Rupee Depreciating Its Value, Why?

This article meant to be understood with the less matter. If you want to know the clear picture of this, you need to refer many. I want to explain as easy as a cake walk and Just cursory reading is required.

Any country’s economy is the elephant in the big room as it is the modus operandi for everything. Currency depreciating and accelerating is the daily activity as our individual chores. Especially, “High” populated countries like India need to be very conscious about the Currency swings as many people depend on it. You can moot a lot of reasons as we know Economics falls short behind quantum physics. 

I will segment into different 4 factors so that you can understand easily and make it as clear to yourself

Most affected 4 factors (Note: You will find itinerary reasons)

Trade balance: It is about the exports and imports. Basically depends on trade deficit (with all countries on an average), which means simply how much India have liability or how much our RBI government have less when you compare to sufficient ( i.e we are not able to produce all our needs in our country).

A trade deficit is when a country imports exceed its exports. It is also called a negative balance of trade. A trade deficit occurs when a country does not produce all it needs. Most nations must borrow from foreign states to pay for the imports. Therefore, a country with a trade deficit will also have a current account deficit ( Which is now increasing by nearly 1.9% daily). For clear picture Why Most Countries Hate Trade Deficits and The Pros & Cons of a Trade Deficit

“ Indirectly we are buying more from outside, we are giving more money to outside sources which portend to less rupee in our pockets. But we need to share the same value for all, so as an average it will reduce simply”

Price of commodities: Supposedly, crude oil price rose up to 75 dollar which was 50 dollars in the past. We are giving 15 dollars extra for the same amount of commodity (we need one soap per 15 days or 30days (depends on the person) despite the price of soap, we should need it as the clock runs) How key commodities swing with currency movements “ Same here outflow of more rupees is here”

Foreign direct investment: More FDI, more dollars are coming to our country and Less FDI, more withdrawing, In a second case, we face rupee depreciation. Crucial reason is uncertain of trade. As people dismayed of Trump policies like taxes, interest rates…etc, investors not having interest to put investment so that they withdraw investment money which cues to loss of rupees from our country.

“ As dollars are increasing, rupee depreciates such as 70,75,80….” …Here for one dollar, you should give 80 rupees for outsiders (I.e, that is the cause of inflation in our country too FDI vs Rupee

Policies of Federal Reserve bank: This is like RBI in America. Most of the people take money from that bank and invest in our country. When it increases its interest rates, they should give more money. Due to this, they withdraw their money.EXPLAINED: How a likely hike in Fed rates can impact India. Money control

To stop depreciation, Just decrease outflow of rupee

Merely, read this story

Family Rupees: Suppose your family has a currency called “Merupee ”, It costs 25 rupees per member i.e, 100 rupees (4 members family) your family having which is sufficient to your family needs.

Value of Merupee = 25 rs

Suppose you exports watch from other families which costs 1 rupee each, 4 rupees in total

Thus, Deficit 100–4 = 96 rupees, your family have 96 only

But you have the same amount of needs this time too,

Now Merupee value is decreased 96/4 = 24 rupees

So, the value of “Merupee” = 24 rs, 1 rupee decrease

To stop depreciation, you can do such as Make watches  (Make your needs)

Give watches to some other families as inflow increases (they give money).

Think your self and match with India scenario, search it ..You will think whole Economics is in your hand after you analyzed this well 

Got it..?

Thank you.

Nafi Mohammad

No thoughts Right now, maneuvering to get into IIM Entrepreneur for my knowledge

Comments

One comment

Sai Krish

It is nice to see you in InsideIIM. Really appreciated for the article and the way of explanation.