Question

why do you think Indian rupee might be so undervalued?

which direction do you expect the exchange rate of a dollar to rupee change in the long run? Why?

Answer 1

1st question

Indian currency is being hammered in the foreign exchange market. However, it still deserves attention since the exchange rate is the price that determines our economic interaction with the rest of the world.

There are at least three different ways in which to look at the value of the rupee. The first is the nominal exchange rate against the US dollar. This is the number that dominates the news these days. It is simply the relative price of the two currencies, or how many rupees it takes to buy one dollar. The usual rule is that the country with higher inflation needs to let its currency go down. The intuitive logic is quite simple: The external value of a currency has to move in tandem with its internal value. There are other factors such as productivity growth that matter as well, but the inflation differential is a good starting point.

2nd Question

My expectation of dollar to rupee in 2027 is Rs.50 to a dollar.By 2037 it would further enhance to Rs.40 to a dollar.

This trend will happen as exports to U.S. will decline and post-Trump-America would have learnt to be self-sufficient and not dependent on imports. Countries like India will no more be importing defence aircrafts and submarines and such wasteful products. A massive collapse of the inflated economies will lead to a shrinking currency trade volumes and Indian rupee would gain tremendously when OCI will return home and invest here, because it will make no sense in putting the money in Europe and North America. Trade through Barter will be the standard norm. Dollar will sell at Rs.7, by 2057, returning to its position 90 years earlier.