Question

• Find the currency of your home country (India) and describe its value relative to the USD. . Is it under or over-valued compared to the USD? What problems or benefits do you think this relationship might cause for your country? Why?
• What problems or benefits do you think this relationship might cause for the US?
• Governments often intervene (manipulate) in foreign exchange markets to give their currency a more favorable rate. Do some research on the web to see what intervention has occurred or has been discussed lately regarding your country’s currency.

Answer 1

The value of 1 rs of Indian currency=0.013 US dollar

The value of Indian currency is lower than the value dollar in US.it is under valued than us dollar.

Firstly talking about the problems due to lower value of Indian currency are

-.there are various problems one of which is costlier foreign travel , education in abroad,health care in abroad etc

-. Higher in import costs for the country

-. The interest burden would increase on foreign currency denomination debts.

-. A large and rapid devaluation may scare off international investors.

The benefits of lower value of Indian currency could be

-. Exports of item could become cheaper

-. Travel to India will become cheaper as a result of which many foreigners will visit here and that would be beneficial for tourism industry and local market.

-. People of India working in abroad will get more income compared to here in India and will be able to remitt more money to their homeland.

The various benefits to US from strong dollar could be

The imports would be cheaper

The people coming for studies or tourism there will have to pay higher amount.

Foreign companies that do a lot of business in us and their investors will benefit.

With the dollor strengthening American consumers have benefited from less expensive foreign travel

But at the same time there are various disadvantages also as American companies that export or rely on global markets for the bulk of sales do not get benefits and get hurt.

US companies doing business abroad are hurt

Emerging market economies are negatively impacted.

The Reserve Bank of India which manages the value of rupees.the various tools taken by the RBI involves controlling it's supply in the market and thus making it cheap or expensive.

Some ways by which RBI controls the movement of the rupees are change in interest rate, relaxation or tightening of rules for fund flows, tweaking the cash reserve ratio and selling or buying the dollor in the open market.

RBI also fixes the statuary liquidity ratio i.e. the proportion of money banks have to invest in the government bonds etc

Please like my answer.Please.

Thank you.