20th July 2022 (7 Topics)
1
Jul
2
Jul
4
Jul
5
Jul
6
Jul
7
Jul
8
Jul
9
Jul
11
Jul
12
Jul
13
Jul
14
Jul
15
Jul
16
Jul
18
Jul
19
Jul
20
Jul
21
Jul
22
Jul
23
Jul
25
Jul
26
Jul
27
Jul
28
Jul
29
Jul
30
Jul
What Rs.80 to a dollar means for India?
Context
The Indian rupee breached the exchange rate level of 80 to a US dollar with growing concerns about a weaker rupee affecting the broader economy.
Background
- Since a country interacts with many other countries, it wants to see the movement of the domestic currency relative to all other currencies in a single number rather than by looking at bilateral rates.
- For its measurement the country wants a tool called exchange rate to keep a record on its exports and imports.
- Rising Covid-19 cases and pandemic has started this scenario and pushed by Russia-Ukraine war with Global oil price rises.
- These factors have contributed for rupee depreciation, which means that value of rupee is less against a single dollar.
What is the rupee exchange rate?
- The price of one currency in terms of the other is known as the exchange rate.
- A currency’s exchange rate vis-a-vis another currency reflects the relative demand among the holders of the two currencies.
- For e.g. If the US dollar is stronger than the rupee (implying value of dollar is higher with respect to rupee), then it shows that the demand for dollars (by those holding rupee) is more than the demand for rupees (by those holding dollars).
- This demand in turn depends on the relative demand for the goods and services of the two countries.
|
Types of Exchange rates
The pegged exchange rate or the fixed exchange rate system is referred to as the system where the weaker currency of the two currencies in question is pegged or tied to the stronger currency.
Flexible exchange rate system is also known as the floating exchange rate system as it is dependent on the market forces of supply and demand. |
Why are the rupee-dollar exchange rate and Forex reserves falling?
- Due to Balance of payment: The BoP is essentially a ledger of all monetary transactions between Indians and foreigners. A weaker rupee will consequently impact on the high pay for each dollar for foreign trade.
- Twin deficit: The current and capital account deficits are among the major reasons for the imbalances in the economic situation in India.
Impacts on the Economy
- Costlier Imports in terms of a single dollar
- Trade deficit due to costlier imports and less money in hands of people of the country.
- Higher exchange rates
More Articles
Courses
Study
Notes
Home
Resources
More
