Rupee and dollar conundrum…L

Statistics for today-

Sensex down by 365 points and few days back it was down by 425 points and we can see some further drop also..

1 Dollar is at rs.52

Now what is driving this rush in rupee-dollar…???????

Tentatively supply and demand fixes the value of dollar. In the market if rupees are more and dollars are less, then price of dollar will automatically go up.

The rupee is under pressure as foreign investors are paring their exposure to Asia's third-largest economy amid global uncertainty and mounting worries over the domestic economy

The main factors that influence the value of currency are:-

First factor: Expected “inflation” difference between two countries….inflation causes money to lose value over time, and now more of people wants to hold dollar and since the inflation rate is lower in USA, people wants to hold more of dollar and so it will be worth more if currency is converted to dollars.

And dollars has the universal acceptance so everyone wants to sell rupee and buy dollars.

Second Factor: GOLD

How gold affects currencies

All the currencies are backed by gold,and  a country that exports gold or has access to gold reserves will see an increase in the strength of its currency when gold prices increase, since this increases the value of the country's total exports.

Interest rates and economic durability also play a role in exchange rates.

By economic durability I mean the ability of an economy to react and adjust to acute and chronic disturbances in the most efficient manner.

Effects

Software exporters gain
Indian companies selling their services abroad too stand to benefit with each appreciating dollar or any other currency which is on the rising spree against the Indian rupee. IT major Infosys and Tata Consultancy are among some of the companies, which sell their services abroad.

But fall in rupee is likely to affect a vast majority on Indians in the form of higher oil prices. Since India depends on imports for 80 per cent of petroleum products requirements, rise in oil import bill will be passed on to the consumers. In fact, oil companies cited depreciation of rupee as the main reason for the petrol price three weeks ago. 

If rupee continues to fall, the government could be forced to raise prices of diesel, kerosene and LPG, adding to the overall inflation further.   

Those planning to buy consumer durables such as cars, television sets, computers, mobile phones and the like should also finish shopping fast as imports of raw materials for these articles are expected to cost more with every rise in dollar as appreciation of the currency putting severe pressure on companies which import substantial amount of components from overseas. 

and even some of you who are planning for MBA/MS abroad..its gonna cost more..

hope that economy handles this time well..

take care..:)