There are certain banks which are allowed to exchange different currencies of the world. These banks define the rate of each currency based on simple economic calculation “Demand and Supply”. Now if Demand of Dollar is more compared to Indian Rupee then INR will depreciate and vice versa.
These are the two factors that derive the Demand of a currency.
1) Economic situation of the country
2) Export and Import Deficit
But more importantly speculation plays a major in deriving price.
If we take India as an example we import oil from different nations but the payment is done in US Dollar. We can earn this dollar by either exporting goods to different countries or by buying it from banks. If we have to buy the dollars from bank then it will depreciate our Rupee value.
Now the most important question is what the impact of these currency fluctuations is in our day to day life. Well Again the answer is all the things that are directly dependent on Imports would become costlier and all the things that are dependent on Exports would be Cheaper. Example Oil, Gold, Telephones etc will become costlier and Services to US and textile industries would thrive from this situation
Sep 14th, 2013
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