Is this right?

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Judaism is a religion and a way of living. But why is Judaism a blood related religion. The idea of the chosen people does not really work with me. So please someone answer.

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Judaism is not a missionary religion (unlike Christianity and Islam) so it doesn't really have people of disparate genetic history. As such, Jews are all considered direct descendants of Abraham, through his line of Isaac and then Jacob. The Jewish people are united as being of the same family (hence the term "Children of Israel (Jacob)") as well as the same religion. For this reason, even those individuals that do not actively practice the religion of Judaism are considered Jews. However, as soon as one takes up the practice of a different religion, he is no longer considered part of the tribe (while there is no real concept of converting out of Judaism, and technically once a Jew always a Jew, from a practical perspective this is so).
I understand why a group considering themselves to be the "chosen people" would be difficult for you. I suppose it sounds somewhat similar to the concept of the "master race". However, you must understand that "chosen people" means nothing close to that at all. Judaism, unlike other religions, does not seek universal constituency nor does it seek world domination. Unlike other religions that divide the world into "believers" and "infidels", Judaism sees the world thusly: Jews, righteous non-Jews, and non-righteous non-jews. To be a good Jew, one must keep 613 laws, while to be a good non-Jew one must keep 7. As you can see, the demands are much higher on a Jew than a non-Jew. That is the true meaning of "chosen people"- Jews are chosen to have more responsibility in this world. The concept is that Jews are supposed to be "a light unto the nations", an example of morality that all can follow. It doesn't mean that the Jews and 'better' then anyone else. It just means that God chose Abraham and his sons to be the vessel through which He brings morality into the world.
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Well you hit on a key point, Judaism is also a way of living. Judaism isn't just a religion, but refers to a unique cultural/ethnic identity as well. According to Jewish law, one's Jewishness (which can be in the ethnic sense as well) is passed down from the mother but not from the father. As for the specific reason of why this is, I am not sure.
judaism is all rubbish
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see you are not black, silly boy, look into it before you post such a stuppid question,
Hey Italy, the reason that it is passed through the mother, is that one could only be sure that the mother is the parent. One only has to look at the Jesus legend to see that paternity can be questioned, maternity is easy to prove.
Judaism is a religion, but being Jewish doesn't mean everyone is religious. We have Jews who don't believe in G-d and Jews who believe in Allah, and Jews who believe in Jesus. It is a culture and a race that goes from Dor le dor.