Appreciation of currencyAppreciation of currency

An increase in the value of one An increase in the value of one currency relative to another currency relative to another currency.currency.

What’s driving the riseWhat’s driving the rise Dollars are pouring into India .Net investments Dollars are pouring into India .Net investments

by foreign institutional investors (FIIs) were by foreign institutional investors (FIIs) were $10.16 billion during January-June 2007 $10.16 billion during January-June 2007

In 2006-07, FDI inflows touched $19.53 billion, a In 2006-07, FDI inflows touched $19.53 billion, a 153% increase over the previous year 153% increase over the previous year

non-resident Indian (NRI) deposits, attracted by non-resident Indian (NRI) deposits, attracted by better interest rates, were also up 35% in 2006-better interest rates, were also up 35% in 2006-07 to touch $3.8 billion 07 to touch $3.8 billion

External commercial borrowings of Corporate External commercial borrowings of Corporate India were $12.1 billion in April-December 2006, India were $12.1 billion in April-December 2006, an increase of 33%. Remittances from Indian an increase of 33%. Remittances from Indian workers abroad -- principally in the Gulf -- rose workers abroad -- principally in the Gulf -- rose 15% to $19.6 billion in the same period 15% to $19.6 billion in the same period

ONE MAN’S ONE MAN’S MEAT IS MEAT IS ANOTHER ANOTHER MAN’S POISONMAN’S POISON

Effects Effects Profits of multinational corporationsProfits of multinational corporations Value of foreign investmentsValue of foreign investments Bad for exportersBad for exporters the appreciation of the currency from Rs 44 to a dollar to Rs 40.50 the appreciation of the currency from Rs 44 to a dollar to Rs 40.50

is expected to result in a Rs 53,000 crore or USD 13 billion loss. is expected to result in a Rs 53,000 crore or USD 13 billion loss. ewer technologies as well as overseas buyouts become ewer technologies as well as overseas buyouts become

economical and accessible to Indian manufacturers. economical and accessible to Indian manufacturers. Problems for IT companies-wipro Infosys,TCS-Problems for IT companies-wipro Infosys,TCS-Dollar Dollar

denominated earnings hurtdenominated earnings hurt garment exporters ,auto suppliers,meat,spices,gems,jwellery garment exporters ,auto suppliers,meat,spices,gems,jwellery Worst hit-textile,leather sectorsWorst hit-textile,leather sectors good for importersgood for importers Outbound tourists/student bonanzaOutbound tourists/student bonanza Foreign debt service:Foreign debt service: Appreciation of the rupee helps in easing Appreciation of the rupee helps in easing

the pressure, related to foreign debt servicing (interest payments the pressure, related to foreign debt servicing (interest payments on debt raised in foreign currency), on India and Indian on debt raised in foreign currency), on India and Indian companies. companies.

Measures(RBI & apex Measures(RBI & apex monetary abutority)monetary abutority)

The Indian government has announced a $3.5 billion package The Indian government has announced a $3.5 billion package to provide relief to exporters in several sector to provide relief to exporters in several sector

Interest rates-An investor may choose to buy a currency if the Interest rates-An investor may choose to buy a currency if the return (that is the interest rate) is high enough. The higher a return (that is the interest rate) is high enough. The higher a country's interest rates, the greater the demand for that country's interest rates, the greater the demand for that currency currency

A country's central bank can reduce the money supply by A country's central bank can reduce the money supply by issuing bonds and collecting currency for them. They can issuing bonds and collecting currency for them. They can increase the required reserve level that banks must hold, increase the required reserve level that banks must hold, therefore reducing the amount they can lend. therefore reducing the amount they can lend.

the central bank can buy back bonds, injecting more money the central bank can buy back bonds, injecting more money into the market, or they can simply start printing more money into the market, or they can simply start printing more money and buy things, thus getting it into circulation. and buy things, thus getting it into circulation.

foreign currency in reserve to back the value of rupee foreign currency in reserve to back the value of rupee Ristriction on external commercial borrowings by RBIRistriction on external commercial borrowings by RBI RBI banned foreign investment in stock marketRBI banned foreign investment in stock market RBI raised ceiling on overseas investment by RBI raised ceiling on overseas investment by

companies,residents,mutual funds.companies,residents,mutual funds.

Increases unemployment -rendered Increases unemployment -rendered 11,000 people employed in textiles 11,000 people employed in textiles and garment firms jobless during and garment firms jobless during March-June this year, while another March-June this year, while another 1,900 were unemployed in the 1,900 were unemployed in the leather sector. leather sector.