| Every country has its own currency (except in Europe where a group of countries have a common currency- Euro). Conversion rate is the rate at which we convert one currency into another currency of two Countries. The conversion of Indian Rupee into US $ or any other currency is done by Authorised Dealers or Banks dealing in Foreign Exchange Business. The conversion takes place on the respective date of dealing. Buying of currency or Exchange of currency takes place in the Foreign exchange market. The conversion rate changes on daily basis depending on the demand and supply of each currency.
Almost daily we read in the news paper that the Rupee has depreciated or appreciated on a particular day and creates a confusion when we see that value of Rupee has moved from Rs. 62.00 to 62.95 or vice versa which gives a reverse impression . Hence it is essential to understand what is appreciation and depreciation refers to when we read such news on daily basis. What is meant by Rupee Depreciation and Rupee Appreciation? Assuming that we wish to purchase US$100,and the selling rate being Rs. 65/- per US$ we will need to pay Rs. 6500/-for that day. After few days we find that the selling rate becomes Rs.66.10 and we are required to pay Rs. 6610/- for same value of US $. This means you have pay more to receive the same amount of US $ and hence the local currency has depreciated. This will be known as Depreciation of Indian Rupee. On the other hand, if the rate quoted by bank on second occasion becomes Rs. 63.80 per US$ ie total value for 100 US$ will be Rs. 6380/- as against Rs 6500/-. It will be considered as appreciation of INR as this time one has to pay less amount to buy the same amount of US$. Appreciation: Appreciating Rupee means that now the Dollar is now cheaper than what it used to be earlier in other words you can buy more from the international market spending the same amount of Rupees. Depreciation: When there is a fall in the value of a currency in a floating exchange rate. This is not due to a government’s decision, but due to supply and demand side factors. (Although if the government sold a lot of their currency they could help cause a depreciation.) |
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| Impact of Depreciation and Appreciation of Rupee on Indian living in India. Assuming that initially the exchange rate of US$-INR is Rs.62.02 (Feb.15 Refer Table above) : | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Effect on
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If Rupee DEPRECIATES
(For example, when US$-INR moved from Rs.62.02 in Feb 15 to Rs/66.90 as of Jan 16) |
If Rupee APPRECIATES
(For example, when US$-INR moves from Rs 62.02 to Rs 59.29) |
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| Importers | Imports became costly since Feb 15 as for each USD we have to pay Rs. 4.88 more.
IMPORTS BECOME COSTLIER |
Imports become cheaper as for each USD we have to pay Rs 2.73 less.
IMPORTS BECOME CHEAPER |
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| Exporters | Exporters will have higher revenue. For exports of each Dollar, the exporter will get Rs 4.88 higher
EXPORTERS EARN MORE |
Exporters will earn lower revenue. For exports of each dollar, now the exporter will get Rs 2.73 less.
EXPORTERS EARN LESS |
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| Indian Who Wish to Go on Holidays Abroad | For each dollar taken abroad for spending, the traveller has to pay Rs 4.88 more and thus his trip will become costlier
TRIP IS COSTLIER |
For each dollar he intends to take abroad for spending, the traveller has to pay Rs 2.73 less and thus his trip will become cheaper.
TRIP IS CHEAPER |
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