1. INDIAN FOREIGN
EXCHANGE MARKET
& RUPEE EXCHANGE
RATE

2. CONTENTS
SR. NO. PARTICULARS
1
Introduction
2
Instruments Of Foreign Exchange Market
3
Foreign Exchange Rate & Fluctuations in
Exchange Rate
4
Types of Exchange Rates
5
Determinants of Exchange Rates
6
Appreciation & Depreciation of Indian Rupee
7
Rupee Exchange Rate

3. What??
Price of a currency in respect to other
country’s currency is called as
exchange rates.
If a demand for a currency rises its
price rises and it is called as
appreciation
If demand of other country’s currency
increases the home currency’s price
falls and it is called depreciation

4. Forex markets functions as anchors of trading between different types of buyers & sellers
around the world.
The gradual liberalization of Indian economy has resulted in a substantial inflow of foreign
currency capital into India.
dismantling of trade barriers has also facilitated the integration of domestic economy with the
world economy.
The foreign exchange market comprises:
Corporate
Commercial Banks (e.g. SBI, Kotak, ICICI etc.)
Exchange Brokers (e.g. FX Pro, Nord FX etc.)
Central Banks (e.g. Reserve Bank of India)

5. Why Not??
Leads to imports
getting costlier
which is a worry
for India as we
meet most of our
oil demand via
imports
Apart from
oil, prices of
imported
commodities like
metals, gold etc
will also rise
pushing overall
inflation higher.
Exchange rate risk
also drives away
foreign investors
which in turn
depreciates the
local currency.
The total external
debt has
increased by from
US$ 365.3 billion
to US$ 400.3
billion by the end
of September
2013

6. Affect...
• Only exporters will
be happy like IT
companies
• Importers will feel
the heat
Importers &
exporters
• CAD will grow
more which in turn
force the Indian
govt. To go for
international
borrowing
Country’s
fiscal health
• Expenses for the
college fees as well
as living will shoot
up
Students
studying
abroad
• 3rd highest
importer of crude
oil increase in fuel
prices after the
new policy
Fuel price
• The depreciating
rupee price will
hamper the people
planning their
holiday abroad.
tourism

7. How??
Measures
by RBI
Measures by
government
• Using FOREX reserves: RBI can sell forex reserves
and buy leading Indian Rupees leading to demand
for rupee
• Raising interest rates: to prevent sudden capital
outflows and ultimately lead to higher capital
inflows
• Make investments attractive: RBI can increase the
FII limit on investment in government and
corporate debt investments.
• Government should take
some efforts to bring FDI
and create a healthy
environment for
economic growth.

8. • A foreign currency
swap is an
exchange of
borrowings, where
the principal &
interest payments
in one currency are
exchanged for the
principal & interest
payments of
another currency
• The seller of the
option grants the
buyer the right to
either purchase
from or sell to the
seller the currency
at a specified price
within a specified
period of time.
Currency Options
• It is a future
contract to
exchange one
currency for
another at a
specified date in
the future at a
future exchange
rate
Currency Swaps
• A buyer & seller
agree on an
exchange rate for
any date in the
future & the
transaction occurs
on that date
regardless of the
market rates.
Currency Futures
Foreign Exchange Forwards
Instruments for foreign exchange
market

9. Foreign exchange rates
• Foreign Exchange rate (aka Forex
Rate) between two countries is
the rate at which one currency
would be exchanged for the
other. E.g. US$1= ₹62

10. Fluctuations in exchange rates
• A market-based exchange rate will change
whenever the values of either of the two
component currencies change. A currency will
tend to become more valuable whenever
demand for it is greater than the available
supply.
• Increased demand for a currency can be due
to either an increased transaction demand for
money or an increased speculative demand
for money. The transaction demand is highly
correlated to a country's level of business
activity, gross domestic product (GDP), and
employment levels.

11. Types of exchange rates
float
• Floating rates are the most common exchange
rate regime today
• since central banks frequently intervene to
avoid excessive appreciation or
depreciation, these regimes are often
called managed float or a dirty float.
Pegged
float
• Pegged floating currencies are pegged to some band or
value, either fixed or periodically adjusted. Pegged floats are:
• Crawling bands: The rate is allowed to fluctuate in a
band around a central value, which is adjusted periodically.
This is done at a preannounced rate or in a controlled way
following economic indicators.
• Crawling pegs: Crawling peg is an exchange rate
regime usually seen as a part of fixed exchange rate regimes
that allows depreciation or appreciation in an exchange
rate gradually. The system is a method to fully utilize the key
under the fixed exchange regimes as well as the flexibility
under the floating exchange rate regime.
fixed
• Fixed rates are those that have direct convertibility
towards another currency. In case of a separate
currency, also known as a currency
board arrangement, the domestic currency is backed
one to one by foreign reserves

12. Determinants of exchange rates
•
•
•
•
•
•
Differentials in inflation
Differentials in interest rates
Current-account deficits
Public debt
Terms of trade
Political stability & economic
performance

13. Appreciation & depreciation on
Indian Rupee
Currency
appreciation
Currency appreciation
is the increase in the
value of
domestic currency wit
h respect to the
foreign currency.
Appreciation occurs
because of a change
in exchange
rates, a unit of one
currency buys more
units of another
currency.
Importers gain from
Appreciation of
Domestic currency
and loose when it
depreciates.
Currency
depreciation
is the loss in value
of the domestic
country's currency
with respect to the
foreign currency.
Exporters loose
from appreciation
and gain from
depreciation.

14. Why appreciating currencies rate as a
concern?
When your home currency gains
in value against other currencies
it appreciates meaning that the
same amount of it is able to
purchase a larger amount of a
particular foreign currency.

15. Reasons for depreciation of rupee
•
•
•
•
•
Current account deficit
Inflation
Political paralysis
Recession in Euro zone
Negative remarks of credit agencies

16. Effects of Depreciation in Rupee in
India
• Value of imported items such as laptops, mobile
phones crude oil, motor cars etc. will increase as
imports become dearer.
• The current account deficit will increase due to the
reduction in exports and an increase in imports.
• Depletion in Forex reserves.
• The borrowing cost for the companies will increase.
• Studying and travel abroad will cost more.
• Deprecation in rupee is good for companies which are
billing to its customers in dollars.
• It is good for employees who are abroad and getting
salary in dollars.

17. Measures to Control Fall in Rupee:
• 1. Allowing sovereign wealth funds, endowment
funds and foreign central banks to invest in
government bonds.
2. Raising the foreign investment cap.
3. Boost the slowing industrial growth.
4. More exports incentives and reduce imports.
5. Limit the foreign currency expenditure.
6. The RBI could persuade banks and financial
institutions to raise funds in dollars abroad and
lend them locally.
7. The government could review sectors such as
defense, or revive pension and insurance
reforms.

18. Rupee exchange rate
The rupee exchange rate is the
rate at which rupees are
exchanged for foreign currencies.

19. The following is the last 5 days
value of:
• Dollar-Rupee Rate (1US$=
₹?):
• 27th Dec 2013 (Fri): ₹61.98
• 30th Dec 2013 (Mon):
₹61.89
• 31st Dec 2013 (Tue):
₹61.90
• 2nd Jan 2014 (Thu): ₹62.26
• 3rd Jan 2014 (Fri): ₹62.19

20. •
•
•
•
•
•
Pound-Rupee Rate (1£= ₹?):
27th Dec 2013 (Fri): ₹102.03
30th Dec 2013 (Mon): ₹102.16
31st Dec 2013 (Tue): ₹102.00
2nd Jan 2014 (Thu): ₹102.74
3rd Jan 2014 (Fri): ₹102.53

21. •
•
•
•
•
•
Euro-Rupee Rate (1€= ₹?):
27th Dec 2013 (Fri): ₹85.27
30th Dec 2013 (Mon): ₹85.18
31st Dec 2013 (Tue): ₹85.36
2nd Jan 2014 (Thu): ₹85.15
3rd Jan 2014 (Fri): ₹85.19

22. •
•
•
•
•
•
Yen-Rupee Rate (1¥= ₹?):
27th Dec 2013 (Fri): ₹0.59
30th Dec 2013 (Mon): ₹0.588
31st Dec 2013 (Tue): ₹0.587
2nd Jan 2014 (Thu): ₹0.587
3rd Jan 2014 (Fri): ₹0.599