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Retiring rupee

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These days, when we surf in T.V. channels, zapping one channel to another, we find news flashing; rupee hitting new low, rupee down in early trade, rupee free fall to raise crude prices, rupee to slip ...

These days, when we surf in T.V. channels, zapping one channel to another, we find news flashing; rupee hitting new low, rupee down in early trade, rupee free fall to raise crude prices, rupee to slip further. Many questions arises in layman’s mind…….why is rupee depreciating? Are we going into recession? How are we affected by rupee fall?
This presentation provides an overview of how the currency movement is determined? What path rupee had followed since 1991? What is the current scenario of rupee v/s dollar? What are the reasons behind depreciation of rupee? What is the impact of rupee depreciation; the losers and the gainers, RBI’s corrective role and why it has failed and last but not the least the suggestions to improve.

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Retiring rupee Retiring rupee Presentation Transcript

  • Dr. Akansha Jain email:dr.akanshajain@gmai l.com blog –http://drakanshajain.bl ogspot.in 1
  • Retiring Rupee Presentation by- Dr. Akansha Jain Department of Management Studies DGI, Greater NoidaDr. Akansha Jain email: dr.akanshajain@gmail.com bloghttp://drakanshajain.blogspot.in 2
  • ROAD MAP  Determinants of currency movement  Rupee movement since 1991  Current scenario  Reasons for depreciation of rupee  Impact of rupee depreciation  RBI corrective role and why it has failed  Suggestions to improveDr. Akansha Jain email: dr.akanshajain@gmail.com blog –http://drakanshajain.blogspot.in 3 View slide
  • Determinants of currency movement  Balance of Payments  Interest Rate Differentials  Inflation  Fiscal Deficit  Global economic conditions  Speculation and fear Multiple factors determine an exchange rate with each one playing an important role over timeDr. Akansha Jain email: dr.akanshajain@gmail.com blog –http://drakanshajain.blogspot.in 4 View slide
  • Rupee Movement Since 1991 Source: RBIDr. Akansha Jain email: dr.akanshajain@gmail.com blog –http://drakanshajain.blogspot.in 5
  • Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in 6
  • CURRENT SCENERIODr. Akansha Jain email: dr.akanshajain@gmail.com blog –http://drakanshajain.blogspot.in 7
  •  Rupee hits record low at 57.37 vs US$ on 22 June 2012……………. From a steady 1$ = 45 rupees till late last year the rupee has lost by a whooping Rs12 or it has depreciated by 27%(as on 22 June 2012) Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in 8
  • The depreciation is far larger than what we saw during some of the otherepisodes of economic turbulence in the last two decades, such as the Asianfinancial crisis of 1997 (13.86%) and the global shock after the collapse ofinvestment bank Lehman Brothers in late 2008 (9.2%).Dr. Akansha Jain email: dr.akanshajain@gmail.com blog –http://drakanshajain.blogspot.in 9
  • Reasons for Rupee Depreciation Growing European debt crisis fueled global risk aversion weak domestic fundamentals coupled with policy paralysis aided sharp rupeeDr. Akansha Jain email: dr.akanshajain@gmail.com blog –http://drakanshajain.blogspot.in 10
  • WHY??????????????? ??????????????Dr. Akansha Jain email: dr.akanshajain@gmail.com blog –http://drakanshajain.blogspot.in 11
  • •Sentiments of people (Withdrawal by FII’s, no firm policy by congress, gold accumulation, dollar strengthening) •Speculation •Global investors dumped currencies of emerging countries like India to buy U.S. dollarsDr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in 12
  • • The foreign exchange (Forex) reserves as of June 15, 2012 were around $289 Bn, just around $ 20 Bn lower than a year ago, and about $ 2 Bn higher than a week prior. The Forex situation has been fairly stable for the past year, with only minor and ‘routine’ fluctuations. • FII remains long-term bullish based on equity inflows, with massive net inflows of around Rs 36,000 Cr so far during 2012. Though there were net outflows in April and May of Rs 1,600 Cr and Rs 3,100Cr, respectively, the amounts are minor. In the current month to date, there have been minor net inflows of around Rs 500 Cr.” (to June 26th).Dr. Akansha Jain email: dr.akanshajain@gmail.com blog –http://drakanshajain.blogspot.in 13
  • Impact of rupee fall The gainers…………  Exporters (particularly who are using the resource and raw materials by paying them in INR and getting return in USD)  Companies earning in USD  Families of those working overseas  Tourism may get small boost as foreigners will have to pay fewer dollars for vacationing in India.  Companies that manufacture export substitutes will get protection through cheap imports.  Indian Origin people sending foreign currency to India and converting them into INR and making permanent investment in India , the reason being they would be getting more INR for lesser amount of USD.Dr. Akansha Jain email: dr.akanshajain@gmail.com blog –http://drakanshajain.blogspot.in 14
  • The losers……….  The worst-hit will be companies that import components and other raw materials for products they manufacture in India. These include auto-makers, and producers of consumer durables like air-conditioners and televisions, or sellers of imported electronic gadgets like speakers and headphones. These companies are already facing the prospect of shrinking domestic sales as inflation has been high in India, and now they will have to pay more rupees for their imports  Companies will have to pay more for repaying foreign debt.  Higher oil import bill could put greater strain on govt finances, given clamor for higher subsidies  Students will have to pay higher fee and living charges in rupee terms. Medicare to also get more expensive.  Overseas travel to get more expensive as you will have to shell out more rupees for the same amount of dollars.  Imports to get costlier, hit oil and commodities.Dr. Akansha Jain email: dr.akanshajain@gmail.com blog –http://drakanshajain.blogspot.in 15
  • The losers……….  Foreign car makers Toyota Motor Corp. and Honda Motor Co. have already voiced concerns that imported parts could turn costlier and Toyota has said it may raise prices of its cars and sport-utility vehicles.  Infrastructure companies which build roads, highways and airports could find it difficult to raise money overseas to pay their projects as foreign investors may be deterred by India’s volatile currency.  The weak rupee is also likely to stoke inflation, reducing the room for the central bank to further cut interest rates. High rates have already made it very expensive for companies to take loans from banks. And currency weakness could hurt the financial performance of Indian refiners and oil marketing companies as it makes oil imports more expensiveDr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in 16
  • RBI corrective role Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in 17
  • Actions needed  Work on investor confidence  Check demand for crude products by rationalizing prices  Promote exports  Focus on fast-tracking infrastructure projects  Administrative measures have been taken to curb market speculationDr. Akansha Jain email: dr.akanshajain@gmail.com blog –http://drakanshajain.blogspot.in 18
  • Remedial measures  Focus on Knowledge Capital that can spearhead the growth in agriculture, industry and trade (either borrow it or create it)  Simplify trade procedures in order to promote economy and entrepreneural spirit within population  Build infrastructure in every sphere for augmenting growth and proper utilization of resources  Promote Export of manufactured goods and ban export of natural resources  Promote technologies and systems that could cut green house effect and improve our trade balance  Develop Bulk Water Transport system for inland sales within Indias long coastline  Promote Railways for bulk transfer of resources within the hinterland  Promote use of renewable energy in every sphere possible: Solar Cookers, Air Conditioners, etc  The RBI should sell dollars from its reserves only to smooth out sharp volatility in the rupeeDr. Akansha Jain email: dr.akanshajain@gmail.com blog –http://drakanshajain.blogspot.in 19
  • What can we do as individual………..  Be Indian Buy Indian  Return of NRI to Own Country  Stop to Import All Zero Technology ProductsDr. Akansha Jain email: dr.akanshajain@gmail.com blog –http://drakanshajain.blogspot.in 20
  • Dr. Akansha Jain email: dr.akanshajain@gmail.com blog –http://drakanshajain.blogspot.in 21