Professional Genie

WHY RUPEE VALUE CHANGES????? T he Value of a Country's Currency is linked with its economic conditions and policies, it depends on factors that effect economy such as imports and exports, inflation, employment, interest rates, growth rate, trade deficit, performance of equity markets, foreign exchange reserves, macroeconomic policies, foreign investment inflows, banking capital, commodity prices and geopolitical conditions.                      Income levels influence currencies through consumer spending. When income increases people spend more and demand for imported goods increases, as a result it weakens the local currency.                     Balance of payments which comprises trade balance (net inflow/outflow of money) and flow of capital also effect the value of country's currency, another factor is the difference in interest rate b/w countries. Let us consider...

IMPACT OF FEDERAL RATE HIKE ON INDIA CURRENCY It primarily affects India by decreasing the value of India’s currency against the US dollar. In order to understand this, you need to understand the link between currency and interest rates. In general, emerging economies like India have higher inflation and higher interest rates than developed countries like US and Europe. For example, the interest rates in India right now are around 7–8%, inflation is 5-6% whereas both interest rates and inflation in the US are close to 1-1.5% . So a lot of financial institutions raise/borrow money in the US on low interest rates in dollar terms and then invest that money in government bonds of emerging countries such as India in local currency terms to earn higher interest. Even after taking into account the depreciation of the local currency due to higher inflation, the investors still earn more than what they could have earned had they just kept their money in the US bonds. Many FII...