appreciation of currency

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by vikash chauhan(IIPM DELHI)

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appreciation of currency

  1. 1. Appreciation of currency An increase in the value of one currency relative to another currency.
  2. 2. What’s driving the rise  Dollars are pouring into India .Net investments by foreign institutional investors (FIIs) were $10.16 billion during January- June 2007  In 2006-07, FDI inflows touched $19.53 billion, a 153% increase over the previous year  non-resident Indian (NRI) deposits, attracted by better interest rates, were also up 35% in 2006-07 to touch $3.8 billion  External commercial borrowings of Corporate India were $12.1 billion in April-December 2006, an increase of 33%. Remittances from Indian workers abroad -- principally in the Gulf -- rose 15% to $19.6 billion in the same period
  3. 3. ONE MAN’S MEAT IS ANOTHER MAN’S POISON
  4. 4. Effects  Profits of multinational corporations  Value of foreign investments  Bad for exporters the appreciation of the currency from Rs 44 to a dollar to Rs 40.50 is expected to result in a Rs 53,000 crore or USD 13 billion loss.  ewer technologies as well as overseas buyouts become economical and accessible to Indian manufacturers.  Problems for IT companies-wipro Infosys,TCS-Dollar denominated earnings hurt  garment exporters ,auto suppliers,meat,spices,gems,jwellery  Worst hit-textile,leather sectors  good for importers  Outbound tourists/student bonanza  Foreign debt service: Appreciation of the rupee helps in easing the pressure, related to foreign debt servicing (interest payments on debt raised in foreign currency), on India and Indian companies.
  5. 5. Measures(RBI & apex monetary abutority)  The Indian government has announced a $3.5 billion package to provide relief to exporters in several sector  Interest rates-An investor may choose to buy a currency if the return (that is the interest rate) is high enough. The higher a country's interest rates, the greater the demand for that currency  A country's central bank can reduce the money supply by issuing bonds and collecting currency for them. They can increase the required reserve level that banks must hold, therefore reducing the amount they can lend.  the central bank can buy back bonds, injecting more money into the market, or they can simply start printing more money and buy things, thus getting it into circulation.  foreign currency in reserve to back the value of rupee  Ristriction on external commercial borrowings by RBI  RBI banned foreign investment in stock market  RBI raised ceiling on overseas investment by companies,residents,mutual funds.
  6. 6.  Increases unemployment -rendered 11,000 people employed in textiles and garment firms jobless during March-June this year, while another 1,900 were unemployed in the leather sector.
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