WHY IS RUPEE GETTING DEPRICIATED?REASONS-EXTERNAL AND DOMESTIC?

Dollar strength: The dollar index has been rising on signs of growing economic momentum and talk of an early end to the Fed's stimulus effort. Widening trade deficit: Rising deficit is bad for India as it exposes the economy to the risk of sudden stop and reversal of capital flows. Weakness in domestic equities: Foreign institutional investors have been selling index futures in the last week. This is a hedging move as FIIs expect stocks (cash segment) to fall in the near term, traders said. FIIs have been a key support for markets (and the rupee) after buying over $15.38 billion (Rs. 90,000 crore) worth of shares this year as of last week. Rising import bill: Oil and gold imports account for 35 per cent and 11 per cent of India's trade bill respectively. Traders say there has been continuous demand for the greenback from oil importers, the biggest buyers of dollars in the domestic currency market, pushing the rupee lower. Similarly, falling gold prices have offset the government's and the central bank's moves to reduce gold imports, which increases current account deficit and weighs on the currency. Weak economic fundamentals: weak economy and no signs of a quick fix solution are weighing on the rupee. The UPA government is unlikely to deliver far reaching reforms to generate heavy capital inflows, as it did last September to stave off the loss of India's investment grade credit rating 6) US Federal Reserve Chairman Ben Bernanke confirmed that the Fed could begin rolling back its Quantitative Easing (QE) programme later this year.With the US economy strengthening, foreign investment has begun to take flight from the Indian stock and the debt markets. The strong demand for the dollar vis--vis the rupee has seen the rupee fall. 7)With demand for Chinas goods weakening, leading to a drop in exports, and the domestic markets too showing signs of sluggishness, global markets have been rudely shaken up. With Asian, European and the US markets reacting to the flagging Chinese economic engine, the Indian stock markets too have been hit How to curb Rupee fall? What can Govt,RBI n Sebi do? 1) urging exporters to buy more rupees to staggering import payments --- Explain? 2) Foreign Direct Investment 3)Exports A falling rupee against the dollar will give exporters a reason to rejoice briefly in terms of profits. But this volatile situation may raise import bills which could affect their business. Hence, the government or RBI could take help from exporters by asking them to convert foreign currencies which could temporarily relieve the rupee crisis.

4)Interest rates As long the rupee is under pressure, RBI will hesitate to ease anytime soon 5)NRI remittances NRIs are all smiles as the real estate sector is an attractive investment on a weak rupee. India is the largest recipient of global remittances in the world, receiving $69 billion in 2012, according to a World Bank report. The money that expatriates send will have more value now because of a depreciating rupee. Non-resident Indians can not only send more money back home but also purchase a home for reasonable prices because a weak rupee means more value for every dollar they spend. The rupees dip against the dollar will help them purchase properties as they can buy more rupees. 6)Curb gold imports

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> "if the U.S. Fed withdraws its bond buying programme, there might be sudden outward flow of money, leaving India scrambling for dollars".HOW?EXPLAIN? "The reaction to Fed is exaggerated, outflows may happen but with the rupee so cheap it may be time for new money to also come in" Explain? "Keeping rates high on the ground of defending the rupee, at least will likely only further defer recovery, deter FII equity inflows, delay re-accumulation of FX reserves and depreciate the rupee" -How? Depreciating rupee will also cause an increase in inflation -How? We need to get export competitiveness by increasing our productivity, by increasing our competitiveness in other ways, not by the exchange rate. --why n how? >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Quantitative Easing QE is an unconventional monetary policy aimed to stimulate the national economy. This is achieved by buying financial assets from commercial banks and other private institutions to widen the countrys monetary base, thereby increasing money supply in the economy. Through QE, long-term interest rates remain low, resulting in higher borrowing and spending that boosts the economy. Why did stock markets crash if rupee falls?

Stock market traders are concerned that an end to the US monetary stimulus could lead to portfolio outflows, pushing the rupee lower and, in turn, delaying any rate cuts from the central bank.If rate cuts dont take place boosting investment gets hampered and so economic growth will not be there. Why did Gold prices crash if rupee falls ? Gold price, on the other hand is inversely related to the value of the dollar. Since gold is globally seen as a hedge against inflation or uncertainties, investors park their money in gold whenever US dollar depreciates. Conversely, they promptly shift their investments from gold to dollar once the American currency appreciates. Gold and similar precious metals are no more seen as a viable asset class to hold. ILL EFFECTS OF RUPEE DEPRECIATION? A weak rupee can weigh down your chances of studying abroad. Higher interest rates Travel: If you are planning to travel while the rupee is weak, you may want to reconsider as air fares will be expensive considering an increase in fuel surcharge. If you apply for a car loan, you will have to pay more depending on where the vehicle is assembled and the components imported by the automobile company. Rupee depreciation may prompt oil companies to hike petrol and diesel prices. A weak currency will increase the price of imports which will translate into an increase in the prices of consumer products. A falling rupee makes imports more expensive in terms of rupees. India is a major importer of oil, gold and iron ore among other things, and more money spent on imports will show up in inflation data which in turn will lead to increase in electronics, fuel prices and consumer products. Considering Indias reliance for raw materials from overseas, a weaker rupee affects the profits of companies.it might be trouble for aviation. On the other hand, aviation sector will be disappointed with a weak rupee because most of their earnings are in rupees while they spend in dollars. Domestic real estate sector will remain bleak POSITIVE EFFECTS OF RUPEE DEPRICIATION? will help increase Indias export competitiveness especially with other emerging Asian markets like China and Korea.

Its good news for a few IT companies operating in India because most of the countries tech firms gain revenue from the US, a weak rupee can help them earn relatively more. Pharmaceuticals companies in the doing business in the country will gain when rupee depreciates because they export more than they import. Its good news for a few IT companies operating in India because most of the countries tech firms gain revenue from the US, a weak rupee can help them earn relatively more. Pharmaceuticals companies in the doing business in the country will gain when rupee depreciates because they export more than they import. On the other hand, aviation sector will be disappointed with a weak rupee because most of their earnings are in rupees while they spend in dollars. Non-resident Indians can purchase a home for a low price because a weak rupee means more value for every dollar they spend. The rupees dip against the dollar will help Indians living abroad to purchase properties in their homeland as they can buy more rupees.

How to increase country's exports?