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Dollar flying or Rupee falling (Well Explained)
If someone has basic knowledge of economics will know answer of this question. But in India, standard of journalist and leaders is so low that they even don't know basics.
This thread will answer - dollar flying or rupee falling
There are around 200 countries in the world and each have their respective currency and all currencies maintain exchange rate with currencies of other countries.
Exchange rate of currency depends upon supply and demand of that currency.
Now the question is dollar is strengthening or rupee is weakening?
Check USD INR performance of last one year:
Oct 2021 : 1 USD = Rs 75
Oct 2022 :1 USD = Rs 82
Its due to good performance of USD or due to bad performance of INR ? We can't say.
To check this, we have to find :
1. How Rupee is performing against other major currencies of the world.
2. How other currencies are performing against USD.
If Rupee is falling against other currencies also then we can say rupee is falling. If other currencies also fall agnst USD then we can say USD is strengthening.
British Pound, Euro and Japanese Yen are the other major currencies of the world. Lets check Rupee vs Pound
Oct 2021: 1 GBP= Rs 104
Oct 2022: 1 GBP = Rs 92
So in 1 Last Year Rupee strengthened against GBP.
Let's check Rs vs Euro:
Oct 2021: 1 Euro = Rs 88
Oct 2022: 1 Euro = Rs 82
So Rs. strengthened against Euro also.
Lets check Rs vs Yen:
Oct 21:1 Yen = 0.65 Rs.
Oct 22:1 Yen = 0.55 Rs.
So Rs strengthened against Yen also.
In last one year Rupee weakened against dollar but strengthened against all major currencies. It gives an indication that Rupee is not falling.
Let's check performance of these currencies against dollar:
For that we need to check dollar index.
Dollar index measures relative performance of dollar against 6 major currencies of world including GBP, Euro n Yen.
Oct 21: USD value agst 6 major currency = 93
Oct 22: USD value agst 6 major currency = 112
So it proves that rupee is not falling, its actually dollar is strengthening. Rupee is fighting bravely against dollar and performing very well compared to other currencies and India really deserve appreciation for it.
Reason for this:
Petrol import covers 30-40% of our total import bill.
In last 1 year, due to Russia Ukraine war, prices of oil and gas has sky rocketed.
Indian import bill is getting higher.
Oil is traded in USD.
Import high, export less means demand for USD high, demand for INR less.
So despite of such negative condition, INR is fighting bravely and performing well against other currencies.
Now let me tell the reason why Dollar has sky rocketed. Reason is US federal reserve rate that was 0 in Feb 2022 but now its 3.5%.
Now understand that
American banks need to maintain a fixed amount to US fed bank and for that on daily basis they keep taking loan from other banks and interest rate on that loan is called fed interest rate.
When fed increases that interest rate then all investors of the world, take out money from their current investment and invest into US fed bank coz investment in Fed bank is considered safest investment in difficult situation.
U can invest in fed bank only in USD so u need USD for it. So demand of USD increases and prices of USD goes high. Exactly this has happened in the last six months.
Why fed increased interest rate ?
To control the inflation.
As interest goes up, interest rate of saving account, FD also increases, credit card, home loan interest goes high. People stop spending and start investing, circulation of money goes down in market, demand goes down and prices comes down.
Basic economics:
So to control inflation, US increased fed rates. Due to that USD demand increased and USD strengthened agst all currencies.
By: via Allies Fin Serve Stock Market
