Question

In: Economics

a- Select a country of your choice ( other than US, SAUDI ARABIA , EUROPEAN COUNTRIES,...

a- Select a country of your choice ( other than US, SAUDI ARABIA , EUROPEAN COUNTRIES, UK,GCC countries)

b- Describe the nature of Ex-Change rate arrangements adopted (FIXED/FLEXIBLE/MANAGED FLOAT OR ANY OTHER)

c-Track the history of the country’s currency with USD for the past 1 YEAR and note the 52-week average. Examine (appreciation or depreciation) the performance of the currency against USD .

d- Examine reasons behind the currency's performance and its impact of the currency's performance on the overall economy (to business especially exporters & importers)

Solutions

Expert Solution

a -Country Selected: India

b - Ex-Change rate arrangements adopted : Managed Float Exchange Rate System from 1994 onwards - it is the hybrid exchange rate system, which is determined by the market forces but during extreme fluctuations, the central bank under it intervenes in the foreign exchange market, so that fluctuations can be reduced.

c - 1 year history of india's currency with USD.

link - https://tradingeconomics.com/india/currency

- 52 week average - Rs. 73.64

indian rupee depreciated (compared to 52 week avg of Rs 70.28 on 28-10-2019)

d) indian rs on Oct 2019 was around ~ 70rs = 1 dollar

in april 2020 it is ~76rs = 1 dollar

now in oct 2020 it is ~73 rs = 1 dollar

Reason - which shows that in 2020 compared to 2019 indian currency performed badly mainly because many countries are hit by Covid-19, which created many uncertainties, which led to fall in demand, high rate of unemployment, businesses are not making profits etc. people are consuming less due to which the value of money went down.

Impacts - it can lead to heavy loss to india like recession, increase in govt expenditure (to uplift the economy) etc.

On imports and exports - it will make imports more expensive and exports cheaper for overseas customer.

This type of situation affects business negatively as due to less demand businesses are not able to make profits and chances of going in debt are high.

Rahul Sunny answered 2 years ago
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