Why Rupee is falling against dollar ?

Rupee Falling against dollar. What it really means to us ? Does it makes any difference to us even if we don’t deal in dollars ? What are the reasons for this fall ? What are its adverse effects ? Can we do something about it ? Here we answer all these questions .

Rupee falls by 1 against dollar..What it means ?

It simply means that if earlier we had to pay 49 for a dollar, now we ll have to pay 50 for the same.In simple words, loss of 1 against every $1 transaction with fall of every rupee against dollar. So, if we buy a thing worth say , $1000 , then earlier we had to pay 49000 and now we have to pay 50000.So,1000 loss in just 1 day !

Why Rupee falling against Dollar ?

Well, there are many reasons for it….

  • Dollar inflows into the Indian economy are falling because of global troubles such as Eurozone crisis (Greece with a debt more than its economy, making dollar strong) and high valuation of Indian companies.
  • Due to falling Rupee rate against dollar ,FII’s pulling out their invesments from Indian market.Why so ? Say , a investor invests $500 in indian market.If market grows by 10%, his valuation becomes $550. But, talking in rupee terms, he invests $500 (25000 for 50per dollar).Now with 10% increase, it becomes 25000+2500 =27500.But, with falling rate of rupee, now rate becomes ,say 55 per dollar.
    Now, when he wants his money back in dollars , he would get 27500/55=$500. That means no profits for foreign investor.
    That’s why, FII( Foreign institutional investors) are withdrawing their money from indian markets and investing in more attractive destinations like china.This has lead to more decline in dollars in indian economy.
  • India’s imports are increasing and exports are decreasing due to large population.That simply means that much more dollars are being spent , as compared to their earnings.Again a big factor for declining dollars.
  • Restricted FDI policies.There are many sectors in which FDI is restricted such as retail, insurance, defence etc. Records show that our FDI inflows fell from $40billion (2008) to $25billion (2011).Due to relaxed FDI policies in China, FDI inflows in China are always above $100billion mark.

    Impact on Indian Market :
  1. Companies with foriegn debt would have to pay more for same debt.
  2. Oil companies would pay more for lesser valued barrel.About 70% of oil needs of India is imported.And if we go on paying more for unending oil needs, it would adversely affect indian market and increase inflation.
  3. With each international transaction, India is suffering mammoth losses.Till now , we have seen a very small scale losses with falling rupee.But, international trades are in values of lakhs of crores.With every falling rupee, India is in loss of hundreds of crores.

Just a small example.In 1947, $1 was equivalent to *1. So, for a transaction worth 5lakh crores, we had to pay 5lakh crores.Now, the rate is say, *50 per dollar. So, now for the same purchase worth 5 lakh crore, we have to pay 250 Lakh crore. Just Imagine !!!

Is anybody Gaining out of falling rupee?

 

  1. Yes, everyone who is exporting something to international market like US is gaining.Biggets example is IT sector. IT giants like TCS, Infosys are gaining the most out of every falling rupee because their contracts are fixed at dollars but with falling rupee, they end up earning more in rupees.
  2. Non-residential indians (NRI’s) are gaining the most in this situation.
Currency exchange rate does not determine the size of the economy .It is depended on the demand-supply dynamics of the market.
What is our Loss even if we don’t deal in dollars ?Well, because of growing differences in imports and exports, India needs to spend more and more.This is beacuse what we are selling are fetching less dollars and whatever we are buying, are demanding more dollars from us.This results in huge loss for Indian govt.So, to compensate for losses, govt increases tax or increase prices or any other way !!!! At last, common man is at loss !!
“Kuch bhi ho, marta main hi hun…The stupid common man “
I hope you like this post. Please do like the post or give your valuable comments to encourage us !! ..Thanks for reading at RsInsight.

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39 Responses to Why Rupee is falling against dollar ?

  1. kartik says:

    the information was good but i couldnt get the exact point of fall i.e eurozone stuff..

  2. Dhanraj Khatri says:

    Very simply, you said everything.

    Thanks a lot.

  3. achal says:

    please tell me how we print our money i mean what is the system. how much money reserve bank can print money

  4. zahid husain says:

    i m so glad to knw abt how currency really works!
    Gud post thanQ.

  5. pritam jindal says:

    thanx its very simple and esay to understand and m very lucky to read this page after hours of my search in this topic and it explained me every thing that i had in my mind

  6. PAWAN says:

    well said about Why Rupee is falling against dollar ? thanx 4 ur information.

  7. praveenkumar says:

    thanks dud you have cleared my doubts since many days.

  8. alinihas says:

    Very good post

  9. Rahul says:

    Nicely done……..

  10. sourabhdeep says:

    this is very much true, world bank is donating money to india just because the donors of the bank see india as a huge market to sell their goods, they want everybody that much educated so that every person should have demands, what these donor countries would sell to us in dollars. ex: now a day every one have bike and cellphone, even if his earning cant afford this. then whr the patrol and electronic parts are purchased from, from these donor countries, and these people are selling to them…? nothing. import increasing, export decreasing with the increase in demand…

  11. swamy says:

    iam partially satisfied, since the information is a bit consistent. this doesn’t explain the way how rupee has fallen against dollars from 1947 to 2012

  12. swamy says:

    plz let me know the answer for this question

  13. Vijay Kumbhar says:

    Thanks for this useful information……….must be read by all finance guys……

  14. Vijay says:

    good info..

  15. varudh says:

    Thanx Folks, that made my rusted mind polished with OIL again, Good information do present some problematic stuff say in tables figures and maths.

  16. Anoop says:

    Nice article. Liked it. It would be great if you could write an article regarding ” How do countries exchange money”. What would I do in America if I have 1 Crore rupees in my suitcase. How will I exchange it for dollars . And assuming that some agency in America exchanged my rupees for dollars, What will they do with rupees now??

    By the way..Keep up the excellent work that you guys are doing.
    Thanks

  17. jai says:

    thanx dear for such a nice information. bt m not agree with the fact that IT co’s are geting benefit with this fall of indian rupee against dollar. the reason is that most of the indian IT co’s outsourced for foreign clients mostly to US now as rupee is falling so these clients have to pay more money to the indian co’s, surely for the time being indian IT co’s may be getting benifit( because of contract or whatever)due to this fall, bt m worried in future if this fall continues for long as these clients would be start looking for some other destination for outsourcing which may have bad effect on our IT co’s

    • RS says:

      Hi Jai, you are right. See, whether IT companies are making profit or loss because of falling rupee depends on certain factors.
      It mainly depends on the type of contract signed by the IT company whether its a Fixed price or time based contract.

  18. k gnanasekar says:

    so we dont want to import any thing from other countries, we start export some thing

  19. anup kumar says:

    very very thanks
    Its clear my basic knowledge in easy language

  20. amitesh says:

    fantastic. iloved it

  21. Ankit Baria says:

    Nicely Explained the terms..!!

  22. bv says:

    please tell me.. our government how much money print per year. how much money reserve bank can print money.. any limits are here..? please tell me…

  23. Gulzar says:

    Thanks dear, thanks a lot for a such valuable knowledge. You explained it in simple words. I thought many time for the reason of fall in rupee but could not find it. Are there any other reasons for the same? And on other side we sought that India is going to be a world power nearby, will rupee improve its value or not in future because i think according to your article seems that the value of dollar will high in future……….

  24. Sonia says:

    You have made complex issues so simpler that anybody from whichever field can understand it. Thank you so much..really happy and satisfied to read your posts.

  25. Himanshu says:

    very well explained. One question I have in my mind. If there is high demand for a product, woudn’t number of suppliers will increase and competetion between the suppliers would bring down
    the price?

    • Rishabh says:

      Yes, but there’s a limit on availability of labour, land resources, power and many other factors which will limit the no of suppliers. I hope I satisfy your question

  26. vinamra kumar says:

    Very well said.. nicely explained.. great job..

    A loss for every Common Man.

  27. Indian says:

    Guys plz start using Indian product (Swadesi), at least the goods which comes under FMCG sector eg Soaps, Oil, toothpaste, brush etc. Stop drinking these soft drinks, instead drinking fresh fruit juices, even these carbonated drinks not good for health. This Swadesi movement won’t impact immediately but in longer term it will help in making our economy healthy. Please share it with others also so that we can take this Swadesi movement to each and every household in India. Thx

  28. RAVNEET says:

    O Great….thank u so much sir…really it is a very knowledgeable topic..i understand each and every aspect after hours of search in this topic.

    i have a question….how the currency rate, say rupee, is being decided for other currency, for dollar ???

    plz reply soon…….

    • Rishabh says:

      Hi Ravneet, I am obliged that you find it useful. Currency rate is simply determined by supply and demand factors. Why Rupee is falling against dollar is simply because our imports are more (we have to pay in dollars for imports from any country.Very few exceptions.),hence demand for dollars is more.Hence, currency rate is falling.You may also read post on Current account deficit in this blog, you will have better idea.Link is given below :
      http://www.rsinsight.com/current-account-deficit-meaning-with-examples/

  29. Really nice post…i have one question, like what to do, to be a NRI

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