Gone are the days when people used to live in caves, and even the days when people used to exchange commodities for any transactions. Nations have come far in terms of the way of transactions. They have shifted to paper currency from gold and silver and this change is a forever continuous process.
With every passing day Rupee is making new lows but for a common person it is not easy to understand the reason behind this steep fall and he keeps on asking himself a question 'Why is rupee depreciating?' and the effects of the decreasing value of Rupee.
There has been a recent fall in rupee since some days ago and a dramatic increase in dollar. It was 49.50, then 50.12, 51.10, 52.60, 53.54, 54.40 and stable and then again steep fall, and now as I am writing this according to Google search of "1 US dollar to INR": 1 US dollar = 59.88 Indian rupee
Now let's look into why dollar is appreciating heavily against rupee. Recession is less in India, then why dollar is moving up when rupee must be strong. Don't you think that Indian rupee should go up and US dollar should move down?
I have tried to consolidate the reason in simple words. And here they are:
2. Foreign Investors pulling out from India: Most of the investments in India are from outside the country especially from US. But due to recession in US, big institutions are collapsing and many of them are on the verge of breakdown. To maintain their balance sheet investors are pulling out money from India and so the demand of dollars are rising and rupee is depreciating.
3. International Trade collapsing: Commodity prices are crashing at international level. Investors have to pay in dollars and hence the demand is increasing against rupee. Very few orders are exported to foreign countries from India, so the demand for rupee is very less when compared to dollars.
4. Euro Crisis: European Nations such as Greece and Spain are facing financial crisis. Investing in USA is better option than in these countries or emerging countries like India where growth has been slow. This has helped the demand of dollar to grow.
5. More demand for oil: India imports oil from foreign Nations. Since oil forms a major part of the economy and India has to pay in US Dollars to these countries, the demand for the same is increasing and so dollar is rising against INR. High oil prices also inflated the import bill and resulted in further widening of the current account deficit, which accelerated the rupee fall.
6. Corruptions and Scams in India: India has been amongst the midst of corruptions and major scams. These are not hidden from foreign investors. They have lost trust in Indian companies and hence pulling out their investments from India hence the steep fall of Indian Rupees.
7. Less demand for our exports: We have to pay in dollar for our imports, Pulling off FDIs from our country due to crisis in their countries are some of the reasons for the increase in demand of US dollar.
The value of a currency also depends on factors that affect the economy such as imports and exports, inflation, employment, interest rates, growth rate, trade deficit, performance of equity markets, foreign exchange reserves, macroeconomic policies, foreign investment inflows, banking capital, commodity prices and geopolitical conditions, etc. etc. Such factors causes fluctuations in currencies' values and that can happen very swiftly.
Its very complicated to review all the economic and political factors very systematically because the influence of these economic and political forces can not be measure accurately. There are lot of factors which influence the exchange rate for a currency. A person who is interested in knowing about exchange rate fluctuation should analyze the above mention factors separately and may acquire a sound reasoning about the currency fluctuation scenario.
The major gainers due to rupee down were Indian IT companies including BPOs, call center outsourcing, Indians working in USA, medical transcription outsourcing and Indian content writers from their blog, especially Indian AdSense publishers who also earn in dollars from United States of America. The sharp fall in the rupee during the last few months has been a Godsend for some. As prices of various commodities fell globally, the rupee cushioned the impact on Indian investors, especially those who placed bets on commodities that are largely imported - crude oil, non-ferrous metals and edible oils.
Studying abroad will be expensive and so will be tourism. Companies indebted to foreign bank will have to spend more to return their loan. Petrol price will further increase and hence inflation. The government will start increasing the value of Imports done by Indian companies and so they are also at loss. RBI will increase the interest rates which is not a positive signs because that will shoo away investors. So in my point of view rupee will further depreciate unless and stern steps are taken by the government of India.
source>>>> fivepoint5, ibtimes
With every passing day Rupee is making new lows but for a common person it is not easy to understand the reason behind this steep fall and he keeps on asking himself a question 'Why is rupee depreciating?' and the effects of the decreasing value of Rupee.
There has been a recent fall in rupee since some days ago and a dramatic increase in dollar. It was 49.50, then 50.12, 51.10, 52.60, 53.54, 54.40 and stable and then again steep fall, and now as I am writing this according to Google search of "1 US dollar to INR": 1 US dollar = 59.88 Indian rupee
It is also to be noted that the transaction rate of dollar against rupee was Rs.42 in 2009 and at present, the same has reached around Rs.60. That means the value of rupee has had a free fall sliding by almost 45% in the span of 4 years and over 15% this year making it the worst performing currency in Asia, and the third worst globally.
I have tried to consolidate the reason in simple words. And here they are:
1. Difference in Supply and Demand: Understanding currency market is not a rocket science, here only simple economic law works, more demand means more price for the product and less demand means less price. According to that law the demand of Rupee is decreasing hence the price of rupee is also decreasing. Simple isn't it.
3. International Trade collapsing: Commodity prices are crashing at international level. Investors have to pay in dollars and hence the demand is increasing against rupee. Very few orders are exported to foreign countries from India, so the demand for rupee is very less when compared to dollars.
4. Euro Crisis: European Nations such as Greece and Spain are facing financial crisis. Investing in USA is better option than in these countries or emerging countries like India where growth has been slow. This has helped the demand of dollar to grow.
5. More demand for oil: India imports oil from foreign Nations. Since oil forms a major part of the economy and India has to pay in US Dollars to these countries, the demand for the same is increasing and so dollar is rising against INR. High oil prices also inflated the import bill and resulted in further widening of the current account deficit, which accelerated the rupee fall.
6. Corruptions and Scams in India: India has been amongst the midst of corruptions and major scams. These are not hidden from foreign investors. They have lost trust in Indian companies and hence pulling out their investments from India hence the steep fall of Indian Rupees.
7. Less demand for our exports: We have to pay in dollar for our imports, Pulling off FDIs from our country due to crisis in their countries are some of the reasons for the increase in demand of US dollar.
The value of a currency also depends on factors that affect the economy such as imports and exports, inflation, employment, interest rates, growth rate, trade deficit, performance of equity markets, foreign exchange reserves, macroeconomic policies, foreign investment inflows, banking capital, commodity prices and geopolitical conditions, etc. etc. Such factors causes fluctuations in currencies' values and that can happen very swiftly.
Its very complicated to review all the economic and political factors very systematically because the influence of these economic and political forces can not be measure accurately. There are lot of factors which influence the exchange rate for a currency. A person who is interested in knowing about exchange rate fluctuation should analyze the above mention factors separately and may acquire a sound reasoning about the currency fluctuation scenario.
Who is benefiting from this?
The major gainers due to rupee down were Indian IT companies including BPOs, call center outsourcing, Indians working in USA, medical transcription outsourcing and Indian content writers from their blog, especially Indian AdSense publishers who also earn in dollars from United States of America. The sharp fall in the rupee during the last few months has been a Godsend for some. As prices of various commodities fell globally, the rupee cushioned the impact on Indian investors, especially those who placed bets on commodities that are largely imported - crude oil, non-ferrous metals and edible oils.
Who is losing from this?
Studying abroad will be expensive and so will be tourism. Companies indebted to foreign bank will have to spend more to return their loan. Petrol price will further increase and hence inflation. The government will start increasing the value of Imports done by Indian companies and so they are also at loss. RBI will increase the interest rates which is not a positive signs because that will shoo away investors. So in my point of view rupee will further depreciate unless and stern steps are taken by the government of India.source>>>> fivepoint5, ibtimes
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