RUPEE DEPRECIATION
- April 24, 2021
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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RUPEE DEPRECIATION
Subject : Economics
Context : The rupee’s near-term fortunes may directly be influenced by the Reserve Bank of India’s intent on preventing any further depreciation in the currency as the surge in COVID-19 cases hits jobs and growth, economists and traders said.
Concept :
Appreciation and Depreciation of Currency
- In a floating exchange rate system, market forces (based on demand and supply of a currency) determine the value of a currency.
- Currency Appreciation: It is an increase in the value of one currency in relation to another currency.
- Currencies appreciate against each other for a variety of reasons, including government policy, interest rates, trade balances and business cycles.
- Currency appreciation discourages a country’s export activity as its products and services become costlier to buy.
- Currency Depreciation: It is a fall in the value of a currency in a floating exchange rate system.
- Economic fundamentals, political instability, or risk aversion can cause currency depreciation.
- Currency depreciation encourages a country’s export activity as its products and services become cheaper to buy.
The following are some of the principal determinants of the exchange rate between two countries.
- Differentials in Inflation
- Differentials in Interest Rates
- Current Account Deficits
- Public Debt
- Terms of Trade