CURRENCY FLUCTUATION

There was an era of immediate post-independence when 1 Rs was equivalent to $1. Rupees has been devalued to a great extent as dollar slumped to it’s all time high record of  57.37 Rs for $1. What causes fluctuations in currency rates or exchange rate that a $10 in can buy you a cup of coffee in one country, while luxury 5 star dinner in another. Supply and demand define one currency’s value in comparison to another. Basically fluctuation is caused by demand and supply of the currency. The demand and supply generally affected by country’s trade and its macroeconomic policies. A currency will tend to become more valuable when its demand is higher than supply. A currency will tend to become less valuable when its demand is less than supply. It is the basic theory. We need to understand in the global economy terms, when the currency will have more demand and when it will have less demand. Remember that exchange rates are expressed as a comparison of two currencies. It is always relative and can be measured between two countries. Interest rates, Inflation and exchange rates are highly related. Reserve bank change the interest rates to control the Inflation and exchange rates.  We can take our real time example of stock market investment to understand the above principle. As we know that, our stock market is dominated by the overseas investors (outside India), because of the our growing economy and industrial development. When our economy is doing well and market is performing better than other countries, overseas investors would invest heavily on our market. How they would put it in our market?. They will sell or convert to our currency and invest in India. It is clear that when more investors coming to India, the demand for the currency will be very high. Our rupee value will be increased against dollar. In the same way, when they are pulling out of market, demand for the rupee will be decreased and value is depreciated. India is heavily depend on the import of raw materials and Oil for its industrial development. In the decreasing rupee scenario, the outgo of money will be much higher. This would affect the expenses for the companies who imports raw materials for their factory and all the Oil Marketing Companies (OMC) will incur heavy payment to import the Oil. Now you would have understood why the Petrol prices have been increase in the last fortnight. If you look into the news papers, the reason said by our finance minister was the depreciation of rupee value against dollar.

Major Factors Influencing the Currency Value

• Inflation As a general rule, a country with a consistently lower inflation rate exhibits a rising currency value, as its purchasing power increases relative to other currencies.
•  Interest Rates. A higher interest rates offer good returns compare to other countries. It will result in the foreign capital come into the country. Lower interest rates decrease the currency value. Note that interest rates has the close relation with interest rates. The currency value would not be affected only based on the interest, it is impacted based on the other conditions like inflation or economic instability. 
•   Current Account Deficits Basically  current account of a country presents the status on the trade of a country between other trading partners. If there is any deficit in the current account, (more import less export) that means country is doing more trading outside the country then its actual earning inside the country. This situation is not good for a country because the country needs to buy more foreign currency to fulfil its need inside the country. A country needs to manage its deficit within control, otherwise it will lead to a economic problem. More demand for the foreign currency would reduce the value of that country’s currency.

Conclusion:- the US dollar is expected, to go higher, We as Indians can do nothing, as our government is no more interested in saving and working for the growth of our country, Our fiscal deficit is near around 20 % of our GDP, and will even increase, Within a horizon of 15-20 , years, it is not a big thing to say that we would be salves to China or US, not political but economical salves. The fall in Rupee clearly shows that our export is decreasing and imports are very higher. This will lead to a collapse in our economy. China is biggest threat for Indian in future. Greece was bailed out by China, as it wanted to even further penetrate in European Markets, But in case of India, no body would come forward to bail us out, as we are already a importing economy , We only export services, that too, will be taken from our hands, by other growing economies like Philippines, So at the end, we would have nothing to have to get the foreign currency, and see out economy sinking.