Tweet The rupee suffered its biggest single-session fall in nearly three years on Thursday after a grim outlook on the US economy sent investors diving into safer currencies and government bonds. The rupee ended at The currency's fall is the largest single-day fall since 12 November when it dropped 2. A depreciating rupee affects the local economy in several ways.
The rupee has lost more than 10 percent of its value this year, making it one of the worst performing currencies in Asia.
Federal Reserve, agreed to lower the interest rate on dollar-liquidity swap lines. The premium banks pay to borrow dollars overnight from central banks will fall by half a percentage point to 50 basis points, the Fed said.
The RBI also intervenes in the currency markets to maintain low volatility in exchange rates and remove excess liquidity from the economy. India has a managed floating exchange rate system. This means that the Indian government intervenes only if the exchange rate gets out of hand by increasing or reducing the money supply as the circumstances demand.
Impact on economy Rupee appreciation makes imports cheaper and exports more expensive. According to intelligence reports by the Associated Chambers of Commerce and Industry of India, sectors like petroleum and petroleum products, drugs and pharmaceuticals and engineering goods — which have import inputs of as much as 77 percent, 19 percent and 21 percent, respectively — will gain if the rupee appreciates.
They would have to pay less for the imported raw materials which would increase their profit margins. Likewise, a depreciating rupee makes exports cheaper and imports expensive.
So, it is good news for industries such as IT, textiles, hotels and tourism which generate income mainly from exporting their products or services. Rupee depreciation makes Indian goods and services cheaper for overseas buyers, thus leading to increases in demand and higher revenue generation.
The foreign tourists would find it cost effective to come to India, therefore increasing the business of hotel, tours and travel companies. When an IT company gets a project from a client, it pre-decides on the length of the contract and the cost of the project.
The contracts with U. So, the fluctuation in the exchange rate can bring about a considerable difference in the performance of a company.
Some companies undertake a range of measures like hedging exchange risks using forwards and futures contracts. This helps in mitigating some of the losses due to exchange rate fluctuations, but none-the-less the impact is substantial.
The exchange rate is a significant tool that can be used to examine many key industries; with fluctuations potentially having a serious impact on the economy, industries, companies, and foreign investors. Rupee appreciation is generally helpful for industries which rely closely on imported inputs while depreciation of the rupee is welcome news for industries which are exporting a majority of their products.
For more information, please contact india dezshira.there are several reasons for the fluctuation of exchange rates 1.
difference in inflation- low inflation in a country leads to higher currency value. USA has had a low inflation rate consistently for several years after the 20th century which has led to a high dollar value.
India on the other. Fluctuations in India’s Rupee Rate and its Economic Impact December 5, Posted by India Briefing Reading Time: 3 minutes Reading Mode Dec. 5 – After depreciating to a record low of against the U.S.
dollar on November 22, the Indian rupee (INR) rose in value to per dollar on Friday to complete the currency’s first weekly advance since October. Nov 23, · For example if one US dollar can buy Indian rupees 50, we can say exchange rate of one dollar in terms of Indian rupees is What is an Exchange Rate Regime/System?
An exchange-rate regime is the way an authority manages its currency in relation to other currencies and the foreign exchange market.
Feb 05, · Solely considering Dollar-Rupee exchange rate, we can say that if Rupee becomes cheaper Indian goods become cheaper for one who is paying in dollars, spurring India to export more goods.
The reverse happens if Rupee becomes costly vis a vis the regardbouddhiste.com: Resolved. The rupee-dollar fluctuation and its impact on the economy By Snigdha Kalra The DBS bank, in a research note, has said that the rupee had gained % against the dollar so far this year.
exchange rates then was $ to the pound, which in ef fect gave a rupee -dollar rate in of around Rs. From to Indian rupee was linked to British pound.