for the market portfolio and as a benchmark for equity funds.
- MSCI India IndexMSCI's index of the large and mid-cap segments of Indian equity — 86 constituents covering about 85% of market capitalisation per the workbook — built for consistent cross-country comparison.
- Value weighted indexAn index weighting each stock by its market capitalisation, or free-float market capitalisation, divided by the total — the most popular method, and the natural basis for index funds and derivatives.
- NIFTY50 USDThe dollar-linked variant of NIFTY 50: the NIFTY 50 close multiplied by the base-date exchange rate and divided by the day's exchange rate, so foreign investors see Indian equity returns in dollars.
- NIFTY T-Bills IndicesA family of NSE indices tracking Treasury bills across five maturity buckets — 30, 60 and 91 day, 182 day and 1 year — plus one all-maturity index, reconstituted at every T-bill auction.