| Live Currency Rates In India | | | | This huge influx caused a significant demand - supply |
| About 'Exchange Rate' of a currency: | | | | gap between the dollar and the rupee. Going by the |
| The exchange rate of the currency of a country in | | | | laws of demand & supply, the rate of the rupee |
| relation to the currency of another country depends | | | | vis-à-vis the dollar, rises. Live Currency Rates In India |
| on the comparative trade advantages and economic | | | | Due to this exporters were placed at a disadvantage |
| strengths of the countries. If one US dollar is equal to | | | | with a rising rupee, since the dollar became weaker. |
| 45 rupees, it simply means that in the US, if a dollar | | | | Thus a dollar which fetched Rs. 48 about two years |
| fetches 45 oranges while in India, a rupee would | | | | ago today fetched only Rs. 44 eating into the profit |
| fetch only one orange of equivalent size and quality. | | | | margins of exporters (since they earned less on their |
| Live Currency Rates In India | | | | exports). |
| Just like any other commodity, the currency of any | | | | At the same time, importers benefit (since they need |
| economy is based on dynamics of supply and | | | | to pay less for their imports), but our economy was |
| demand, and its value depends on trading in currency | | | | at a stage where we first needed to build our dollar |
| exchanges all over the world. Higher the demand for | | | | reserves to meet our import payments and so the |
| a currency on an exchange, the stronger it becomes | | | | exporters' woes were needed to be tackled first. |
| and vice versa. However, for currencies like INR | | | | The Reserve Bank of India (RBI), as the central bank |
| which are not traded on exchanges, the value | | | | of India, which oversees the foreign exchange |
| depends on capital inflows in the country. | | | | (forex) management of this country quite often |
| Appreciation & Depreciation of currency: | | | | intervened to ensure that the rupee was adequately |
| A currency appreciates means its value has increased | | | | propped at a particular rate. This was done to ensure |
| in relation to another currency. A currency | | | | that there are no sudden currency shocks, to |
| depreciates means its value has decreased in relation | | | | protect exporters and importers and above all, to |
| to another currency. Eg. If 1 $ costs Rs 45 and if it | | | | ensure the feeling of 'national pride,' which is attached |
| now costs Rs 44, this means rupee has appreciated | | | | to a stable and healthy currency. |
| in its value (i.e. instead of Rs 45 you will get 1 $ in Rs | | | | When the RBI intervened to keep the rupee at |
| 44, this also means the dollar has weakened). | | | | some weak value, it had to buy the dollar inflows |
| Similarly, if 1 $ costs Rs 45 and if it now costs Rs 46, | | | | from exporters, from NRIs, from foreign direct |
| this means rupee has depreciated in its value (i.e. | | | | investors, from companies that borrow abroad. In |
| instead of Rs 45 you will get 1 $ in Rs 46, this also | | | | any case the sellers of dollars need rupees to |
| means the dollar has strengthened). | | | | conduct their businesses here. The RBI buys or sells |
| Why do currency values fluctuate? | | | | dollars via state-run banks to prevent excessive |
| There are many participants in any foreign exchange | | | | volatility in the forex market and avoid any sharp |
| market. These entities -- like banks, corporations, | | | | appreciation or depreciation in the currency. When |
| brokers, even individuals -- buy and sell currencies | | | | the RBI purchases foreign currency inflows, the |
| everyday. | | | | domestic monetary base or money supply or both |
| Here too the universal economic law of demand and | | | | rises since for every dollar the RBI buys from the |
| supply is applicable: when there are more buyers for | | | | market, an equivalent amount of rupees gets |
| a currency than sellers, its exchange rate rises. | | | | injected into the system, adding to excess money in |
| Similarly, when there are more sellers of a particular | | | | the system or the liquidity overhang. When the RBI |
| currency than buyers, its exchange rate will fall. This | | | | buys dollars, it pays for them using freshly printed |
| does not mean people no longer want money; it only | | | | rupee notes. This leads to greater money supply, |
| means that people prefer to keep their wealth in | | | | higher credit growth and inflation. |
| some other form or another currency. | | | | And precisely, here comes the catche. As RBI sells |
| Scenario before occurrence of the current financial | | | | more rupees, the money supply increases which |
| crises: | | | | means too much money chasing same (or less) |
| We were witnessing a surge of dollar-inflows into | | | | number of goods, thereby leading to inflation. So in |
| India due reasons like strong economic fundamentals | | | | effect one act of RBI creates another problem. In |
| and favourable business atmosphere, etc. These | | | | other words, when the RBI buys dollars from the |
| dollar inflows can be in the form of Foreign Direct | | | | Indian market, it simultaneously pumps rupees into |
| Investment, portfolio inflows (foreign investment in | | | | the currency markets, creating the risk of inflationary |
| equity), External Commercial Borrowings by Indian | | | | pressures. The RBI typically controls the appreciation |
| companies abroad,remittances to India by | | | | by manipulating demand-supply dynamics of currency |
| Non-Resident Indians. Since the Indian economy and | | | | market. It purchases dollars (to create more demand |
| the Indian stock markets have been on a roll, the | | | | for dollar) and sells rupees (to increase supply of INR, |
| capital inflows to India has been pretty strong which | | | | thereby decreasing its value). |
| has primarily led to the appreciation in value of rupee. | | | | |