Question

Select an area of the world upon which to focus your attention. For each major country of your selected area (like Canada, Mexico, Brazil, Argentina, Japan, China, India, Australia, Singapore, Hong Kong, South Korea, Russia, Germany, France, Italy, United Kingdom, Ireland, Spain, France, Switzerland, Sweden, Denmark, Finland, Saudi Arabia, Israel—I know I missed some), identify the currency in use in the country, show what the foreign currency is now selling for versus the U.S. dollar, and explain whether it has weakened or strengthened against the U.S. dollar for the current period and from 5 years ago. Finally, discuss why the currency has strengthened or weakened versus the U.S. dollar during these time periods.

Answer 1

Country - India.

Currency in use - Indian Rupees ( INR)

Rate of INR/ USD as on 2nd of december 2014 - INR 61.83.

Rate of INR/USD as on 2nd of December 2019 - INR 71.67

Fun fact: Reading foreign exchange rates have certain conventions. There are no speicified rules to adhere. It's just how poeple have agreed to read them in order to bring in uniformity.

There are 2 types of currencies: Base and quote. Base currency is usually the first in the currency pair quotation. In the above, INR is the base and USD the quote. It states how much of quote currency is required to buy one unit of base currency. Try it yourself. You may google "INR USD Exchange rate" and " USD INR Exchange rate" will get you different results.

Coming back, over a period of 5 years, the rupee has depreciated since more indian rupees are now required to get 1 USD.

Reasons for depreciation:

1. Current account deficit is the difference between imports and exports of goods and service of a country. A huge dependency on crude oil imports and its increasing price affects the current account health, making the deficit larger.

2. The Trade war between the United States and China.

3. Inflation in the country.

4. Foreign institutional investors repatriating their funds back to the U.S on account of introduction of tax/ higher rate of tax making their returns on investment not worthwhile.

5. Inefficient export policies by the government.