Currency Performance
The value of a nation's currency fluctuates depending on several factors including its economic activity, interest rates, and geopolitical risk. Ever since countries abandoned the gold standard, national currencies have floated against one another on a global market. Floating currencies (such as the Indian ₹) have a floating exchange rate, which changes based on the demand and supply mechanisms of the foreign exchange market.
Currency fluctuations are a natural outcome of the floating exchange rate system, which is the norm for most major economies. When currencies fluctuate wildly, they can create economic uncertainty and instability, affecting capital flows and international trade. When the demand for a currency is high, the currency appreciates in value. As a result, buyers shift to a cheaper currency, thus lowering the demand for the country's exported goods causing the trade deficit to widen further, eventually further weakening the currency in a self-adjusting mechanism. A weaker currency will stimulate exports and make imports more expensive, thereby decreasing a nation’s trade deficit (or increasing surplus) over time.
Foreign capital generally tends to flow into countries that have strong governments, dynamic economies, and stable currencies as the prospect of exchange losses inflicted by currency depreciation is a significant deterrent for the foreign investors.
The value of a nation's currency fluctuates depending on several factors including its economic activity, interest rates, and geopolitical risk. Ever since countries abandoned the gold standard, national currencies have floated against one another on a global market. Floating currencies (such as the Indian ₹) have a floating exchange rate, which changes based on the demand and supply mechanisms of the foreign exchange market.
Currency fluctuations are a natural outcome of the floating exchange rate system, which is the norm for most major economies. When currencies fluctuate wildly, they can create economic uncertainty and instability, affecting capital flows and international trade. When the demand for a currency is high, the currency appreciates in value. As a result, buyers shift to a cheaper currency, thus lowering the demand for the country's exported goods causing the trade deficit to widen further, eventually further weakening the currency in a self-adjusting mechanism. A weaker currency will stimulate exports and make imports more expensive, thereby decreasing a nation’s trade deficit (or increasing surplus) over time.
Foreign capital generally tends to flow into countries that have strong governments, dynamic economies, and stable currencies as the prospect of exchange losses inflicted by currency depreciation is a significant deterrent for the foreign investors.
SUBJECT Variables
AVERAGE EXCHANGE RATE
- The average exchange rate of Indian Rupee against the dollar in 2022 was 78.60 (i.e. 1 USD = ₹78.60), a 6.4% decline over the previous year.
- Between 2014 and 2022, the Indian rupee has fallen by 28.8% against the US dollar - from an exchange rate of 61.03 per US dollar in 2014 to 78.60 per US dollar in 2022
- The average exchange rate of Indian Rupee against the Euro in 2022 was 82.72 (i.e. 1 EUR = ₹82.72), a 5.2% gain over the previous year.
- Between 2014 and 2022, the Indian rupee has fallen by 2% against the Euro - from an exchange rate of 81.12 per Euro in 2014 to 82.72 per Euro in 2022
- The average exchange rate of Indian Rupee against the Pound Sterling in 2022 was 97.04 (i.e. 1 GBP = ₹97.04), a 4.5% gain over the previous year.
- Between 2014 and 2022, the Indian rupee has risen by 3.8% against the Pound Sterling - from an exchange rate of 100.54 per GBP in 2014 to 97.04 per GBP in 2022
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