Fluctuations in rupee value artiPresentation Transcript
Ms sanjna walia
What is fluctuation in rupee value?
Reasons behind it
How rupee-dollar rate are determined
How does the value of rupee change against the
5 Questions on Rupee Depreciation…
RBI in action …..
Real story of American dollar and Indian rupee.
When the value of rupee
is increased or decreased
as against the us $ or any
other currency due to
certain market conditions
for the purpose of
exchanging their currency
with a view to making
import/export or any
Since India imports more goods than it exports, it results in a
huge imbalance in trade, or what is called a trade deficit.
AS A RESULT OF THIS…….
For making payment demand for dollar increases.
As the demand increases its value also increases
Which directly effect the RUPEE value.
uncertainty about India's
commitment to economic
reforms, retrospective taxes, and
policy paralysis within the
government have forced
foreigners to either postpone
their investment decisions, or
take money out of Indian stock
The country's current account deficit - a broader
measure of the trade deficit - has also ballooned
due to above reasons.
demand-supply gap between the dollar and the
rupee leads to devaluation
people tend to sell rupees to buy dollars.
Importers scamper for dollars to cater for
their needs to buy goods abroad.
Exporters cannot bring in enough dollars; in
fact, they keep their foreign earnings abroad
as they expect the rupee to fall further.
Meanwhile, foreign investors increase the
demand for dollars as they convert their rupee
assets into dollars to take their money out.
The Reserve Bank of India's bid to sell
dollars in the open market to restrict the
rupee slide has failed in the past few
weeks and months.
Above action has complicated the
traders and speculators realize that
India's central bank is unable to manage
its exchange rate, they may enter the
market in a big way to sell the rupee.
As a result, the rupee may devalue more
than it should.
In this scenario, most foreigners as well as Indians tend to take
money abroad, or keep it away from India.
Due to the economic crisis in India and their respective countries
Global investors do not make investment.. That has added further
selling pressure on the rupee.
NARENDER MODI’S STATEMENT
OVER RUPEE DEVALUATION
“These days value of
rupee is equal to the age
of finance minister that is
65 or 66.”
most important factor determining their price is – market
forces of demand and supply.
During turbulent markets, investors usually prefer to
park their money in safe havens such as US
treasuries, Swiss franc, gold and so on to avoid losses to
their portfolios. This flight to safety would lead to
foreign investors redeeming their investments from
India. This could increase the demand for dollar.
There are derivative instruments and
over-the-counter currency instruments
through which one can speculate/
hedge the underlying currency rates.
When speculators sense
improvements/ deterioration of the
sentiments of the markets, they too
want to benefit from such rising/
falling dollar. They then start
buying/selling dollar which would
further change the demand/ supply of
When there is too much volatility in the rupeedollar rates, the RBI prevents the rates from
going out of control to protect the domestic
IF RUPEE APPRICIATE- RBI BUY DOLLARS
IF RUPEE DEPRICIATE-RBI SELL DOLLARS
Import and export
There are a lot of schemes and incentives for exporters
while importers are burdened with many conditions and
taxes. This is to protect our economy from high rupee
depreciation. Importing foreign goods requires us to make
payment in dollars thus strengthening the dollar’s demand.
Exports do the exact reverse.
Public debt/fiscal policy
Whenever our Government fails to match expenses with equivalent
revenue, there is a shortage of funds. To finance this, the Government
at times opts to borrow money from institutions such as the World
Bank and the IMF. This debt, accrued interests, and the payments
made, also lead to currency fluctuations
The prevailing interest rates on the government bonds
attract foreign capital to India. If the rates are high
enough to cover the foreign market risk and if the foreign
investor is comfortable with the fundamentals or credit
ratings, money would start pouring into India and thus
provide us with a supply of dollars.
Since inflation causes money to lose value over time, money
is more valuable in India (based on time value), so more people would want to
hold Rupees, because the inflation rate in India is lower than China, your
money will be worth more if you convert it into Rupees. I will not lose as much
value as it would if it were in the Chinese currency. Everyone would like to
buy rupees and sell their Yuan (Chinese currency) So, the value of Rupees
Lets say that the US has an interest rate of 5% and India has an interest rate of
10%, thus the same amount of money is more valuable in India in this example
because you are earning more interest on the same investment.
So, effectively the people in US would be selling their dollars and buying
Rupees (i.e. converting their dollars into Rupees) and putting all that money in
Indian banks to earn a much higher interest rate. Therefore the more is the
demand of Rupees; the more is the supply or sale of dollar and the value of
Let’s replace rupee with potatoes.
Today US$ 1 can buy 50 pieces of
potatoes. Tomorrow, 1 US$ can buy
This means that potatoes have
gotten cheaper since you can buy
more pieces for the same US$ 1
Alternatively, it means that potatoes
have depreciated or declined in
The same is true for the rupee
Lets assume........you need to buy crude oil.
1 barrel of crude oil = 100 US $
(1 US $ = Rs. 50) according to this you need Rs.
5000 to pay for it.
Next time.. Value of rupee goes to Rs.60 per US$
from Rs. 50. And you again need to buy crude
Now you need Rs.6000 to pay in return for oil.
This shows that now you have to pay Rs 1000
more than earlier.
With depreciating rupee, exports
will become lucrative for Indian
companies. This is simply because
every US$ 1 of export income can
now be converted into Rs 60, as
against Rs 50 earlier.
So even when a company earns
US$ 1 from exporting one unit of
its product its income will
increase in Indian rupee terms.
ITS SIMPLY DEMAND AND SUPPLY.
When supply of rupee rises while demand
falls, the value of the rupee depreciates. As far
as the current rupee depreciation is
concerned, it results of appreciation of US dollar.
When foreigners sell in Indian rupee and
demand US dollars to take back home, it pulls
the rupee down. And before the rupee gets
pulled down even further, the foreigners would
like to sell even more, which would add to the
pressure on the rupee.
Indian companies that import a lot of raw materials
will face pressure on their profits if the rupee continues to
weaken against the US dollar, or even if it remains at the
current weak levels.
Also, companies that have foreign borrowings on their
books will see a negative impact on their profits.
On the other hand, Indian companies (like those from the
IT and pharmaceutical sectors) that are major
exporters, will benefit from the falling rupee.
rupee’s current depreciation is bad for a consumer or an
investor in companies that import a lot.
The central bank directed exporters to convert
50% of their foreign currency holding with banks
into rupee balances
infuse at least $2.5 billion (around
Rs 13,325 crores today) into the
market, lending support to the rupee.
Indians could spend
up to 2 lakh dollars a
year to finance their
or for any indulgence
or even investment.
Now they can spend
75,000 dollars a year
and they can’t remit
dollars to buy land
Companies until now could spend up to 400
percent of their net worth abroad to acquire or
expand. The RBI has brought this limit down to
100 percent of net worth.
RBI announced its decision to buy long-term
govt bonds from open market worth Rs.80
billion to pump more liquidity into the
country’s banking system.
Americans understood that Petrol is equally
valuable as Gold so they made Agreement with all
the Middle East countries to sell petrol in Dollars
That is why Americans print their Dollar as legal
tender for debts.
This mean if you don't like their American Dollar
and go to their Governor and ask for repayment
in form of Gold, as in India they won't give you
Indian petroleum minister goes to Middle East
country to purchase petrol,
The Middle East petrol bunk people will
say that liter petrol is one Dollar.
But Indians won't have dollars. They have Indian
Rupees. So what to do now?
Indian Minister will ask America to give Dollars.
American Federal Reserve will take a white
paper , print Dollars on it and give it to the
If you change your mind and want to give back
the Dollars to America we can't demand them to
pay Gold in return for the Dollars.
They will say " Have we promised to return
something back to you? Haven't you checked the
Dollar ? We clearly printed on the Dollar that it is
So, Americans don't need any Gold with them to
print Dollars. They will print Dollars on white
papers as they like.
But what will Americans give to the Middle East
countries for selling petrol in Dollars only?????
Middle East kings pay rent to America for
protecting their kings and heirs.
Similarly they are still paying back the Debt to
America for constructing Roads and Buildings in
their countries. This is the value of American
That is why Many say some day the Dollar will
At present the problem of India is the result of
buying those American Dollars.
American white papers are equal to Indian Gold.
So if we reduce the consumption of petrol and
cars, Dollar will come down.
More than 30,000 crore rupees of foreign
exchange are being siphoned out of our country
on products such as
cosmetics, snacks, tea, beverages, etc. which are
grown, produced and consumed here.
A cold drink that costs only 70 / 80 paisa to
produce, is sold for Rs.9 and a major chunk of
profits from these are sent abroad.
we request everybody to use INDIAN products
only at least for the next two years.
With the rise in petrol prices, if we do not do
this, the Rupee will devalue further and we will
end up paying much more for the same products
in the near future.
Buy only products manufactured by WHOLLY
You don't need to give-up your lifestyle. You just
need to choose an alternate product.
Daily products which are
BATHING SOAP ,
TALCUM POWDER ,
MILK POWDER ,SHAMPOO Food Items etc.
All you need to do is buy Indian Goods and
Make sure Indian rupee is not crossing outside
It saves INDIA!!!!!!!