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dollar v/s rupee
The document discusses the recent depreciation of the Indian rupee against the US dollar. It notes that the rupee has fallen close to 22% against the dollar in the past year. Several factors are contributing to the rupee's decline, including a high current account deficit, lack of foreign investment, global economic uncertainties, and domestic political issues. The depreciating rupee increases costs for imports and foreign education/travel, fueling inflation. While exporters may benefit initially, a weak rupee ultimately hurts the broader economy. Policy reforms and increased foreign investment are suggested to stabilize the currency.
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dollar v/s rupee
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- 2. INTRODUCTION Exchange rate price of a country’s currency in respect to other country’s currency Example: USD vs INR, GBP vs INR, Euro vs INR Foreign Exchange market a place to convert currency authorized currency dealers Depreciation a decline in the rate of exchange of one country’s currency in terms of the other’s due to market forces. Indian currency (INR) has depreciated close to 22% in the last 1 year.
- 3. Rupee under attack! Fromaverage Rs. 44 in July 2011, it is now hovering between Rs. 60 and Rs. 61.5
- 4. US Dollar vs.Rupee(past 2 months)
- 5. What leads tofluctuations? As simple as Demand and Supply Too much dependency on imports When Foreign investors take away the monies! Grim global economic outlook essentially due to the European debt crisis PIGS!(Portugal, Italy, Greece and Spain) Lack of firm initiative by government on issues such as allowing FDI in retail. Recent debacles have further rendered the Indian market unattractive to a certain extent (2G, Coalgate(Coal allocation scam)) Weaker Capital markets Upbeat US jobs Speculation that US Federal Reserve may cut back on investments into Emerging markets
- 6. What is theworry? Leads to costlier imports i.e. higher import costs Oil imports, Capital goods, Iron and Steel, Coal, fertilizer, pulses, edible oils Cost of overseas study! Leads to inflationary pressures Increase in import prices of essential commodities are bound to increase the prices of the final goods. This makes it costlier for the consumers and hence inflation might be pushed up further. Higher borrowing costs Foreign currency loans are cheaper due to interest rate differentials But exchange rate fluctuations may negate it
- 7. What is thebigger worry? Increasing Fiscal Deficit! The difference between total revenue and total expenditure of the government. Indication of total borrowings needed by government
- 8. Contd… Increasing Fiscal Deficit! WorseningCurrent Account Deficit When a country's total imports of goods and services is greater than the country's total export of goods and services. Balance of Payments (Imports less Exports) worsens makes a country a net debtor to the rest of the world. Exchange rate risk drives away foreign investors which in turn depreciates the local currency! A key attraction of “higher interest rate” is lost Credit rating agencies also downgrade India’s rating. Sovereign rating of a country determines investment potential into the country Thankfully Fitch recently revised India’s outlook to stable from negative! Impact on Exporters though benefit initially, also feel the pinch due to: adverse effect on inflation sluggish demand from western world
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- 10. Current Account Deficit Oil imports during April-June, 2013-14 were valued at US $ 41875.0 million which was 6.40 per cent higher than the oil imports of US $ 39357.4 million in the corresponding period last year. The trade deficit for April-June, 2013-14 was estimated at US $ 50180.06 million which was higher than the deficit of US $ 42216.73 million during April-June, 2012-13.
- 12. Adding fuel tothe fire! Economic turmoil Slower GDP Hardly at 5% (back to 1991s!) Political turmoil Central Elections next year Do we have a stable party? Lack of leadership SCAMs! nearly add up to $1.8 Trillion
- 13. Is India’s rupeeonly fluctuating? This is 2013 comparison Shows South African Rand, Japanese Yen have also suffered big time recently
- 14. IMPACT ON FALLOF RUPEE AGAINST DOLLAR:INVESTMENT POSITIVE IMPACT NEGATIVE IMPACT
- 15. How to combat? RBI’s role: Using FOREX reserves (nearly $300 billion) Easing Control norms can increase the FII limit on investment in government and corporate debt instruments. can invite long term FDI debt funds e.g. infrastructure sector. can enhance the ceiling for External Commercial Borrowings (ECB) to allow more ECB borrowings. Initiate key policy reforms Rolling of Goods and Services Tax (GST), Direct Tax Code (DTC) etc. to enable free flow of currency i.e. supply and demand coherence Oil imports can be staggered. Encourage and increase the flow of foreign investments into India. Invite long term FDI in infrastructure sector. Government can consider temporary import compression. Gold imports should be restricted. Export promotion
- 17. Impact GROCERY BILL: High inflationhas been pinching you for more than a year now. Now, the weakening rupee has made crude oil, fertilisers, medicines and iron ore, which India imports in large quantities, costlier. Though these items are not for your daily consumption, they impact your finances indirectly. FOREIGN EDUCATION : Students who have taken loans to fund their foreign degree are also bearing the brunt. Education loans are usually in rupees, but as students pay their expenses in a foreign currency, the cost of education and stay has increased. JOBS AND REMUNERATION: Every industry which is dependent on imports will have to face an increase in cost of production and operations. The information technology sector stands to gain, but global recessionary conditions may set off the impact.
- 18. Contd… VACATIONS: The falling rupeeis bad news for itinerant Indians and vacationers to a foreign country. Air fares are going up due to an increase in fuel surcharge. The stay will be costlier by at least 3-5%. Also, shopping can become expensive by 5%. Eating out will also be costlier by the same percentage. BUYING A CAR: The depreciation of rupee has impacted the automobile sector in three ways. First, input costs have risen as these companies use imported components. Second, some companies will have to pay higher royalty to foreign parent firms. Third, many have foreign currency loans in the form of external commercial borrowings and foreign currency convertible bonds. ENTERTAINMENT: The imported paperback, your favourite pizza and the latest laptop will also become more expensive. There is an increase in the cost of imported books as well as the cost of sourcing them.
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- 20. Conclusion The wideningcurrent account deficit (CAD) and uncertain political situation in the country may weaken the rupee further against the U.S. dollar this financial year. With the CAD at a record high, the Indian currency will be susceptible to a sudden reversal of flows, and, as a consequence, the recent real effective exchange rate appreciation could worsen the underlying imbalance. Uncertainty in Europe will make investors to look for safe investment options, particularly the U.S. dollar. This flight of funds will result in appreciation of the U.S. dollar against other currencies. Conclusively, appreciation and depreciation of rupee cannot certainly be taken as beneficial to the Indian economy in general. On one hand the rupee appreciation will affect exporters, BPOs, etc., on the other, rupee depreciation will affect importers. So now it depends on what the future has to reveal for, how effectively the central bank can balance the FX rates with little impact to the relative areas of FX usage. Can the Dollar remain king or not, is no longer a million dollar question, but a million Rupee question!