WHY RUPEE VALUE CHANGES?????

The 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 the recent RBI move to deregulate interest rate and it steps towards repo rate for maintaining at its existing rate let us understand in simple terms by below diagram.

So from above diagram we can understand that inflation is caused by

MORE MONEY WITH PEOPLE = MONEY SUPPLY INCREASED = INCREASED INFLATION

To control money supply in the economy(and thereby fight both inflation and deflation).RBI implements monetary policy using certain tools and one of them is REPO RATE{REPO RATE= INTERST CHARGED BY RBI in case of borrowing from RBI by BANKS (say SBI) for short term period.}

If you are looking for a machine that can print money, first meet who actually owns one i.e. government. Money is printed by government, but they cannot print all the money they need without the economy growing at the same pace, the result can be catastrophic. Zimbabwe is one of the best example

In the modern economy government print money based on their assessment of future economic growth and demand. The purchasing power of currency remains constant if the increase in money supply is equal to the rise in GDP and other factors influencing the currency remain unchanged.

Another factor that effect rupee is foreign exchange reserves, these are assets in possession of central bank (i.e. RBI) and it is usually denominated in foreign currency which is USD in india. The increase in demand for USD will reduces the forex reserves (i.e. increase of imports) and leads to increase in domestic currency supply (i.e rupee),Hence the rupee will fall. Decrease in forex reserve is a sign of economic ill health and can have a bearish effect on the domestic currency.