causes for rupee depreciation
TRANSCRIPT
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What causes to Rupee
Depreciation.....?
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Introduction
What is currency?
- medium of exchange for goods and services
- accepted form of money [coins and paper notes]
- issued by a government and circulated within an economy- each country has its own currency
Major currencies in Glob
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Introduction
cont...
How define the value of currency?
- When demand > supply, currency becomes more valuable
and vice versa
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Reasons For rupee Depreciation
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Reasons For rupee Depreciation
1. Political paralysis:-
- unable to transact any meaningful business
- Coalition politics make things difficult for the government to
push the much-needed reforms in many sectors- This is creating panic among overseas investors who want to
invest in India
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Cont...
2. Volatile Stock Market:-
- Unpredictable and vigorous changes
in price within the stock market.
- It is necessary for some movementwithin the market in order to sell commodities,
- however a volatile market represents the
most risk to investors
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Cont...
3. Current account deficit:-
- A current account deficit occurs when a
countrys total import exceeds the total
exports.- not good for the country
- Indias current account deficit now
is more than the projected level
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Cont...
4. High gold prices:-
- Very high prices for gold have created panic among investors
- The fear of bubble bursting in gold has resulted in investors
viewing dollar as a safe currency
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Cont...
5. Price of crude:-
- tremendous stress on the Indian Rupee
- Globally, the price of oil is quoted in dollars
- domestic demand for oil increases or the price of oil increasesin the international market
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Cont...
6. Interest rate difference:-
- Higher real interest rates generally attract foreign investment
- slowdown in growth there is increasing pressure on RBI to
decrease the policy rates- foreign investors tend to stay away from investing
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Cont...
7. Inflation causing rupee depreciation:-
- decrease the purchasing power
- The inflation rate in India was recorded at 4.86% in June of
2013.
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Cont...
8. Fundamental law of economics:-
- demand for the dollar in India > supply, the dollar appreciate
and rupee depreciates.
- created by importers- requiring more dollars to pay for their
imports
- Foreign Institutional Investors- withdrawing their investments
and taking the dollars outside India
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The rope that can pull INR out
Measures By RBI:
- Using Forex Reserves
- Raising Interest Rates
- Make Investments Attractive- Easing Capital Controls
Measures by Government: FDI