The rupee was historically linked to the British pound and U.S. dollar within the IMF system of fixed exchange rates. India devalued the rupee for the first time in 1949 by 30.5%, and again in 1966 by 36.5%, to reduce its value against foreign currencies. Major devaluations also occurred in 1991 due to balance of payments issues, liberal import policies, and the Gulf War, causing the rupee to lose value against the dollar on open markets. Devaluation aims to make exports cheaper and imports more expensive, boosting exports and the tourism industry but also increasing domestic inflation through higher import prices. However, devaluation does not always effectively boost exports depending on demand elasticity and ability to substitute imports
This presentation is about the devaluation of Indian currency with all major concepts and issues regarding devaluation discussed in it. Basically, Devaluation refers to a reduction in the external value of a currency in terms of other currencies. Here we are particularly talking about the Devaluation of Indian Currency (Rupee) against Foreign Currency(Dollar). Refer to the slides for further details.
This presentation is about the devaluation of Indian currency with all major concepts and issues regarding devaluation discussed in it. Basically, Devaluation refers to a reduction in the external value of a currency in terms of other currencies. Here we are particularly talking about the Devaluation of Indian Currency (Rupee) against Foreign Currency(Dollar). Refer to the slides for further details.
Balance of Payment Disequilibrium and CausesNeema Gladys
1.Balance of Payment
The balance of payment of a country is a systematic accounting record of all economic transactions during a given period of time between the residents of the country and residents of foreign countries.
2.Componets of BOP
Current Account
It includes imports and exports of goods and services and unilateral transfer of goods and services.
Capital Account
Under this are grouped transactions leading to changes in foreign assets and liabilities of the country.
3. Accounting Treatment of Items (Debit and Credit Items)
Any item which gives rise to a sale of foreign exchange (an inflow) is recorded as a credit item (+) in the accounts e.g. export of goods and services
Any item which gives rise to the purchase of foreign exchange (an outflow) is recorded as a debit item (-) in the accounts e.g imports of goods and services.
4. BOP Disequilibrium
BOP is a double entry accounting record, then apart from errors and omissions, it must always balance.
The BOP deficit or surplus indicate imbalance in the BOP.
This imbalance is interpreted as BOP Disequilibrium.
A country’s balance of payments is said to be in disequilibrium when its autonomous receipts (credits) are not equal to its autonomous payments (debits).
5.BOP Deficit
A deficit or an unfavorable balance exists when the value of autonomous debit items exceeds the value of autonomous credit items.
6. BOP Surplus
A surplus or a favourable balance exists when the value of autonomous credit items exceeds the value of autonomous debit items.
The Major reason for the people’s demand for money is that it is needed in any economy in which almost every person and firm sells goods and services for money and in turn uses money to buy the goods and services offered by others. Functionally this amount of money used as a medium of exchange. Classical theory explained the demand for money as essentially a demand resulting from this need for money as medium of exchange.
In Keynesian theory, money becomes much more than a medium of exchange, much more than a medium of exchange, much more than a device for meeting transactions in the marketplace. People also demand money for speculative purposes and as security against unforeseen needs for cash reserves. The break down of the demand for money into transactions and precautionary and speculative demands plays a vital part in the theory of Keynes.
A fantastic PPT on the foreign exchange rate. The PPT includes meaning and concept of foreign exchange and foreign exchange rate, the systems of determining foreign exchange rate, depreciation of domestic, appreciation of domestic currency, devaluation and revaluation of domestic currency. This PPT also explain the role of RBI in managing the exchange rate by using the concept of managed floating. Just download it and make your concepts stronger. Happy Learning !!
Factor Affecting exchange rate and Theories of exchange rate Jatin Goyal
It explains the following topics
Factor Affecting the exchange rate
CURRENCY DEPRECIATION VS.CURRENCY APPRECIATION
Foreign exchange
Theories of exchange rate
Balance of Payment Disequilibrium and CausesNeema Gladys
1.Balance of Payment
The balance of payment of a country is a systematic accounting record of all economic transactions during a given period of time between the residents of the country and residents of foreign countries.
2.Componets of BOP
Current Account
It includes imports and exports of goods and services and unilateral transfer of goods and services.
Capital Account
Under this are grouped transactions leading to changes in foreign assets and liabilities of the country.
3. Accounting Treatment of Items (Debit and Credit Items)
Any item which gives rise to a sale of foreign exchange (an inflow) is recorded as a credit item (+) in the accounts e.g. export of goods and services
Any item which gives rise to the purchase of foreign exchange (an outflow) is recorded as a debit item (-) in the accounts e.g imports of goods and services.
4. BOP Disequilibrium
BOP is a double entry accounting record, then apart from errors and omissions, it must always balance.
The BOP deficit or surplus indicate imbalance in the BOP.
This imbalance is interpreted as BOP Disequilibrium.
A country’s balance of payments is said to be in disequilibrium when its autonomous receipts (credits) are not equal to its autonomous payments (debits).
5.BOP Deficit
A deficit or an unfavorable balance exists when the value of autonomous debit items exceeds the value of autonomous credit items.
6. BOP Surplus
A surplus or a favourable balance exists when the value of autonomous credit items exceeds the value of autonomous debit items.
The Major reason for the people’s demand for money is that it is needed in any economy in which almost every person and firm sells goods and services for money and in turn uses money to buy the goods and services offered by others. Functionally this amount of money used as a medium of exchange. Classical theory explained the demand for money as essentially a demand resulting from this need for money as medium of exchange.
In Keynesian theory, money becomes much more than a medium of exchange, much more than a medium of exchange, much more than a device for meeting transactions in the marketplace. People also demand money for speculative purposes and as security against unforeseen needs for cash reserves. The break down of the demand for money into transactions and precautionary and speculative demands plays a vital part in the theory of Keynes.
A fantastic PPT on the foreign exchange rate. The PPT includes meaning and concept of foreign exchange and foreign exchange rate, the systems of determining foreign exchange rate, depreciation of domestic, appreciation of domestic currency, devaluation and revaluation of domestic currency. This PPT also explain the role of RBI in managing the exchange rate by using the concept of managed floating. Just download it and make your concepts stronger. Happy Learning !!
Factor Affecting exchange rate and Theories of exchange rate Jatin Goyal
It explains the following topics
Factor Affecting the exchange rate
CURRENCY DEPRECIATION VS.CURRENCY APPRECIATION
Foreign exchange
Theories of exchange rate
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2. MEANING
Devaluation is the reduction in the value of
domestic currency in relation to foreign currency.
It means deliberate reduction in the external
value of national currency .
It makes exports cheaper in foreign markets and
imports higher in domestic market.
3. Rate of exchange of rupee
The rupee was linked to the British
pound till 1946. Rate of exchange of
rupee was fixed in terms of pound.
But India had a fixed external value of
rupee in terms of gold or u.s.dollars.
It became the member of IMF system of
fixed exchange rates in respect to exchange
currencies like UK pound,US dollars, ect.
4. RECENT DECLINE IN VALUE
of RUPEE
First devaluation done in sept.1949 by 30.5% and
rupee came down to 30 cents.
Second in june 6th by 1966 by 36.5% exchange
rate came to 7.50-4.76.
Third was made in 1991 july from 20-23% of
major currencies.
The decline was due to balance of payments,
liberal policy,and gulf war.Indian rupee lost its
value of dollars in open markets.
5. • Balance of payments
• Liberal import policy
• Gulf war .There has been continuous decline in
value of rupee since1991-92 RBI tried to intervene
in exchange markets but it failed.Indian rupee was
heavily lost its value of dollar in open markets.
6. causes
Foreign exchange reserve crisis 1991
Improvement in balance of payments
Reforming the external sector
IMF conditions
Low ranking international agencies
To prompt capital formation
Devaluation by other countries
To prompt tourism
7. conditions
o Sufficient supply of exports to meet increased
demand .
o Simultaneous devaluation by other countries.
o Price level should remain stable
o Devaluation can achieved by elasticity of
demand for exports ,imports
o Devaluation is effective when we substitute
imports with our domestic products.
8. effects
Positive effects:
Increase in exports
Decrease in imports
Boost to tourism industry
Full utlisation of capital
Negative effects:
increase in price
Short term remedy
High price for imports
9. Consequences of devaluation
A solution to 1991 crisis to solve the problem
Export expansion ,do not affect devaluation much
on exports.
Less effect in imports determined on policy and
price factors
Not a complete success; decrease in world trade
and production
Effect on domestic economy is unhealthy effect on
domestic econmy . It affects domestic price both
imports and exports price rise in rupee terms .
