Submitted by: Submitted by PaperCamp
Views: 742
Words: 5475
Pages: 22
Category: Business and Industry
Date Submitted: 05/26/2008 06:32 AM
Index
Introduction………………………………..………………03
Current scenario………………………………….……...04
Causes ……………………………………………………..…05
Impact...………..……………………………….……………09
Corrective measures………………….…………….….15
Future…………………………………………………………17
Conclusion…………………………………………………..18
Bibliography……………………..………………………...19
INTRODUCTION
The recent sudden and fast appreciation of the rupee has many economists, bankers, and treasury managers running from pillar to post to find answers. They want answers to, first, what happened, then why and how and, lastly, what will happen down the road.
Currencies appreciate when the economies are doing well and the rise in their values is a cause for celebration. The high value of the deutsche mark when Germany was the trendsetter for the world economy in the 1960s and the 1970s, the high value of the yen in the 1980s when Japan Inc seemed set to take over the world and the dollar's high value in the later 1990s when the US new economy brooked no competition were sources of immense pride for their respective countries.
An appreciating currency is the natural corollary of a booming economy with rising exports and is normally looked on favorably. The high-decibel lamentation over the rupee's appreciation, therefore, needs closer examination. The causes for rupee's appreciation after years of continuous depreciation are readily apparent. The current account surplus for the first time in years (it has since reversed), due to increased merchandise exports and invisibles, has resulted in supplies of foreign currency going up sharply.
The huge FII inflows into financial asset markets and increasing reliance on low cost foreign loans add to the supply glut, and help power the rupee higher.
The rupee's appreciation is a result of forces of demand and supply operating in the forex markets and involves no cost to the exchequer. The heartburn on the rupee's appreciation...