The rupee on Wednesday hit a record low against the dollar. It weakened by 27 paise and closed at 78.40. The rupee opened at 78.13 and made a low of 78.40 and a high of 78.13 in the day's trading. Continuous foreign fund outflows from the financial markets and rising crude oil prices have added to the pressure on the rupee.
Rahul Kalantri, VP (Commodities), Mehta Equities, said, “Aggressive interest rate hike plan by the US Federal Reserve and continued selling by FIIs is putting pressure on the rupee. The rising trade deficit and high crude oil prices are also holding back the rupee. Looks like the rupee will remain volatile this week and will test the resistance level of 78.45.
How is the value of a currency determined?
There are many reasons for currency fluctuations. If the value of any other currency decreases in comparison to the dollar, then it is called the falling, breaking, and weakening of that currency. In English - currency depreciation. Every country has reserves of foreign exchange, from which it conducts international transactions.
The decrease and increase of foreign exchange reserves determine the movement of the currency of that country. If the dollar in India's foreign exchange reserves is equal to the US rupee reserves, then the value of the rupee will remain stable. If the dollar decreases with us, the rupee will weaken, if it increases, the rupee will strengthen.
Where is the loss or advantage?
Disadvantage: Import of crude oil will be expensive, which will increase inflation. Vegetables and food items will be expensive in the country. Whereas Indians will have to pay in dollars. That is, traveling abroad will be expensive, and studying abroad will be expensive.
Benefit: Exporters will benefit because the payment will be in dollars, and they will be able to earn more by converting them into rupees. This will benefit IT and pharma companies selling goods abroad.
Why is the currency dollar-based and since when?
Most of the currencies in the foreign exchange market are compared against the dollar. Behind this is the 'Bretton Woods Agreement' during the Second World War. It was proposed to create a neutral global currency. However, then America was the only country that had emerged economically strong. In such a situation, the US dollar was chosen as the reserve currency of the world.
How is the situation handled?
The central bank of any country has an important role in handling the weakening situation of the currency. In India, this role belongs to the Reserve Bank of India. He tries to meet his demand in the market by buying dollars from his foreign exchange reserves and from abroad. This helps to some extent in stabilizing the dollar price against the rupee.
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