3. What?
Price of a currency in respect to other country’s currency is called
as exchange rate.
If a demand for a currency rises, its price rises and it is called as
appreciation
If the demand of other country’s currency increases, the home
currency’s price falls and it is called as depreciation.
4. Why Not ?
Leads to imports
becoming costlier
which is a worry for
India as we meets
most of our oil
demand via imports.
Apart from
oil, prices of other
imported
commodities like
metals, gold etc.
will also rise
pushing overall
inflation higher.
Exchange rate risk
also drives away
foreign investors
which in turn
depreciates the local
currency.
The total external
debt has increased
by Rs. 2186.8
billion to Rs
16384.9 billion by
the end of
November 2011.
5. WHY?
Global uncertainty
Europe & International Market slump
Credit Downgrade
Current Account Deficit
India continues to see current account deficit of around 4.3%, depleting the forex reserve
and thus depreciating INR
Interest Rate Difference
Higher real interest rates generally attract foreign investment but due to slowdown in
growth there is increasing pressure on RBI to decrease the policy rates.
Lack of reforms
Current back out from POSCO & Arcelor Mittal Plant
6. Affect
• Only exporters will be
happy like IT companies.
• Importers will feel the
heat
Importers/Export
ers
• CAD will grow more
which in turn force the
Indian govt. to go for
international borrowings
Country’s fiscal
health
• 3 rd Highest importer of
crude oil. Increase in fuel
prices after the new
policy.
Fuel price
• RBI won’t cut policy
rates which will affect
the growth & keep the
investors on toes.
RBI’s monetary
policy- Inflation
• Expenses incurred
towards the
university/college fee as
well as that of living will
shoot up.
Students studying
abroad
• The depreciating rupee
will surely be a dampener
if planning holiday
abroad.
Tourism
7. HOW?
Measures By RBI
Using Forex Reserves- RBI can sell forex reserves and buy Indian Rupees leading to demand for rupee.
Raising Interest Rates- To prevent sudden capital outflows and ultimately lead to higher capital inflows
Make Investments Attractive- RBI can increase the FII limit on investment in government and corporate debt
instruments.
Measures by Government:
Government should take some measures to bring FDI and create a healthy environment for economic growth.