7/28/2019 Ppt Devalueation of Rupee..Bebuisness environment

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ISHA SHARMA

MEGHA ANAND

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1. Introduction

2. Meaning of devaluation of Rupee

3. How currency value is determined?

4. Why any country would want to keep itscurrency value low?

5. Why would the demand of currency increase?

6. Major Factors Influencing the Currency Value

7. Impact of currency devaluation/ Weakening

Rupee: Good for NRIs, Bad for Indian Economy8. What way rupee depreciation will affect you?

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When a currency loses value in the worldmarket, depreciation occurs. For e.g.: Rupee is

the Indian currency. Just like any commoditythe Rupee also has a price, the value you pay toexchange a rupee. When the rupee becomesdearer i.e. say Rs.40/$ it is said to have

Appreciated (Value) in the reverse case sayRs.50/$ then the Rupee Depreciates (Value).

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There are many factors to decide thecurrencies values.

There is one basic theory. A currency willtend to become more valuable when itsdemand is higher than supply. A currency willtend to become less valuable when its

demand is less than supply.

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Overseas investors pouring inmoney into developing economies

Demand for Rupee will increase

Rupee appreciates

In the same way, if they are pulling out of the marketthe rupee will depreciate.

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Increased demand for a currency is due to either an

increased transaction demand for money

increased speculative demand for money

Also, a currency will tend to lose value, relative

to other currencies, if the country's level ofinflation is relatively higher, if the country's levelof output is expected to decline, or if a countryis troubled by political uncertainty.

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RBI would not allow currency to be higherafter certain level because the exports wouldget affected like IT companies would suffer if

the rupee gets appreciated against the dollar.

In the decreasing rupee scenario, the outgoof money will be much higher.

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Inflation Purchasing Power Parity

Current account deficit

Dollar is in Demand Collapse of international trade

Stock market performance

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Weak Rupee: Good news for:1. NRI

2. Exporters

3. Improving the trade balance4. Attract more foreign domestic investment

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1. Rising prices of imports

2. Rising prices of oil

3. Rising prices of consumer durables

4. Weak rupee forces petrochemical firms toincrease prices

5. Increase the burden of servicing andrepaying of foreign debt of the Indian

Government

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6. Depreciating currency might dissuadeforeign institutional investment (FII) frominvesting in the country.

7. High import bills

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Raise policy rates Use FOREX reserves

Ease capital controls

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Growing Indian economy has led to wideningof current account deficit as imports of bothoil and non-oil have risen.

Despite dramatic rise in software exports,current account deficits have remainedelevated.

Apart from rising CAD, financing CAD has

also been seen as a concern as most of thesecapital inflows are short-term in nature.

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The exports have risen but so have prices ofcrude oil leading to further widening ofcurrent account deficit.

Rupee is expected to remain highly volatileshifting gears from an appreciating currencyoutlook to depreciating reality in quick time.

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