The Impact Of Currency Exchange Rate

by Kristen White Blogger
The value of the currency of one country varies on a daily basis; it becomes stronger or weaker against other currencies based on the several external economic factors. Sometimes the fluctuation can be extremely volatile. Whilst the fluctuating rates may not direct effect the people at large, it surely has a great impact on the business owners, especially the ones who direct trade in the forex market. Apart from the entrepreneurs, the foreign exchange rate affects the travellers, the exports and the import of the country and the economy at large.

The US dollar is one of the most popular and globally accepted currencies in the world. If you are an Indian and if you deal in US dollars for your business activities or if you are planning to travel abroad for business, study or travelling purposes, it would advisable that you keep a close tab on the US dollar to rupee forecast to know how strong or weak the rupee will stand against dollar in the near future and you get the best price for the exchange. Let us take a closer look at the effects of currency rate fluctuations

Impact on travellers

For Indians travelling abroad, especially to the US and majority of the European nations, everything would be expensive including food, accommodation facilities and shopping simply because of the higher value of the dollars as compared to the Indian currency. This greatly affects the purchasing power of the Indians; you would have to shell more money abroad than in India. So if you are travelling overseas and you are dealing with dollar make sure that you exchange the currency when the dollar price is at the lowest so that you get maximum value for the exchange.
Impact on the inflation

The foreign exchange rate has direct effect on the inflation rate of the country. Higher the value of the foreign exchange, higher will be the inflation and vice-versa. A stronger rupee value will have a great impact on lower the inflation rates, which in turn has a tremendous impact on the domestic Indian market and the purchasing power of the consumers. India is one of the biggest importers of oil, jewellery, electronic items and gold and as the value of the rupees strengthens against the US dollars, the import prices fall and it eventually drives down the inflation.

Impact on foreign investment

No matter if the rupee is falling against the dollar or if it is rising, it leaves a great effect on the FDI – foreign direct investment in the country. A fall in the rupee rates will accentuate the foreign investors’ losses on their equity portfolio, which in turn would trigger stop-losses and drag the Indian market further down.

Impact on exports

Whilst the strengthening of rupees is a good sign generally, the exports, is one area where it could have negative impact. This can be best explained with an example. Let us assume that a product that sold for $ 100 (Assuming the exchange at the time was the transaction was $68, the exporter would earn Rs. 6800 per sale), however, if the rupee strengthens and the exchange value is $65, the exporter’s earning would be Rs. 6500, which is Rs. 300 lesser than before. In such circumstances, the exporter will have only two choices, either accept the lower revenue or increase the sales price to retain the profit margins.

However, there is a great risk involved in increasing the selling price as the exporter would have to face stiff competition from an exporter from other country whose currency did not strengthened as much as the Indian rupees. No matter, if you are a small or a big exporter from India, make sure that you always look into the US dollar to Rupee forecast to fix your selling price accordingly and avoid loses.

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About Kristen White Committed   Blogger

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Joined APSense since, August 19th, 2016, From Chicago, United States.

Created on Jul 25th 2018 06:16. Viewed 291 times.


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