Currency

A Steady Movement for the Indian Currency

The rupee has been on a steady up move against other currencies since the start of the year. This is because we are increasingly seeing India's economic fundamentals fast improving. The Indian currency tends to gain against other world currencies when the fundamentals, particularly the trade deficit and the current account deficit improved. This is a good sign, though one can never predict how long the strength of the Indian rupee will continue. Currency markets are extremely volatile in nature and investors should avoid directly trading in them unless they have the expertise. Those looking to send and receive money from abroad can use our Indian rupee vs other currencies converter. 

What is the Exchange Rate?

The Exchange rate refers to the rate at which one country's currency will be exchanged for another country's currency. The exchange rate also stands as the value of one nation's currency in relation to another country's currency. Every nation determines its exchange rate regime which will apply to its respective currency.

For instance, a country's currency may be floating, fixed or hybrid. Governments of the respective countries can impose controls on exchange rates as well as certain limitations on the currencies.

Though in some exchanges, rates are fixed by an agreement, most of them fluctuate daily. The daily revision of these exchange rates will be listed in the financial sections of newspapers. It can also be found on the financial web portals.

In the case of a fixed exchange rate system, the exchange rates of a country’s currency will be established and the same will remain unchanged for a longer period. But keeping a currency under a fixed exchange rate system has its own share of cons as the country’s currency becomes overvalued, resulting in that nation being persistently in the balance of payment deficit.

It can also lead to devaluation of exchange rates (refixed at a lower rate), this situation will make its imports costlier and its exports cheaper.

Similarly, if the exchange rate is undervalued, the country may persistently face a situation of the balance of payments in surplus. The exchange rate has to be revalued (refixed at a higher rate), this situation will make the nation's imports cheaper and its exports more expensive.  

A currency converter is a program intended to convert the value of one country’s currency into another and is truly based on the market rate for that country. The values generated using this calculator are based on the bank exchange rates or existing market values.

Factors Affecting Currency Value and its Exchange Rate

Currently, in the currency market, it is necessary to take extreme caution and follow global trends, the economic and political situation of several countries, trends in the global trade and so on as these factors affect currency value.

Apart from the global international trends, the value of a currency is also based on political and domestic conditions prevailing in the respective country. Several factors like the GDP of a country, monetary policies, inflow and outflow of currency, fiscal policies, the performance of stock markets, interest rates, inflation rates, and economic and political stability are several factors which affect the value of a country’s currencies. All the currencies across the globe are priced and are relative to each other.

The respective government of individual countries have the power to influence the value of their domestic currency through the central bank. In India, the Reserve Bank of India has the power to influence the value of the Indian Rupee. It is done by flooding the markets with the domestic currency which leads to a drop in the prices following an excess supply of currency.

If the central bank prefers to raise the value of the domestic currency, then it will buy back a large amount of currency to create a demand situation in the market exceeding supply and thus the currency becomes dearer. This is termed central bank intervention. However, few central banks have some measure of flexibility and power to determine the value of the country’s currency.