04/11/20231

Fluctuations in rupee value

Presented by:AARTI

m.Com- 1 3030

Submitted to: Ms sanjna walia

04/11/2023 2

contents

What is fluctuation in rupee value? Reasons behind it How rupee-dollar rate are determined How does the value of rupee change

against the dollar 5 Questions on Rupee Depreciation… RBI in action ….. Real story of American dollar and Indian

rupee.

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What is fluctuation in rupee value

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 other transaction…

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reasons behind it…….

DEVALUATION PRESSURE

High current a/c deficit

LOW GROWTH AND HIGH INLFATION

RUPEE SPACULATION

Huge trade deficit

Lower capital inflows

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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.

Huge trade deficit

imports

exports

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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 markets.

Lower capital inflows

Economic reforms

Taxation policy

Dis-investment

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The country's current account deficit - a broader measure of the trade deficit - has also ballooned due to above reasons.

High current a/c deficit

High current a/c deficit

Huge trade deficit

Lower capital inflows

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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.

DEVALUATION PRESSURE

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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 situation further.

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.

RUPEE SPECULATION

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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.

LOW GROWTH AND HIGH INLFATION

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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.”

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ANNUAL ECONOMIC GROWTH RATE

2009-10 2010-11 2011-120%

1%

2%

3%

4%

5%

6%

7%

8%

9%

9% 9%

7%

annual economic growth rate

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HOW RUPEE-DOLLAR RATE ARE DETERMINED

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Determination of rupee-dollar rate

most important factor determining their price is – market forces of demand and supply.

Cont..

Demand increased

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Besides the primary powers of demand and supply, the rupee-dollar rates are determined by other market forces as well.

MARKET SENTIMENTS

SPECULATION

RBI intervention

Import and export

Public debt/fiscal policy

Interest rates

Cont...

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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.

Cont..

MARKET SENTIMENTS

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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 the dollar.

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When there is too much volatility in the rupee-dollar rates, the RBI prevents the rates from going out of control to protect the domestic economy.

Cont..

RBI intervention

IF RUPEE APPRICIATE- RBI BUY DOLLARS

IF RUPEE DEPRICIATE-RBI SELL DOLLARS

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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.

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

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Cont..

Public debt/fiscal policy

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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.

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HOW DOES THE VALUE OF RUPEE CHANGE AGAINST THE DOLLAR

First factor: Expected inflation difference between the two countries

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 increases.

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Cont..

INDIA CHINA

EXAMPLE

CURRENT INFLATION

6% 5%

EXPECTED INFLATION

6.5% 9%

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Interest rate factor

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 Rupee increases.

Cont..

EXCHANGE RATE YEAR 2013

2013 (july 08) 2013 (June

27) 2013 (June 12) 2013 (may

15)

54.7358.560.7361.21

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5 Questions on Rupee Depreciation…

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1. When the rupee moves from 50 per US dollar to 60 per US dollar, why do we call it ‘depreciation’ and not ‘appreciation’ given that the rupee has risen against the dollar? Let’s replace rupee with

potatoes. Today US$ 1 can buy 50 pieces

of potatoes. Tomorrow, 1 US$ can buy 60 potatoes.

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 value.

The same is true for the rupee

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2. Everyone is saying that the depreciating rupee will make things expensive. How? 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 oil.

Now you need Rs.6000 to pay in return for oil. This shows that now you have to pay Rs 1000 more than earlier.

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3. What about things that India exports?

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.

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4. But what determines whether the rupee depreciates or appreciates against the US dollar or any other currency?

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.

ITS SIMPLY DEMAND AND SUPPLY.

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5. Does the rupee depreciation impact stock market investors?

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. 

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RBI IN ACTION…………

Action….

The central bank directed exporters to convert 50% of their foreign currency holding with banks into rupee balances

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what will its impact….

expected to infuse at least $2.5 billion (around Rs 13,325 crores today) into the market, lending support to the rupee.

Cont..

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India imposed restrictions on foreign exchange outflow and importing gold.

Cont..

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 Indians could spend up to 2 lakh dollars a year to finance their children’s education 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 abroad.

Cont..

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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.

Cont..

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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.

Cont..

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Real story ofAmerican Dollar v/s Indian

Rupee

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Americans understood that Petrol is equally valuable as Gold so they made Agreement with all the Middle East countries to sell petrol in Dollars only.

That is why Americans print their Dollar as legal tender for debts.

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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 Gold.

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Let us see an example.

Indian petroleum minister goes to Middle East country to purchase petrol,

The Middle East petrol bunk people willsay that liter petrol is one Dollar.

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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 Indian Minister.

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But there is a fraud here.

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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 Debt"

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So, Americans don't need any Gold with them to print Dollars. They will print Dollars on white papers as they like.

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One question is arise here!!!!

But what will Americans give to the Middle East countries for selling petrol in Dollars only?????

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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 Dollar.

That is why Many say some day the Dollar will be destroyed.

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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.

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And here is a small thing other than petrol, what we can do to our Indian Rupee

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Our economy is in your hands!!!!

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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.

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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.

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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.

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What you can do about it?

Buy only products manufactured by WHOLLY INDIAN COMPANIES

You don't need to give-up your lifestyle. You just need to choose an alternate product.

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Daily products which are COLD DRINKS, BATHING SOAP , TOOTH PASTE/BRUSH, SHAVING CREAM/BLADE, 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 India.

It saves INDIA!!!!!!!

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THANKS☻☻☻☻☻