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Ancient India, presently modern states of  Pakistan and north-western India, was one of the earliest issuers of coins in the world (circa6th century BC),[1] along with the Chinese wen and Lydian staters. The origin of the word "rupee" is found in the Sanskrit rūpya "shaped; stamped, impressed; coin".

The derivative word rūpaya[citation needed ] was used to denote the coin introduced by Sher Shah Suri during his reign of 1540 to 1545.

The original rūpaya was a silver coin weighing 175 grains troy (about 11.34 grams).[2] The silver coin remained in use during theMughal period as well as in British India. 

Among the earliest issues of  paper rupees were those by the Bank of Hindustan (1770 – 1832), the General Bank of Bengal and Bihar  

(1773 – 75, established by Warren Hastings), the Bengal Bank (1784 – 91), amongst others.

Formerly the rupee was divided into 16 annas, 64 paise, or 192 pies. In Arabia and East Africa the British India rupee was current atvarious times, including the paisa and was used as far south as Natal. In Mozambique the British India rupees were overstamped, andin Kenya the British East Africa company minted the rupee and its fractions as well as pice . It was maintained as the florin, using thesame standard, until 1920. In Somalia the Italian colonial authority minted 'Rupia' to exactly the same standard, and called the paisa'besa'. Early 19th century E.I.C. rupees were used in Australia for a limited period. Decimalisation occurred in Ceylon (Sri Lanka) in1872, India in 1957 and in Pakistan in 1961.

Historically, the rupee was a silver based currency. This had severe consequences in the 19th century, when the strongest economiesin the world were on the gold standard. The discovery of vast quantities of silver in the U.S. and various European colonies resulted ina decline in the relative value of silver to gold. Suddenly the standard currency of India could not buy as much from the outside world.This event was known as "the fall of the Rupee."

During British rule, and the first decade of independence, the rupee was subdivided into 16 annas. Each anna was subdivided intoeither 4 pices, or 12 pies. 

In 1957, decimalisation occurred and the rupee was now divided into 100 Naye Paise (Hindi for new paisas). After a few years, theinitial "Naye" was dropped. However many still refer to 25, 50 and 75 paise as 4, 8 and 12 annas respectively, not unlike the nowlargely defunct usage of "bit" in American English for 1/8 dollar. However the usage is in decline.

[edit] Early paper issues

Notes issued by the Bank of Bengal can be categorised in the following three series.

  Unifaced series: The early notes of the Bank of Bengal were printed only on one side and were issued as one gold mohur andin denominations of Rs. 100, Rs. 250, Rs. 500, etc.

  Commerce series: Later notes had a vignette representing an allegorical female figure personifying 'commerce'. The noteswere printed on both sides. On the obverse the name of the bank and the denominations were printed in three scripts, viz.,{Urdu, Bengali and Devanagari}. On the reverse of such notes was printed a cartouche with ornamentation carrying the nameof the Bank.

  Brittania series: By late 19th century, the motif 'commerce' was replaced by 'Britannia'. The new banknotes had morefeatures to prevent forgery.

[edit] British India issues

The Paper Currency Act of 1861 gave the Government the monopoly of note issue throughout the vast expanse of India, which was aconsiderable task. Eventually, the management of paper currency was entrusted to the Mint Masters, the Accountant Generals and the

Controller of Currency.

  Victoria portrait series: The first set of British India notes were the 'Victoria Portrait' series issued in denominations of 10,20, 50, 100 and 1000. These were unifaced, carried two language panels. The security features incorporated the watermark,the printed signature and the registration of the notes.

  Underprint series: The unifaced Underprint series was introduced in 1867 as the Victoria Portrait series was withdrawn inthe wake of a spate of forgeries. These notes were issued in denominations of Rs 5, 10, 20, 50, 100, 500, 1000 and 10000.

  George V series: A series carrying the portrait of  George V were introduced in 1923, and was continued as an integralfeature of all paper money issues of British India. These notes were issued in denominations of Rs 1, 2½, 5, 10, 50, 100,1000, 10,000.

[edit] Reserve Bank issues during British India

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The Reserve Bank of India was formally inaugurated on Monday, April 1, 1935 with its Central Office at Calcutta. Section 22 of theRBI Act, 1934, empowered it to continue issuing Government of India notes until its own notes were ready for issue. The bank issuedthe first five rupee note bearing the portrait of  George VI in 1938. This was followed by Rs. 10 in February, Rs 100 in March and Rs1,000 and Rs 10,000 in June 1938. The first Reserve Bank issues were signed by the second Governor, Sir James Taylor. In August1940, the one-rupee note was reintroduced as a wartime measure, as a Government note with the status of a rupee coin. During thewar, the Japanese produced high-quality forgeries of the Indian currency. This necessitated a change in the watermark. The profileportrait of George VI was changed to his full frontal portrait. The security thread was introduced for the first time in India. TheGeorge VI series continued till 1947 and thereafter as a frozen series till 1950 when post-independence notes were issued.

[edit] Republic of India issues

After Independence of India, the government brought out the new design Re. 1 note in 1949. Initially it was felt that the King's portraitbe replaced by a portrait of  Mahatma Gandhi. Finally however, the Lion Capital of Asoka was chosen. The new design of notes werelargely along earlier lines. In 1953, Hindi was displayed prominently on the new notes. The economic crisis in late 1960s led to areduction in the size of notes in 1967. High denomination notes, like Rs. 10,000 notes were demonetised in 1978.

The "Mahatma Gandhi Series" was introduced in 1996. Prominent new features included a changed watermark, windowed securitythread, latent image and intaglio features for the visually handicapped.

[edit] Rupee coinage since the British periodMain articles: Indian coinage, British Indian coins, and Modern Indian coins 

The British settlements in Western India, South India, and the Eastern Province of  Bengal (Calcutta) independently developeddifferent coinages in consonance with the local acceptability of the coins for the purposes of trade.

1 Paisa coupon issued by Sayla state One rupee, Queen Victoria series, 1862 Half anna (2 paisa) coin; an anna = 4 paisa, George VIseries, 1945

The coins of Bengal were developed in the Mughal style and those of  Madras mostly in a South Indian style. The English coins of Western India developed along Mughal as well as English patterns. It was only in 1717 AD that the English obtained permission from

the Emperor Farrukh Siyar to coin Mughal money at the Bombay mint. The British gold coins were termed Carolina, the silver coinsAnglina, the copper coins Cupperoon and tin coins Tinny. By the early 1830, the English had become the dominant power in India.The Coinage Act of 1835 provided for uniform coinage throughout India. The new coins had the effigy of  William IV on the obverseand the value on the reverse in English and Persian. The coins issued after 1840 bore the portrait of  Queen Victoria. The first coinageunder the crown was issued in 1862 and in 1877 Queen Victoria assumed the title the Empress of India.

The 1911 accession to the throne of the King-Emperor George V led to the famous "pig rupee". On the coin the King appearedwearing the chain of the Order of the Indian Elephant. Through poor engraving the elephant looked very much like a pig. The Muslim population was enraged and the image had to be quickly redesigned.

Acute shortage of silver during the First World War, led to the introduction of paper currency of One Rupee and Two and a half Rupees. The silver coins of smaller denominations were issued in cupro-nickel. The compulsion of the Second World War led toexperiments in coinage where the standard rupee was replaced by the "Quaternary Silver Alloy". The Quaternary Silver coins wereissued from 1940. In 1947 these were replaced by pure Nickel coins.

Immediately after independence, the British coinage was continued. The Monetary System remained unchanged at One Rupeeconsisting of 64 pice, or 192 pies.

The "Anna Series" was introduced on 15 August 1950. this was the first coinage of  Republic of India. The King's Portrait wasreplaced by the Asoka's Lion Capital. A corn sheaf replaced the Tiger on the one Rupee coin. The monetary system was retained withone Rupee consisting of 16 Annas. The 1955 Indian Coinage (Amendment) Act, that came into force with effect from 1 April 1957,introduced a "Decimal series". The rupee was now divided into 100 'Paisa' instead of 16 Annas or 64 Pice.

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With high inflation in the sixties, small denomination coins which were made of bronze, nickel-brass, cupro-nickel, and Aluminium-Bronze were gradually minted in Aluminium. This change commenced with the introduction of the new hexagonal 3 paise coin. Atwenty paise coin was introduced in 1968 but did not gain much popularity.

Over a period of time, cost benefit considerations led to the gradual discontinuance of 1, 2 and 3 paise coins in the seventies; Stainlesssteel coinage of 10, 25 and 50 paise, was introduced in 1988 and of one rupee in 1992. The very considerable costs of managing noteissues of Re 1, Rs 2, and Rs 5 led to the gradual coinisation of these denominations in the 1990s.

[edit] Other issues

Main articles: Pakistani rupee, French Indian rupee, Portuguese Indian Rupia, and Gulf rupee 

  Pakistani issues: After independence, Pakistan adopted the Pakistani Rupee to fund the nation. Today, the notes feature thefather of the nation, Jinnah. 

  Jammu and Kashmir issues: Maharaja Rambir Singh introduced paper money on watermarked paper in 1877. The noteswere not very popular and were in circulation for a very short period. The notes carried the 'Sun' motif of the Dogra family.

  Hyderabad issues: The Government of  Hyderabad had made several efforts to organise private bankers to set up a bankingcompany which could issue paper money. The British, however resisted the attempts of Indian princely states to issue papercurrency. The acute shortage of silver during the First World War and the contributions of  Hyderabad State to the British wareffort led them to accept, in 1918, paper currency in denominations of Rs.10/- and Rs.100/- issued under the HyderabadCurrency Act. The currency was designated the Osmania Sicca (OS). Rupee One and Rupees Five notes were issuedsubsequently in 1919 and Rupees One Thousand notes were issued in 1926. After the setting up of the India Currency NotesPress at Nasik , Hyderabad notes came to be printed there.

  Burma issues: Burma separated from India in 1938; however, the Reserve Bank of India acted as Banker to the Governmentof  Burma and was responsible for note issue in terms of the Burma Monetary Arrangements Order, 1937. In May 1938 theBank issued Burma notes which were not legal tender in India.

  Indo-French issues: The French Indian rupee (FIR) was introduced by France's Bank of  Indochina in French colonies of India. 

  Indo-Portuguese issues : The Portuguese Indian Rupia was the currency of  Portuguese India until 1959. It was divisible into16 Tangas or 960 Reis. In 1959, the currency was changed to the Portuguese Indian Escudo, at the rate of 1 Rupia for 6Escudos.

  Persian Gulf issues: For many years in the early and mid-20th century, the Indian rupee was the official currency in severalareas that were controlled by the British and governed from India; areas such as East Africa, Southern Arabia and the PersianGulf . The rupees used in the Persian Gulf had been bought by the Gulf states from the Reserve Bank of India, who held thesterling reserves by which the rupees had originally been purchased. However, Indian rupees were being smuggled fromIndia to the states of the Persian Gulf in exchange for gold. It was estimated in 1959 that the total amount of gold in private

hands in India was about $US1.75 to 2 billion — roughly two thirds of the value of paper money in circulation. While it waslegal to own and to trade in gold within India, it was illegal to import or export gold. The Gulf Rupee, also known as thePersian Gulf Rupee (XPGR), was introduced by the Indian government as a replacement for the Indian Rupee for circulationexclusively outside the country with the Reserve Bank of India Amendment Act, 1 May 1959. After India devalued the rupeeon 6 June 1966, those countries still using it - Oman, Qatar and what is now the United Arab Emirates (known as the TrucialStates until 1971) - replaced the Gulf Rupee with their own currencies. Kuwait and Bahrain had already done so in 1961 and1965 respectively.

  Emergency issues, Princely states: During the 1940s, when mints were occupied for use in the war, an acute scarcity of small coins was felt throughout India. Princely states in Western India like Balvan, Bikaner, Bundi, Gondal, Indergadh, Junagadh, Jasdan, Kutch Mengni, Muli, Morvi, Mangrol, Nawanagar, Nawalgarh Palitana, Rajkot, Sailana, Sayla, Vithalgadh, issued "Cash Coupons" to meet the shortage.

 Hyderabad state OS Rs. 100 issu ..Five rupees, 1922..Portuguese Indian 1 rupee, 1924..French Indian 1 rupee, 1938..GeorgeVI profile portrait, RBI, 1937

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 George VI profile portrait changed to frontal portrait, RBI, 1943..Two rupees, Republic of India

[edit] The fall of the Rupee

Price of silver – Rate of exchange: 1871 – 72 to 1892 – 93 

PeriodPrice of silver (inpence per Troyounce) 

Rupee exchange rate(in pence)

1871 – 1872 60½ 23 ⅛ 

1875 – 1876 56¾ 21⅝ 

1879 – 1880 51¼ 20

1883 – 1884 50½ 19½

1887 – 1888 44⅝  18⅞ 

1890 – 1891 47 11/16 18⅛ 

1891 – 1892 45 16¾

1892 – 1893 39 15Source: B.E. Dadachanji. History of Indian Currency and 

 Exchange, 3rd enlarged ed. (Bombay: D.B. TaraporevalaSons & Co, 1934), p. 15.

After its victory in the Franco-Prussian War (1870 – 71), Germany extracted a huge indemnity from France of £200,000,000, and thenmoved to join Britain on a gold standard for currency. France, the U.S. and other industrialising countries followed Germany inadopting a gold standard throughout the 1870s. At the same time, other countries, such as Japan, which did not have the necessaryaccess to gold or those, such as India, which were subject to imperial policies that determined that they did not move to a goldstandard, remained mostly on a silver standard. A huge divide between silver-based and gold-based economies resulted. The worstaffected were economies with silver standard that traded mainly with economies with gold standard. With discovery of more and moresilver reserves, those currencies based on gold continued to rise in value and those based on silver were declining due todemonetization of silver. For India which carried out most of its trade with gold based countries, especially Britain, the im pact of this

shift was profound. As the price of silver continued to fall, so too did the exchange value of the rupee, when measured against poundsterling. 

[edit] The Indian rupee since 1957

Since its Independence in 1947, India has faced two major financial crises and two consequent devaluations of the rupee: In 1966 and1991.

[edit] Decimalisation

A summary of the decimalisation of the Rupee:[3]

 Dates Currency system

From 1835 1 rupee = 16 annas = 64 pices (paise) = 192 pies

From 1 April 1957 1 rupee = 100 naya paise

From 1 June 1964 1 rupee = 100 paise

The demand for decimalisation existed for over a century. Sri Lanka decimalised its rupee in 1869. The  Indian Coinage Act wasamended in September 1955 for the adoption of a decimal system for coinage. The Act came into force with effect from 1 April 1957.The rupee remained unchanged in value and nomenclature. It, however, was now divided into 100 'Paisa' instead of 16 Annas or 64Pice. For public recognition, the new decimal Paisa was termed 'Naya Paisa' until 1 June 1964 when the term 'Naya' was dropped. The

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coins of that period also mentioned their value in terms of the rupee to avoid confusion and cheating. For example, the one paisa coincarried the text "One hundredth of a Rupee" in Hindi.

[edit] 1966 Economic crisis

Since 1950, India ran continued trade deficits that increased in magnitude in the 1960s. Furthermore, the Government of India had a budget deficit problem and could not borrow money from abroad or from the private corporate sector, due to that sector’s nega tivesavings rate. As a result, the government issued bonds to the RBI, which increased the money supply, leading to inflation. In 1966,foreign aid, which was hitherto a key factor in preventing devaluation of the rupee was finally cut off and India was told it had to

liberalise its restrictions on trade before foreign aid would again materialise. The response was the politically unpopular step of devaluation accompanied by liberalisation. Furthermore, The Indo-Pakistani War of 1965 led the US and other countries friendlytowards Pakistan to withdraw foreign aid to India, which further necessitated devaluation. Defence spending in 1965/1966 was24.06% of total expenditure, the highest it has been in the period from 1965 to 1989 (Foundations, pp 195). The second factor is thedrought of 1965/1966. The sharp rise in prices in this period, which led to devaluation, was often blamed on the drought bygovernment.

At the end of 1969, the Indian Rupee was trading at around 13 British Pence. A decade later, by 1979, it was trading at around 6British Pence. Finally by the end of 1989, the Indian Rupee had plunged to an all-time low of 3 British Pence. This triggered the onsetof a wave of irreversible liberalisation reforms away from populist measures.

[edit] 1991 Economic crisis

In 1991, India still had a fixed exchange rate system, where the rupee was pegged to the value of a basket of currencies of majortrading partners. India started having balance of payments problems since 1985, and by the end of 1990, it found itself in seriouseconomic trouble. The government was close to default and its foreign exchange reserves had dried up to the point that India could barely finance three weeks’ worth of imports. As in 1966, India faced high inflation and large government budget deficits. This led thegovernment to devalue the rupee.

At the end of 1999, the Indian Rupee was devalued considerably.

[edit] Revaluation

In the period 2000 – 2007, the Rupee stopped declining and stabilized ranging between 1 USD = INR 44 – 48. In recent times, the IndianRupee had begun to gain value and by 2007 traded around 39 Rs to 1 US dollar , on sustained foreign investment flows into thecountry. This posed problems for major exporters and BPO firms located in the country. The trend has reversed lately with the 2008world financial crisis. The changes in the relative value of the rupee has reflected that of most currencies, e.g. the British Pound,which had gained value against the dollar and then has lost value again with the recession of 2008.

[edit] Valuation history

INR Value against USD

Year Exchange rate (rupees per US$)

1952 5.000

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1970 7.576

1975 8.409

1980 7.887

1985 12.369

1990 17.504

1995 32.427

2000 45.000

2006 48.336

2007 (Oct) 38.48

2008 (June) 42.51

2008 (October) 48.88

2009 (October) 46.37

2010 (January 22) 46.21

2011 (April) 44.17

2011 (September 21) 48.24

2011 (November 17) 50.97

2011 (November 24) 52.11

2011 (December 15) 53.65

2011 (November 22)

53.65* (Touched All-time low till date)

*It is not closing price

The Indian rupee (Devanagari:  ) (sign: ; code: INR) is the official currency of the Republic of India. The issuance of the

currency is controlled by the Reserve Bank of India.[1] 

The modern rupee is subdivided into 100  paise (singular paisa) though this division is now theoretical; as of 30 June 2011, coindenominations of less than 50 paise ceased to be legal tender.[2][3] Bank notes are available in nominal values of 5, 10, 20, 50, 100, 500

and 1000 rupees. Coins of the rupee are available in 1, 2, 5 and 10. Paise coins of the rupee have nominal values of 50, and lowerdenominations have been officially withdrawn.

The Indian rupee symbol  (officially adopted 2010) is derived from the Devanagari consonant "र " (Ra) with an added horizontal bar.

The symbol can also be derived from the Latin consonant "R" by removing the vertical line, and adding two horizontal bars (like thesymbols for the Japanese Yen and the Euro). The first series of coins with the rupee symbol was launched on 8 July 2011.

[edit] Etymology

   (tôka) in Assamese 

   (taka) in Bengali 

  (rupiyo) in Gujarati, 

    (rupayā) in Hindi 

   (rūpāyi) in Kannada and Tulu, 

   (rūpā) in Malayalam. 

  (rupaye) in Marathi, 

  (rupaiyaN) in Nepali and

    (rupiā) in Punjabi, 

      (rūpyakam) in Sanskrit 

   (rūbāi) in Tamil, 

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   (rūpāyi) in Telugu, 

  ni (haipur) ہ ی پ و رUrdu 

However, in Assam Valley, West Bengal, Tripura, Mizoram and Orissa, the Indian rupee is officially known by names derived from

the word  (Tanka) which means money.[4] Thus, the rupee is called  (tôka) in Assamese,  (Taka) in Bengali and  

(Tanka) in Oriya. The amount and the word "rupee" is accordingly written on Indian banknotes in 15 Indian languages.[5] 

[edit] Symbol

On 5 March 2009, the Indian government announced a controversial contest to create a sign for the Indian rupee.[6][7] During the 2010Union Budget, Finance Minister Pranab Mukherjee mentioned that the proposed sign would reflect and capture the Indian ethos andculture.[8] Five signs created by Nondita Correa-Mehrotra, Hitesh Padmashali, Shibin KK, Shahrukh J Irani, and D Udaya Kumar[9][10] had been short-listed[10] from around 3331 responses received and one of them was to be finalized at the Union Council of Ministers ofIndia meeting held on 24 June 2010.[11] The decision was deferred by a request of the Finance Minister,[8] and it was decided whenthey met again on 15 July 2010,[12] and selected the symbol created by D. Udaya Kumar son of N. Dharmalingam, a former DMK MLA.[13] 

The selection process was challenged under the Right to Information Act in the Delhi High Court. The petitioner, Rakesh Kumar, whowas a participant in the competition, described the process as "full of discrepancies" and "flawed", and named the Finance Ministryand the chairman of Indian Rupee Symbol Selection Committee as respondents.[14] 

On 26 November 2010, the Delhi High single bench Court dismissed the writ petition, stating there was no justifiable ground for thestated allegations.[15] But on March 31, 2011, Chief Justice and Justice Sanjiv Khanna of Delhi High Court in their judgment courtallowed RTI activist Rakesh Kumar Singh to file PIL against ―Indian Rupee symbol selection process‖. 

According to Guideline No. 5 of the contest process, submitted symbols were required to be "in the Indian National Language Scriptor a visual representation". It has been argued that this violates the Constitution of India, because that does not specify any particularIndian Language Script as the Indian National Language Script.[16] 

[edit] Numeral systemMain article: Indian numbering system 

Although based on the decimal system is unlike western cultures; after a thousand the next major figure is not a million (thousand x

thousand) but a lakh (hundred x thousand) or 1,00,000; after this the next is not a billion (thousand x thousand x thousand)[going byAmerican English definition], but a crore (hundred x hundred x thousand) or 1,00,00,000 in numerical form. Therefore in IndianEnglish, values greater than or equal to hundred thousand Indian rupees are spoken of, written and counted in terms of lakhs (one lakh= hundred thousand), and crores (one crore = ten million).

For example, the amount 3,25,84,729.25 is read as three crore(s), twenty-five lakh(s), eighty-four thousand, seven hundred andtwenty-nine rupees and twenty-five paise. The use of million or billion, as is standard in American or British English, is not commonand sometimes cause confusion to the ill informed and can lead to mis-translations and consequential problems.

[edit] History

 Rupiya released by Sher Shah Suri, 1540 – 1545 CE

The first "rupee" is believed to have been introduced by Sher Shah Suri (1486 – 1545), based on a ratio of 40 copper pieces (paisa) perrupee.[17] Among the earliest issues of paper rupees were those by the Bank of Hindustan (1770 – 1832), the Generalarren Hastings)and the Bengal Bank (1784 – 91), amongst others. Until 1815, the Madras Presidency also issued a currency based on the panam, with12 panams equal to the rupee.

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Historically, the rupee, derived from the Sanskrit word raupya, which means silver , was a silver coin. This had severe consequences inthe nineteenth century, when the strongest economies in the world were on the gold standard. The discovery of vast quantities of silverin the U.S. and various European colonies resulted in a decline in the relative value of silver to gold. Suddenly the standard currencyof India could not buy as much from the outside world. This event was known as "the fall of the rupee".

India was not affected by the imperial order-in-council of 1825 that attempted to introduce the British sterling coinage to the Britishcolonies. British India at that time was controlled by the British East India Company. The silver rupee continued as the currency of India throughout the entire period of the British Raj and beyond. In 1835, British India set itself firmly upon a mono-metallic silverstandard based on the rupee. His decision was influenced by a letter, written in the year 1805, by Lord Liverpool that extolled the

virtues of mono-metallism.

Following the Indian Mutiny in 1857, the British government took direct control of British India. Since 1851, gold sovereigns werebeing produced in large numbers at the Royal Mint branch in Sydney, New South Wales. In the year 1864 in an attempt to make theBritish gold sovereign become the 'imperial coin', the treasuries in Bombay and Calcutta were instructed to receive gold sovereigns. These gold sovereigns however never left the vaults. As was realized in the previous decade in Canada and the next year in HongKong, existing habits are hard to replace. Just as the British government had finally given up any hopes of replacing the rupee in Indiawith the pound sterling, it simultaneously realized, and for the same reasons, that they could not easily replace the silver dollar in theStraits Settlements with the Indian rupee, as had been the desire of the British East India Company.

Since the great silver crisis of 1873, a growing number of nations had been adopting the gold standard, however the Indian currencysystem maintained its silver-standard tradition, which remained until it was replaced by a basket of commodities and currencies in thelate twentieth century.[citation needed ] 

The Indian rupee replaced the Danish Indian rupee in 1845, the French Indian rupee in 1954 and the Portuguese Indian escudo in1961. Following independence in 1947, the Indian rupee replaced all the currencies of the previously autonomous states. Some of these states had issued rupees equal to those issued by the British (such as the Travancore rupee). Other currencies included theHyderabad rupee and the Kutch kori. Nominal value during British rule, and the first decade of independence:

  1 damidi(pie) = 0.520833 paise (1/12 Anna)

  1 kani(pice) = 1.5625 paise (1/4 Anna)

  1 paraka = 3.125 paise (1/2 Anna)

  1 anna = 6.25 paise (1 Anna)

  1 beda = 12.5 paise (2 Anna)

  1 pavala = 25 paise (4 Anna)

  1 artharupee = 50 paise (8 Anna)

  1 rupee = 100 paise (16 Anna)

In 1957, decimalisation occurred and the rupee was divided into 100 naye paise (Hindi for "new paise"). In 1964, the initial "naye"was dropped. Many still refer to 25, 50 and 75 paise as 4, 8 and 12 annas respectively, not unlike the usage of "bit" in AmericanEnglish for ⅛ dollar.

 The One Rupee Banknote..The two-rupee banknote..French Indian 1 rupee (1938)..One rupee — Obverse

[edit] The rupee on the East African coast and South Arabia

In East Africa, Arabia, and Mesopotamia the Rupee and its subsidiary coinage was current at various times. The usage of the Rupee inEast Africa extended from Somalia in the north, to as far south as Natal. In Mozambique the British India rupees were overstamped,and in Kenya the British East Africa Company minted the rupee and its fractions as well as pice. The rise in the price of silverimmediately after the First World War caused the rupee to rise in value to two shillings sterling. In 1920 in British East Africa, theopportunity was then taken to introduce a new florin coin, hence bringing the currency into line with sterling. Shortly after that, theFlorin was split into two East African shillings. This assimilation to sterling did not however happen in British India itself. In Somaliathe Italian colonial authority minted 'rupia' to exactly the same standard, and called the pice 'besa'.

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[edit] The rupee in the Straits Settlements

The Straits Settlements were originally an outlier of the British East India Company. The Spanish dollar had already taken hold in theStraits Settlements by the time the British arrived in the nineteenth century, however, the East India Company tried to introduce therupee in its place. These attempts were resisted by the locals, and by 1867 when the British government took over direct control of theStraits Settlements from the East India Company, attempts to introduce the rupee were finally abandoned.

[edit] International use

With Partition, the Pakistani rupee came into existence, initially using Indian coins and Indian currency notes simply overstampedwith "Pakistan". In previous times, the Indian rupee was an official currency of other countries, including Aden, Oman, Kuwait, Bahrain, Qatar, the Trucial States, Kenya, Tanganyika, Uganda, the Seychelles, and Mauritius. See also: Pakistani rupee 

The Indian government introduced the Gulf rupee, also known as the Persian Gulf rupee (XPGR), as a replacement for the Indianrupee for circulation exclusively outside the country with the Reserve Bank of India [Amendment] Act, 1 May 1959. This creation of a separate currency was an attempt to reduce the strain put on India's foreign reserves by gold smuggling. After India devalued therupee on 6 June 1966, those countries still using it – Oman, Qatar, and the Trucial States (which became the United Arab Emirates in1971) – replaced the Gulf rupee with their own currencies. Kuwait and Bahrain had already done so in 1961 and 1965 respectively.

The Bhutanese ngultrum is pegged at par with the Indian rupee, and both currencies are accepted in Bhutan. The Indian rupee is alsoaccepted in Nepal. However, Indian Rupee denominations of 500 and 1000 are banned in Nepal. Rupee is the currency of  Sri Lanka 

also.

[edit] Coins

[edit] East India Company, 1835

The three Presidencies established by the British East India Company (Bengal, Bombay and Madras) each issued their own coinagesup to 1835. All three issued rupees together with fractions down to ⅛ and

1 ⁄ 16 rupee in silver. Madras also issued 2 rupees coins.

Copper denominations were more varied. Bengal issued 1 pie, ½, 1 and 2 paise. Bombay issued 1 pie, ¼, ½, 1, 1½, 2 and 4 paise. InMadras, there were copper coins for 2, 4 pies, 1, 2 and 4 paisa, with the first two denominated as ½ and 1 dub or 1 ⁄ 96 and 1 ⁄ 48 rupee.Note that Madras also issued the Madras fanam until 1815.

All three Presidencies issued gold mohurs and fractions of mohurs, including 1 ⁄ 16, ⅛, ¼ and ½ in Bengal, 1 ⁄ 15 (a gold rupee) and ⅓

(pancia) in Bombay and ¼, ⅓ and ½ in Madras. 

In 1835, a single coinage for the EIC was introduced. It consisted of copper 1 ⁄ 12, ¼ and ½ anna, silver ¼, ½ and 1 rupee and gold 1 and

2 mohurs. In 1841, silver 2 annas were added, followed by copper ½ pice in 1853. The coinage of the EIC continued to be issued until1862, even after the Company had been taken over by the Crown.

[edit] Regal issues, 1862 – 1947

In 1862, coins were introduced which are referred to as Regal issues. They bore the portrait of  Queen Victoria and the designation"India". Denominations were 1

 ⁄ 12 anna, ½ pice, ¼ and ½ anna (all in copper), 2 annas, ¼, ½ and 1 rupee (silver) and 5 and 10 rupeesand 1 mohur (gold). The gold denominations ceased production in 1891 while no ½ anna coins were issued dated later than 1877.

In 1906, bronze replaced copper for the lowest three denominations and in 1907, a cupro-nickel 1 anna was introduced. In 1918 and1919, cupro-nickel 2, 4 and 8 annas were introduced, although the 4 and 8 annas coins were only issued until 1921 and did not replacetheir silver equivalents. Also in 1918, the Bombay mint struck  gold sovereigns and 15 rupee coins identical in size to the sovereigns asan emergency measure due to the First World War.

In the early 1940s, several changes were implemented. The 1 ⁄ 12 anna and ½ pice ceased production, the ¼ anna was changed to abronze, holed coin, cupro-nickel and nickel-brass ½ anna coins were introduced, nickel-brass was used to produce some 1 and 2 annascoins, and the composition of the silver coins was reduced from 91.7% to 50%. The last of the regal issues were cupro-nickel ¼, ½and 1 rupee pieces minted in 1946 and 1947.

[edit] Independent issues, predecimal, 1950 – 1957

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India's first coins after independence were issued in 1950. They were 1 pice, ½, 1 and 2 annas, ¼, ½ and 1 rupee denominations. Thesizes and compositions were the same as the final Regal issues, except for the 1 pice, which was bronze but not holed.

[edit] Independent issues, decimal, 1957-

The first decimal issues of India consisted of 1, 2, 5, 10, 25 & 50 naye paise, as well as 1 rupee. The 1 naya paisa was bronze, the 2, 5& 10 naye paise were cupro-nickel & the 25 & 50 naye paise & 1 rupee were nickel. In 1964, the word naya(e) was removed from allthe coins. Between 1964 & 1967, aluminum 1, 2, 3, 5 & 10 paise were introduced. In 1968, nickel-brass 20 paise were introduced,replaced by aluminum coins in 1982. Between 1972 & 1975, cupro-nickel replaced nickel in the 25 & 50 paise as well as the 1 rupee.

In 1982, cupro-nickel 2 rupees coins were introduced. In 1988, stainless steel 10, 25 & 50 paise were introduced, followed by 1 & 5rupee coins in 1992. Recently 5 Rupee coins made from Brass are being minted by RBI 

Between 2005 & 2008, new, lighter 50 paise, 1, 2 & 5 rupee coins were introduced, all struck in ferritic stainless steel. The move wasprompted by the melting down of older coins whose face value was less than their scrap value.

The coins commonly in circulation are 1, 2, 5 & 10 rupees. Although they remain valid, paise coins have become increasingly rare inregular usage.

The Indian Government has decided to phase out all paise coins.

The coins are minted at the four locations of the India Government Mint. Note the 1, 2 & 5 rupee coins have been minted sinceindependence. Coins minted with the "Hand Picture" are 2005 onwards.

[edit] Special coins

After independence, RBI minted coins having imprint of Indian statesman, historical and religious figures.

[edit] British India, 1861 – 1947

In 1861, the Government of India introduced its first paper money, 10 rupee in 1864, 5 rupees in 1872, 10,000 rupees in 1899, 100rupees in 1900, 50 rupees in 1905, 500 rupees in 1907 and 1000 rupees in 1909. In 1917, 1 and 2½ rupees notes were introduced. TheReserve Bank of India began note production in 1938, issuing 2, 5, 10, 50, 100, 1000 and 10000 rupee notes, while the Governmentcontinued to issue 1 rupee notes.

[edit] Independent issues since 1949

After independence, new designs were introduced to remove the portrait of the King. The government continued to issue the 1 rupeenote, while the Reserve Bank issued other denominations, including the 5000 and 10,000 rupee notes introduced in 1949. In the 1970s20 and 50 rupee notes were introduced but denominations higher than 100 rupees were demonetized in 1978. In 1987, the 500 rupeenote was introduced, followed by the 1000 rupees in 2000. 1 Rupee and 2 rupees notes were discontinued in 1995. 5 Rupees note willbe discontinued shortly. Conisation of notes till Rs. 20 is being planned.

In September 2009, the Reserve Bank of India decided to introduce polymer notes (polymer banknote) on a trial basis. Initially, 100crore (1 billion) pieces of 10 denomination notes will be introduced.[19] According to the Reserve Bank officials, the polymer noteswill have an average lifespan of 5 years (4 times the regular Indian bank notes) and will be difficult to counterfeit. They would also becleaner than the regular notes.

[edit] Currently circulating notes

The design of banknotes is approved by the Central Government on the recommendations of the Central Board of the Reserve Bank ofIndia.[1] Currency notes are printed at the Currency Note Press, Nashik , Bank Note Press, Dewas, Bharatiya Note Mudra Nigam (P)Limited presses at Salboni and Mysore and at the Watermark Paper Manufacturing Mill, Hoshangabad. 

The current series of banknotes, which began in 1996, is called the Mahatma Gandhi series. At present, banknotes are issued in thedenominations of 5, 10, 20, 50, 100, 500 and 1000. Printing of 5 notes which had stopped earlier restarted in 2009.ATMs usually give out 100, 500, and 1000 notes. The Zero rupee note is not an official government issue but a symbol of protestand it is printed and distributed by an NGO in India.

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[edit] Languages

Each banknote has its amount written in 15 languages. On the obverse side, the denomination is written in English and Hindi. On thereverse of each note is a language panel that displays the denomination of the note in 15 of the 22 official languages of India. Thelanguages are displayed in the alphabetical order. The languages included on the panel are Assamese, Bengali, Gujarati, Kannada, Kashmiri, Konkani, Malayalam, Marathi, Nepali, Oriya, Punjabi, Sanskrit, Tamil, Telugu and Urdu. 

[edit] Security features

The main security features of the current banknotes are listed below:

  Watermark - White side panel of notes has Mahatma Gandhi watermark.

  Security thread - All notes have a silver security band with inscriptions visible when held against light which reads Bharat inHindi and RBI in English.

  Latent image - On notes with denominations of  20 and upwards, a vertical band on the right side of the Mahatma Gandhi’s

portrait contains a latent image showing the respective denominational value in numeral which is visible only when the noteis held horizontally at eye level.

  Microlettering - Numeral denominational value is visible under magnifying glass between security thread and latent image.

  Intaglio - On notes with denominations of 10 and upwards, the portrait of Mahatma Gandhi, the Reserve Bank seal,guarantee and promise clause, Ashoka Pillar Emblem on the left, RBI Governor's signature are printed in intaglio i.e. inraised prints.

  Identification Mark - On the left of the watermark window different shapes are printed in Intaglio for various denominations (

20 - Vertical Rectangle, 50 - Square, 100 - Triangle, 500 - Circle, 1000 - Diamond). This also helps the visuallyimpaired to identify the denomination.

  Fluorescence - Number panels glow under ultra-violet light.

  Optically variable ink - Notes of 500 and 1000 have their numerals printed in optically variable ink. Number appearsgreen when note is held flat but changes to blue when viewed at angle.

  See through Register - Floral design printed on the front and the back of the note coincides and perfectly overlap each otherwhen viewed against light.

  EURion constellation - A pattern of symbols found on the banknote helps software detect the presence of a banknote in adigital image so that it can prevent its reproduction with devices such as color photocopiers.

[edit] Convertibility

Most traded currencies by value 

Currency distribution of global foreign exchange market turnover

[21]

 

Rank CurrencyISO 4217 code(Symbol)

% daily share(April 2010)

1  United States dollar  USD ($) 84.9%

2  Euro  EUR (€) 39.1%

3  Japanese yen  JPY (¥) 19.0%

4  Pound sterling  GBP (£) 12.9%

5  Australian dollar  AUD ($) 7.6%

6  Swiss franc  CHF (Fr) 6.4%

7  Canadian dollar  CAD ($) 5.3%

8  Hong Kong dollar  HKD ($) 2.4%9  Swedish krona  SEK (kr) 2.2%

10  New Zealand dollar  NZD ($) 1.6%

11  South Korean won  KRW (₩) 1.5%

12  Singapore dollar  SGD ($) 1.4%

13  Norwegian krone  NOK (kr) 1.3%

14  Mexican peso  MXN ($) 1.3%

15  Indian rupee  INR ( ) 0.9%

Other 12.2%

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Total[22]  200% 

Officially, the Indian rupee has a market determined exchange rate. However, the RBI trades actively in the USD/INR currencymarket to impact effective exchange rates. Thus, the currency regime in place for the Indian rupee with respect to the US dollar is a de

 facto controlled exchange rate. This is sometimes called a "managed float". Other rates such as the EUR/INR and INR/JPY havevolatilities that are typical of  floating exchange rates.[23] It should be noted, however, that unlike China, successive administrations (through RBI, the central bank) have not followed a policy of  pegging the INR to a specific foreign currency at a particular exchangerate. RBI intervention in currency markets is solely to deliver low volatility in the exchange rates, and not to take a view on the rate ordirection of the Indian rupee in relation to other currencies.[24] 

Also affecting convertibility is a series of  customs regulations restricting the import and export of rupees. Legally, foreign nationalsare forbidden from importing or exporting rupees, while Indian nationals can import and export only up to 5000 rupees at a time, andthe possession of 500 and 1000 rupee notes in Nepal is prohibited.

RBI also exercises a system of  capital controls in addition to the intervention (through active trading) in the currency markets. On thecurrent account, there are no currency conversion restrictions hindering buying or selling foreign exchange (though trade bar riers doexist). On the capital account, foreign institutional investors have convertibility to bring money in and out of the country and buysecurities (subject to certain quantitative restrictions). Local firms are able to take capital out of the country in order to expandglobally. But local households are restricted in their ability to do global diversification. However, owing to an enormous expansion of the current account and the capital account, India is increasingly moving towards de facto full convertibility.

There is some confusion regarding the interchange of the currency with gold, but the system that India follows is that money cannot be

exchanged for gold, in any circumstances or any situation. Money cannot be changed into gold by the RBI. This is because it willbecome difficult to handle it. India follows the same principle as Great Britain and America.Chronology

  1991 - India began to lift restrictions on its currency. A series of reforms remove restrictions on current account transactionsincluding trade, interest payments & remittances and on some capital assets-based transactions. Liberalized Exchange RateManagement System (LERMS), a dual exchange rate system, introduced a partial convertibility of the Rupee in March1992.[25] 

  1997 - A panel set up to explore capital account convertibility recommended India move towards full convertibility by 2000,but timetable abandoned in the wake of the 1997-98 East Asian financial crisis. 

  2006 - The Prime Minister, Dr Manmohan Singh, asks the Finance Minister and the Reserve Bank of India to prepare a roadmap for moving towards capital account convertibility. "The "Fuller Capital Account Convertibility Report"". 2006-07-31.http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/72250.pdf . Retrieved 2009-01-23.

[edit] Exchange rates

[edit] Historical exchange rates

Indian rupees per currency unit, averaged over the year.[26] 

currency code  1996 2000 2004 2006 2009 2010 2011

U.S. dollar USD 35.444 44.952 45.340 43.954 48.76112 45.3354 53.553

Canadian dollar   CAD 26.002 30.283 34.914 41.098 42.92026 44.5915 52.1706

Euro* EUR 44.401 41.525 56.385 64.127 68.03312 60.597365.6987

Pound sterling   GBP 55.389 68.119 83.084 80.633 76.38023 71.331383.6329

Swiss franc   CHF 28.714 26.654 36.537 40.451 45.05846 45.995757.3525

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Australian dollar   AUD 27.761 26.157 33.409 36.972 38.58082 43.985453.9759

Japanese yen  JPY 0.5555 0.41711 0.41945 0.42627 0.52239 0.545447 0.6907

Singapore dollar   SGD 25.160 26.079 26.830 30.932 33.60388 34.512741.2737

*before Jan 1, 1999, European Currency Unit, code XEU 

Devaluation means officially lowering the value of currency in terms of foreign currencies. There is a difference between devaluation

and exchange depreciation. Devaluation is the result of official government action. Depreciation or decline in the rate of exchange of

one currency in terms of another is due to market forces. Substantially devaluation and depreciation both refer to the reduction of 

international currency in terms of foreign currencies. When the rupee was delinked from the dollar and floated against a basket of 

currencies on Jan 8, 1982, the rupee parity stood rupees 9.90 to a dollar. The State Bank of Pakistan since then has devalued the

rupee a number of times. The rupee spot buying rate to dollar as on 1.6.2000 stands at rupees 54.

There could be many motives of the devaluation. It stimulates exports of commodities. It restricts import demand for goods and

services. It helps in creating a favourable balance of payments. Almost all the countries of the world have devalued their currencies

at one time or the other with a view to achieving certain economic objectives. During the great depression of 1930 devaluation was

carried by most countries of the world for the objecting of correcting over-valuation of currencies.

Indian Rupee Depreciation against the US Dollar - Your Questions Answered

In the previous post "Is the Indian Currency Rupee Depreciation against the US Dollar Good or Bad?" we had taken a look at thereason why the Indian Rupee is getting beat up by the US Dollar in terms of value and why is the rupee going down so drastically.However, after the post, you might've had some questions about the whole phenomenon. Some readers posted their questions ascomments.

Below are some questions that might arise in your minds about the Depreciation of the Indian Rupee against the US Dollar. Have triedto answer them as best I could. Do, drop a comment if you aren’t satisfied with the answer : -)

Thanks to Manish & Anonymous for the questions. I have included your questions too in the list below. Here we go!!!

1. Why is the Rupee Depreciating So Badly? Because of many factors that are occurring in a simultaneous fashion. The crucial ones are:1. Due to Risk Aversion on the part of Currency Investors, the Demand for the US Dollar has gone up world over2. Uncertain Economic Situation around the globe3. FII’s turning Net-Sellers and withdrawing funds from the Indian Market

2. In 2008, we saw a similar/drastic Rupee Devaluation against the USD. Is the current scenario similar? Well, not really. Last time around, the devaluation was driven mainly by rise in Oil Prices. The price of oil reached USD 147 perbarrel and was one of the key contributing factors. However, Risk Aversion was also a part which affected the value of the IndianRupee.Though the effect is the same, the combination of causes is different. Risk Aversion is the common culprit if you want to identify thecommon cause… 

3. Has the Risk Aversion among the Investor Public changed when we compare the times in 2008 to now? The concept of Risk Aversion is the same irrespective of what timeframe you are talking about. But, the current situation is muchmore riskier & pronounced than what was in 2007-08. Back then, the problem was localized to debt problems (loans & mortgages) inUSA and had only a ripple effect across the globe. Right now, the problem is more profound and markets world-over are in a crisisand some countries are on the verge of Default. So, people are much more risk averse than what they were in 2008 and hence thesituation is much worse than during the mortgage economic crisis.

4. How long do you think this economic crisis is going to last? Well, frankly speaking I don’t know… speaking optimistically maybe a year or so. But, as more and more data comes out regardingthe mess that the world economies have pushed themselves into, the timeline gets blurred. Practically speaking, nothing major canhappen in short term (3 to 6 months). Any recovery can be felt or realized only after a year or so of sustained efforts fromgovernment’s world over. 

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 5. Could the Reserve Bank done anything to protect the value of the Indian Rupee? Yes, the RBI could have taken steps to protect the value of the Indian Rupee. But, unfortunately they did not. That is why Rupee isdangling at over Rs. 52 per US Dollar.

6. Why didn’t the RBI do anything? The Central Bank of any country is entrusted with the responsibility of protecting the value of its home currency. They usually kick into action when they sus pect any speculative attack on their currency by external forces (Intentional attempts to devalue a country’s

currency)In this case, the devaluation of the Indian Rupee was not due to some intentional attempt by anyone. It was due to the global economicscenario and any steps they take might backfire if the global economic situation worsens.The RBI just let the economy take its course with the exchange rate between US Dollar and Indian Rupee because there was no foulplay suspected.A point to note here is that, the RBI is closely monitoring the situation and may intervene if they feel the depreciation is too much.

7. What can the RBI do to curb the depreciation of the Indian Rupee? They can sell US Dollars. Last time around when there was such a problem, the RBI sold US dollars worth nearly 18 billion. This timearound, they would have to cough up an even larger number to prevent the depreciation. Most importantly, this will be onlytemporary. The RBI selling dollars alone cannot fight the global dynamic risk and hence will not have any long term effect on theexchange rate. That is exactly why the RBI isn’t doing anything explicit to protect the rupee value.  

8. What do you think the Indian Rupee will value against the US Dollar by next year (2012)? Maybe around 46 or 47 Indian Rupees per US Dollar. To substantiate my claim, if the economic scenario recovers, there will be a lot

of FII inflow of funds into India that will give a lot of strength to the Indian Rupee. And hence, it should come down below the 50rupee mark and settle down between 46 to 48 Indian Rupees per US dollar.

9. Will all IT company’s post stellar profits due to the Rupee going down?  No. Not really. IT company’s in India have the concept of Hedging their foreign exchange income. They usually hedge against aparticular value and project earnings/profit numbers for the subsequent quarters. So, the profit they make due to this rupeedepreciation may not be as stellar as one might expect, but nonetheless, IT Majors will most probably post impressive numbers thisquarter.

10. Will the Indian Rupee depreciate further against the US Dollar? Maybe… This is not something that we can predict right away. But, by the look of things it looks like it may go up by another  one ortwo rupees. Maybe 53 or 54 is realistic and possible.

11. If investors take out their investment from European countries to invest in US, would it have any effect on the exchangerate of rupee? Not much. US Dollar investments made in India only will affect the exchange value between US Dollar and Indian Rupee. US Dollarinvestment in Europe will not affect the exchange rate in India

What is the reason behind rupee value depreciation ?

Introduction

The past two weeks have been disastrous for the rupee value against dollar currency. The same time last month (22-Aug-2011), rupeevalue against dollar was 44.5 – 45.0 range, at this time of writing this article it is hovered to the range of 49.0 – 50.0. It is expected to

raise further which would result in weakening the rupee value against the dollar currency. This kind of increase would have the drasticimpact on the macro economy of the country like heavy raise in the import cost where countries like India heavily depends on theimporting on Oil and other crucial raw materials needs for the industries.

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This article explores the reason behind the rupee value depreciation, how RBI trying to defend the rupee value and how it is going toaffect the industries. I come up with this article after the readers request to understand the currency war on recent days. I f you haveany thoughts, please post it in the comments section. Subscribe to our future articles here. 

How currency value is determined?

We are not going deep dive into economic terms to understand the currency value fluctuation. There are manyfactors to decide the currencies values but that could be very difficult for the common man to understand the theory. Here I will put itin the simple words why the currency value is often fluctuated. A currency will tend to become more valuable when its demand ishigher than supply. A currency will tend to become less valuable when its demand is less than supply. It is the basic theory. We needto understand in the global economy terms, when the currency will have more demand and when it will have less demand.

Remember that exchange rates are expressed as a comparison of two currencies. It is always relative and can be measuredbetween two countries. Interest rates, Inflation and exchange rates are highly related. Reserve bank change the interest rates tocontrol the Inflation and exchange rates.

We can take our real time example of stock market investment to understand the above principle. As we know that, our stock marketis dominated by the overseas investors (outside India), because of the our growing economy and industrial development. When our

economy is doing well and market is performing better than other countries, overseas investors would invest heavily on our market.How they would put it in our market?. They will sell or convert to our currency and invest in India. It is clear that when more investorscoming to India, the demand for the currency will be very high. Our rupee value will be increased against dollar. In the same way,when they are pulling out of market, demand for the rupee will be decreased and value is depreciated.

Here I am talking only about the dollar, because it is the global currency and most of the countries trading using the dollar as tradereserve currency. The above example is given to explain it in simple words, the demand for a currency would come in the differentway. When we are importing from other countries, we should have the currency of that country to pay for the trade. The value for thecurrency is fluctuated on real time.

If a currency is free-floating, its exchange rate is allowed to vary against that of other currencies and is determined by the marketforces of supply and demand. Exchange rates for such currencies are likely to change almost constantly on financial markets, mainlyby banks, around the world. A movable or adjustable peg system is a system of fixed exchange rates, but with a provision for thedevaluation of a currency. For example, between 1994 and 2005, the Chinese yuan renminbi (CNY, ¥) was pegged to the UnitedStates dollar at ¥8.2768 to $1.

Why RBI intervene on Currency valuation?

In the last week we have seen RBI has acted to stop the erosion of rupee value against the dollar currency. What it did was sold thedollar currency in the market to increase the value of rupee. But, it is very difficult for the Reserve Bank of a country to adjust thevalue of the currency, the long term solution would be fix the problem in economy and bring the inflation into control. You wouldwonder why RBI has to intervene on currency value decrease or increase. Note that, RBI would not allow currency to be higher aftercertain level because of the exports would get affected like IT companies would suffer if the rupee get appreciated against the dollar.

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India is heavily depend on the import of raw materials and Oil for its industrial development. In the decreasing rupee scenario, theoutgo of money will be much higher. This would affect the expenses for the companies who imports raw materials for theirfactory and all the Oil Marketing Companies (OMC) will incur heavy payment to import the Oil . Now you would haveunderstood why the Petrol prices have been increase in the last fortnight. If you look into the news papers, the reason said by ourfinance minister was the depreciation of rupee value against dollar.

Major Factors Influencing the Currency Value

In the above section, I have explained in the simple words to make a common man understand the currency fluctuations. This sections

write down few economic conditions when the currency value will be under pressure.The following are the three major factorsinfluencing the changes in the currency values. There are many other factors too, but we are not talking about all the factors in thissection.

  Inflation

o  As a general rule, a country with a consistently lower inflation rate exhibits a rising currency value, as its

purchasing power increases relative to other currencies (What is Inflation?).

  Interest Rates

o  A higher interest rates offer good returns compare to other countries. It will result in the foreign capital come into

the country. Lower interest rates decrease the currency value. Note that interest rates has the close relation with

interest rates. The currency value would not be affected only based on the interest, it is impacted based on the

other conditions like inflation or economic situation.

  Current Account Deficits

o  Basically current account of a country presents the status on the trade of a country between other trading

partners. If there is any deficit in the current account, that means country is doing more trading outside the

country then its actual earning inside the country. This situation is not good for a country because the country

needs to buy more foreign currency to fulfill its need inside the country. A country needs to manage its deficit

within control, otherwise it will lead to a economic problem. More demand for the foreign currency would reduce

the value of that country’s currency. 

Impact of INR vs USD

In the last two weeks Indian rupee has depreciated about 7% against the USA dollar value. It is expected that it would continue the

slide as many macro economic factors not in favor of Indian economy. The following are the factors which would slide down therupee value.

  Foreign Funds Outflow 

o  It is the major concern of Indian economy now. Because of the global uncertainty and various economy crisis like

Europe sovereign debt problem, US economy problem, etc leads to search for the safe heaven among the

investors. They are quickly pulling out the money fro Indian market and investing in any other safe investments like

Gold or US dollar.

  Government Deficit is High

o  The government finances are in a bad shape and the combined central and state government deficit has

stubbornly stayed around 10 per cent of GDP. It is high deficit and investors lost faith in the local economy.

  Political Uncertainty and Corruption

o  This is one of the major factor for any country to stabilize the economy. In India, last one year we are seeing theseries of corruptions and there is no good news from the ruling party (Congress) about the economic reforms and

lot of agitation among the citizens including the veteran Gandhian Anna Hazare’s campaign of Fight for Second

Freedom which took attention from global media. India needs political change to gain confidence among the

investors.

Summary

I hope this article would have given an idea about the rupee depreciation and the reason why the currency is changed. But, there arehundreds of parameters to decide a currency value and politics also there to manipulate the own currency which China has done for along time. The above are the very basic idea on currency value and how it is affected. If you have any thoughts, please post ti in thecomments section.

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MUMBAI: The Indian rupee reversed all intraday gains to close steady on Tuesday as traders pared some long-dollar positions afteran RBI deputy said more steps would be taken, if needed, to bring stability to the domestic forex market.

The rupee closed at 52.87/88 to the dollar, little changed from Monday's level of 52.88/90, after touching the day's low of 53.09earlier.

"Gokarn mentioned the RBI has other weapons in its arsenal to use in the foreign exchange market, which means the central bank iswilling to take additional steps to arrest the rupee's fall," said a trader with a foreign bank, indicating a knee-jerk recovery in the rupeewas inevitable.

Last Thursday, the central bank reduced net overnight open position limit of banks to curb excessive volatility and shore up the rupee,which had hit an all-time low of 54.30.

Following the Reserve Bank of India's curbs on trading, volumes in the dollar-rupee onshore spot market have fallen sharply from theusual $2 billion to $3 billion, traders said.

"It has become a completely flow-driven market," said a senior foreign exchange dealer with a private-sector bank.

"Dollar demand is there as people like importers have no other option but to buy. But this buying too is on a very gingerly pace due toworries of more sledgehammer actions from the RBI," the forex dealer said.

To offset the impact of trading curbs and attract dollar inflows, the central bank has removed interest rate ceiling on non-residentexternal rupee deposits and allowed micro-finance institutions to raise up to $10 million through external commercial borrowings.

"Despite the announcement of remedial measures to curb depreciation, rupee is likely to remain under pressure in the short-to-mediumterm due to cyclical, structural, and global headwinds," said Shubhada Rao, chief economist at YES Bank  in a research note.

Rao expects rupee to be around 53 against the dollar at the end of the current fiscal year, but appreciate to 46 by the end o f calendaryear 2012.

Earlier in the day, K.C. Chakrabarty, another deputy governor of the central bank, said there was no reason for the rupee to notweaken, given the country's large deficit and other weak macroeconomic fundamentals.

The offshore non-deliverable forwards (NDFs) indicated further weakness, with the one-month rupee NDFs at around 53.34.

The one-month onshore forward dollar premium were at 38.25 points, up from 37.5 on Monday, while the three-month premium was

at 100.5 from 98. The one-year premium

was at 272 from 267.25. In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange ended at 53.0375, and at 53.0425 on both the MCX-SX and the United Stock Exchange. Total volume was at $3.73 billion.

Falling Re makes foods, education costlier

The author has posted comments on this articleTNN | Dec 16, 2011, 01.33AM IST

NEW DELHI: Whether it's a new novel or a delicious ham and cheese sandwich, some of the favourite imported products that hadfound their way into middle-class homes thanks to globalization, are dearer because of the steady slide of the rupee.

Retail foods like processed meats, cheese, edible oils, and pasta; packaged goods; restaurant dishes like sushi, steak, and exotic fish;books published abroad; overseas education; and potentially even healthcare will set back consumers a lot more as traders arecompelled to adjust sticker prices to get dollar parity.

"It takes about 15 days for orders of fresh food like cold cuts and cheese to reach us, so products we now have are November orders.Their prices are 10% higher, but the orders we place now will be about 20-25% more expensive and will reach the market lateJanuary," said Kunaal Kumar, who owns the grocery chain Modern Bazaar in Delhi and Gugaon. "Orders that we placed for dry goodsthis month will reach the market in February, and will be about 25% more expensive as well."

Ramesh Chandra Lahoti, president of  Bangalore Wholesale Food Grains and Pulses Merchants' Association, says he's out of pocketbecause of the dollar rate. He imports pulses from Canada, China and Myanmar and his import costs have shot up by 20%. "I importedgreen peas at Rs 27/kg during Diwali. Last month, I imported it at Rs 31," he said.

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With euro getting stronger as well it's not just US imports that are affected. V N Dalmia of Dalmia Continental, which imports oliveoil, pasta and olives, says since his consignments come mainly from the Mediterranean, the appreciation of the euro has been a hugeinflator. "We haven't increased the prices of olive oil yet, but a price rise of about 10% will affect the market when the products reachin January," he said.

"Last month we increased the price of pasta and that has reached the consumer now. We haven't implemented a price hike for tableolives, but with the euro showing no signs of decline we won't be able to hold out much longer." Apart from retail food products,restaurants are struggling to keep menu cards steady and complain some raw material prices have doubled. Take the sushi section, forexample. Delhi's Sushiya is coping with a hike of seaweed (nori) from Rs 550 to Rs 850 per kg, Japanese rice from Rs 120 to Rs 240,fresh Norwegian salmon from Rs 900 to Rs 1,500, and wasabi from Rs 650 per kg to Rs 1,300. "Although our margins have reduced,we are in a wait and watch situation because increasing prices will just mean bad business. If we do revise prices again, the hike willbe about 25%," says Mike, manager of Sushiya.

Others are coping with the rise of black cod from Rs 1,700 to Rs 2,800 per kg, scallops from Rs 1,200 to Rs 2,000, salmon from Rs2,200 to Rs 2,800, Camembert cheese from under Rs 1,000 per kg to Rs 1,700. Parents funding their kid's overseas will have to writebigger rupee cheques. "Due to the devaluation of the rupee in comparison to the pound, my family will end up paying a lot extra," saysKrittika Singh, an MBA student at Cardiff  University. She still has two of three instalments left for tuition and rent. But despite this,parents are left with no choice. They just hope it's all worthwhile. "The fall of the rupee has made an already expensive education evenmore expensive and while it is a strain on the resources, I just hope that my daughter gets a good job by the end of this," saysAnuradha Gupta, whose daughter studies at Wharton University.

Chennai-based marketing professional T Raghavan took $50,000 as a 15-year loan for doing an MBA in the US almost a decade ago."Till last month, my EMI was around Rs 18,000. But this may move up to Rs 21,500 from next month and that outflow is nearly one-

fifth of my salary," he said.

Prices of books are also hit. Harpreet Singh, manager at a branch of Full Circle in New Delhi, says that they follow a fixed exchangerate given to them by the National Book Trust every month. While it was Rs 50.20 against the US dollar and Rs 79.50 per Britishpound in October, the rate for December is Rs 53.50 per dollar and Rs 84.80 per pound. Amit Vig, head of retail operations, Om BookShop, says: "Since November, the price of The Secret has gone up from Rs 690 to Rs 789, Baby and Child Care from Rs 280 to Rs322, and Every Business is a Growth Business from Rs 467 to Rs 535."

Patients too will suffer 

The cost of cardiac procedures and joint replacement surgeries is likely to go up if rupee depreciation against foreign currencycontinues. According to experts, most of the medical devices and implants - heart valves, ICDs and pacemakers for arrythmia

disorders, external defriblators, orthopedic implants, drug elluting stents, equipment for cardiac surgery such as oxygenerators, heartlung machine - are imported these days.

"We are already getting requests from companies marketing orthopedic implants to revise the contract rate. If the rupee valuecontinues to depreciate, surgeries will get costlier by over 15-20% in the coming days," says Dr Ramneek Mahajan, senior jointreplacement surgeon, Fortis hospitals.

A spokesperson of Medtronic India, a global leader in medical technology, adds, "This 20% depreciation in rupee value has increasedthe cost by 20% cent for us. There is already inflationary pressure and rupee depreciation is adding up to the existing pressure onmargins and profitability. We are closely monitoring the situation."

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India inches closer to crisis as rupee retreats

By Swati Bhat and Emily Kaiser

MUMBAI | Sat Dec 10, 2011 2:55pm IST

MUMBAI (Reuters) - India may face its worst financial crisis in decades if it fails to stem a slide in the rupee, leaving the ReserveBank of India (RBI) with a difficult choice over how to make best use of its limited reserves to maintain the confidence of foreigninvestors.

If the RBI is too timid, it risks adding fuel to the ire of portfolio investors, which India relies on heavily to cover its imports tab.

Aggressive intervention would leave the central bank open to criticism that it is wasting precious money on problems that are beyondIndia's control anyhow, noteably Europe's debt crisis.

Unlike most of its Asian peers, India has recently been running large current account and fiscal deficits. That means it must attractsufficient foreign money -- namely U.S. dollars -- to close the gap, and a weaker home currency makes that costlier.

This is a perennial problem for India. The current situation is so worrisome because India is grappling with big internal and externaleconomic threats simultaneously. Growth is slowing. Inflation remains high. Political paralysis has stymied domestic reforms.

The RBI, the last line of defence against a currency meltdown, has cautiously begun to support the rupee, but its firepower may bemore limited than its $300 billion in reserves would suggest.

Beyond India's borders, Europe is the biggest worry. As its banks deleverage, investment money has flooded out of India's markets. If Europe's debt troubles deteriorate, India could be hit with a balance of payments crisis as severe as the one that forced a sharpdevaluation in 1991.

The rupee, which has dropped 16 percent in the past four months, got a reprieve last week after the world's big six central banksbanded together to try to ease dollar funding strains, helping it to snap a four-week losing trend.

But analysts widely expect the rupee, trading on Monday at 51.26 per dollar, to resume its slide.

"The Indian currency will be the first casualty of a deterioration in the euro zone crisis," said Rupa Rege Nitsure, chief economist atBank of Baroda in Mumbai.

If Europe's crisis deepens, India's trade deficit would widen even more rapidly, and it would have even more trouble attracting foreigncapital.

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"Risk appetite will obviously collapse and gradually the currency crisis is likely to take the shape of a balance of payments crisis,"Nitsure said.

Worries about India have spiked in tandem with concern over Europe. UBS hosted a client conference call about India on November29, which it announced with an email headlined "India explodes." Deutsche Bank sent out a report on November 24 entitled, "India'stime of reckoning."

"Suddenly everything seems to be coming to a head in India," UBS wrote. "Growth is disappearing, the rupee is in disarray, andinflation is stuck at near-record levels. Investor sentiment has gone from cautious to outright scared."

India's current account deficit swelled to $14.1 billion in its fiscal first quarter, nearly triple the previous quarter's tally. The full-yeargap is expected to be around $54 billion.

Its fiscal deficit hit $58.7 billion in the April-to-October period. The government in February projected a deficit equal to 4.6 percent ofgross domestic product for the fiscal year ending in March 2012, although the finance minister said on Friday that it would be difficultto hit that target.

India relies heavily on portfolio inflows -- foreign purchases of shares and bonds -- as a means of covering its current account gap.Those flows are fickle.

Foreign portfolio investors have sold a net $50 million worth of equities so far in 2011 , in sharp contrast to the $29 billion theyinvested in 2010, data from the Securities and Exchange Board of India's website showed. In November alone, foreign funds pulled$661 million out of Indian stocks.

"The Indian economy is one of the most vulnerable to liquidity shocks in the region, not helped the least by deficits in its keybalances," said Radhika Rao, an economist with Forecast PTE in Singapore.

WHERE IS THE RBI?

The drop in portfolio inflows and the hefty current account and fiscal deficits have been a key factor behind the rupee's decline.

The RBI appears to have intervened in mid-November to try to slow the decline. Between October 28 and November 25, reservesdropped by $16 billion to $304 billion, yet the currency still fell by 7 percent over that period.

Trading in rupee offshore forward contracts show traders are betting on the rupee declining a further 1.7 percent over the next threemonths, and 4.5 percent in a year.

Many economists argue the RBI has been too timid, and deserves part of the blame for the rupee's weakness.

A deputy governor said on Saturday that the central bank would use "all available instruments" to stem a downward spiral.

Other officials have insisted the RBI should avoid "undue" intervention, especially when the currency depreciation is caused byexternal forces, a message economist Rajeev Malik says could backfire.

"The biggest mistake RBI has made is that it has almost given an open invitation to speculators to short the rupee," said Malik, who iswith CLSA in Singapore.

"It is really bizarre for any central bank to openly keep on saying that it will not intervene when there is already pressure on thecurrency to weaken and globally things are so uncertain."

Contrast that with Indonesia, which burned through 8 percent of its foreign exchange reserves in a single month in September todefend the rupiah from a global bout of market volatility.

The rupiah has weakened in recent weeks after Bank Indonesia twice lowered interest rates. RBI, however, has been among the mosthawkish central banks in the world, raising rates 13 times since early 2010. Normally, higher interest rates boost currencies, so therupee's weakness is all the more significant.

KEEPING POWDER DRY

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If the RBI decides to step in more aggressively, its manoeuvring room is more limited than its reserves tally would suggest.

After covering the current account deficit, short-term debt and foreign investment flows, there would be less than $20 billion left over.

J. Moses Harding, head of market and economic research at Indusind Bank in Mumbai, said the RBI's immediate concern would bearresting the spread of currency woes into the money market.

India's banking system already borrows more than $19 billion from the central bank to meet reserve requirements, so if the RBI movedto prop up the rupee, it would drain more liquidity out of an already tight market.

Companies make quarterly advance tax payments around mid-December, which puts an added strain on liquidity.

In addition, a glut of foreign currency convertible bonds, issued when the rupee was much higher, falls due in the first quarter. Theyinclude a $1 billion Reliance Communications bond.

The bonds are too expensive at current levels to be converted into stock and the sharp depreciation of the rupee will leave issuers witha heavy redemption bill.

The central bank could boost liquidity by cutting the cash reserve ratio, the proportion of deposits banks must set aside with the centrabank as cash. Talk of a cut has circulated in Indian markets in recent days, although some economists argue that such a move couldstoke already hot inflation.

"It would be extremely difficult for RBI and the government to arrest simultaneous downward pressures from equity, currency andmoney markets while struggling to address low growth and high inflation issues," Harding said.

That argues in favor of RBI keeping its ammunition dry in case conditions worsen. If India is indeed heading for a 1991-style balanceof payments crisis, those reserves would be vital.

Back then, India rapidly depleted its reserves, forcing a currency devaluation.

But the risk is that RBI will wait too long to act.

"While it is important for RBI to not shed its FX reserves unnecessarily, the approach of allowing such a massive pace of slide in therupee could backfire," CLSA's Malik said.

Facts about RBI, govt moves to shore up rupee

Wed Dec 21, 2011 3:23pm IST

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Rupee turns stumbling block in trade with Iran

RELATED ARTICLESNEW DELHI: The rupee volatility has taken a toll on the rupee trade with Iran even before it could take off. Exporters to the region

have been left to fend for themselves, as both governments wait for the rupee to stabilise. Indian rupee has depreciated over 19%

against the dollar since July this year and is widely expected to fall more.

"Iran at the moment is not interested in trading in rupee because it does not want to be stuck with a pile of currency that i s losing

value by the day," a government official told ET. India's trade with Iran had almost stalled early this year when under US pressure the

Reserve Bank of India ( RBI) suspended settlements through the Asian Clearing Union -- a payment arrangement for Asian countries,including India.

The uncertainty has hit exports to Iran that have grown at 20% annually over April-September 2011 against 48% growth in the last

fiscal. To get around the US sanctions, India and Iran had worked out a mechanism wherein it was decided that India will pay for at

least half of the oil and non-oil imports from Iran by depositing the equivalent rupees in accounts opened with Indian banks that Iran

would use that money to pay for its imports from India.

Iran has now put a brake on the payment mechanism because of steady devaluation of the rupee which has fallen 18% against the

dollar since July. While India is continuing to pay for its oil purchases from Iran through Turkey's Halkbank, a process that began in

July this year, the country's exporters have been left in the lurch. "Exporters are managing to fend for themselves and getting their

payments," the official said. Exporters, however, paint a less rosy picture.

"We are exporting to Iran through front offices that Iranian companies have opened in countries such as Dubai, Jordan and Turkey.

Since banks are not involved, there are no letters of credit, and we are completely at the mercy of our buyers for payments," said

Vijay Setia, president, All India Rice Exporters Association.

Setia said because of internal competition, exporters sell on credit and there is just no guarantee whether payments would come or

not. Exporters ship their goods directly to Iran, but send all documents to front-offices of importers in third countries. Payments are

made to exporters through cheques issued by the front-offices. "If importers delay payments or don't pay up, we could file a case in

the Indian courts, but there is little that could be done to harm a company in another country," Setia said.

Forex prepaid cards provide a hedge against rupee swings

December rings in the Christmas bells as well as the holiday season. If you have planned a foreign holiday, you have to decide the

mode of carrying foreign exchange. This depends on various factors such as duration of stay, mode of transport when in a foreigncountry, among other things. Carrying cash might be easiest for a traveller but it is ri sky too. Moreover, at a time when the rupee is

touching newer lows every other day, it is better you opt for prepaid cards or travellers cheques. Firstly, it is a good substitute to

cash for security reasons and these are good hedges against exchange rate fluctuations.

PREPAID CARDS

As the name suggests, these cards are issued by banks as well as forex dealers and are pre-loaded with funds. Just like a credit card,

you can use this plastic across the globe at merchant outlets. These cards are available in various denominations such as the US

dollar, euro, GB pound etc.

GOOD HEDGE AGAINST THE FALLING RUPEE

Unlike an international credit card, these prepaid cards are a good hedge against a falling rupee. For instance, if you swipe a credit

card, you will be billed at the rate of exchange on the date of the purchase. On the other hand, in the case of a prepaid card, the

value of the rupee will be as on the date you loaded your card, which would be much earlier than your journey date. So if the rupee

continues to show a sharp fall, as it is doing currently, it is wise you opt for a forex prepaid card. Also the use of a credit card attracts

a cross currency charge of up to 3.5%.

Travellers cheque is also a popular instrument among travellers. But a pre-paid card scores over travellers cheques as the latter

cannot be encashed after merchant hours and acceptability is still an issue. Further, there is a fee on encashment.

Banks charge a one-time issuing charge of Rs 110-150 on a prepaid forex card. If you use the prepaid forex card for withdrawal, a

charge of 1.25-2 units of the foreign currency is also levied. In case you are left with some balance on the card, you can get it

encashed by filling a refund form once you return to India.

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22 Dec, 2011, 04.07AM IST, Reuters

Rupee gains on Sensex rebound, yields rise

A sharp rebound in local shares amid recovering global appetite for risk and some dollar inflows lifted the rupee on Wednesday,

even though its outlook remains bearish. Traders said recent measures spelt out by the Reserve Bank of India to shore up the local

unit helped, but the comfort looked short-lived with slowing growth and widening trade deficit in Asia's third-largest economy

weighing.

The rupee ended at 52.49/50 to the dollar, 0.7% stronger from Tuesday's close of 52.87/88, after moving in a 52.44-52.80% range.The BSE Sensex gained 3.4% on Wednesday to its highest close since August 29, ending its 5-day losing streak, bolstered by bargain

buying and firm global markets. Bond yields rose on Wednesday as some traders booked profits after a three-day rally in prices

while liquidity conditions remained tight due to advance tax outflows.

The benchmark 10-year bond yield rose to 8.34% from 8.28% on Tuesday, which was the lowest since September 12. The yield

ranged between 8.27% and 8.35%. Total volume on RBI's electronic trading platform was a high Rs 17,190 crore.

However, underlying sentiment remained positive ahead of RBI's $1.89 billion buyback on Thursday and growing optimism that

slowing economic growth will prompt the central bank to cut rates sooner than previously expected. RBI said on late Tuesday that it

would buy back 8.07% 2017, 7.80% 2021, 8.08% 2022, and 8.28% 2027 bonds.

The deficit in the banking system stood at Rs 1.65 lakh crore, far above RBI's comfort level of about Rs 60,000 crore, forcing banks to

tap the central bank's marginal standing facility to borrow Rs 1,600 crore.

"There was some selling in the market as the OMO quantum announced was less than the market expectation of Rs 15,000 crore,"

said Anoop Verma, an associate vice-president with Development Credit Bank. "Ten-year bond yields should move in the 8.40% to

8.15% in the medium term," Verma added.

RBI on Wednesday allowed banks to access funds from the central bank's marginal standing facility against their excess holdings in

government bonds and other approved securities. Traders said the move would not infuse liquidity into the system and was mainly

for operational convenience.

The effect of the advance tax outflows from the banking system is expected to gradually ease, depending on government spending,

traders said. Traders said more OMOs or a CRR cut would be required to bring liquidity deficit back into RBI's comfort zone.

Meanwhile, liquidity continues be pressured by the incessant supply of government debt. India has borrowed Rs 8,809 crore via

state loans and Rs 8,000 crore via treasury bills already this week. The government has announced a Rs 12,000 crore ($2.3 billion)

debt sale on Friday. The benchmark five-year swap rate closed at 6.91%.

Defending rupee not worth risk: Montek Singh Ahluwalia

RELATED ARTICLESMUMBAI: Montek Singh Ahluwalia, the deputy chairman of the Planning Commission, on Wednesday downplayed worry about the

recent decline in the rupee and said trying to defend the currency is not worth the risk it would pose to the country's reserves.

"There is nothing wrong in rupee depreciating," Montek said.

"The alternative would be to try and fix the rupee and lose our foreign reserves," he said at an event.

India had foreign exchange reserves of nearly $307 billion as of earlier this month. The rupee is down more than 16% since July

peaks and is Asia's worst-performing currency this year, although it has bounced off record lows hit last week after the central bank

took steps to prop it up.

The RBI does not set a target level for the rupee but it does occasionally step into the currency markets in order to ease volatility.

The local currency has been weighed down by investor worries about India's ability to tame high inflation, bolster growth, and curb

worsening fiscal and current account deficits, as well as poor global risk appetite amid the European debt crisis.

Rupee opens weak at 52.85 as investors doubt ECB’s massive lending programme 

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The rupee, which advanced yesterday, is down today versus the US dollar.The euro has softened after the ECB’s maiden three-yearlending program failed to alleviate concerns about the region’s debt crisis.  

The rupee fell in early trade on Thursday as doubts about solving the eurozone debt crisis heightened the prospect of foreign fundsoutflows from riskier assets.

* At 9:01 a.m. (0331 GMT), the rupee was at 52.85 to the dollar from Wednesday’s close of 52.49/50. It is seen moving in a 52 .50 to53.00 range, traders said.

* The euro was on the defensive against the dollar in Asia, having shed all the week’s gains as investors doubted a massive 489 billioneuro tender by the European Central Bank would solve the EU debt crisis.

* Traders said they were watching the Reserve Bank of India for measures to shore up the currency.

Indian Rupee Fell by 24 paise to a 32-month Low of Rs. 50.91 against the US Dollar

Current Affairs Week: 14 Nov 2011 To 20 Nov 2011

The Indian rupee fell by 24 paise to a fresh 32-month low of Rs. 50.91 against the US dollar on 16 November amid depreciation of theeuro due to the deepening European debt crisis. Persistent dollar demand from banks and importers and a weak opening in the equitymarket put temendous pressure on the Indian rupee.

The rupee is currently the worst-performing Asian currency, weakening by more than 13% from its strongest point in late July 2011.Trade deficit and fiscal issues are the other factors that have impacted rupee depreciation.

The Indian rupee breached the Rs 51 per US dollar-level after a 32-month gap on good dollar demand from banks and importers inview of the strong dollar overseas.

The rupee resumed lower at Rs 50.90/91 per dollar on the Interbank Foreign Exchange, as against 15 November’s close of Rs

50.67/68 per dollar, and dropped further to a 32-month low of 51.01 per dollar before quoting at Rs 50.88/90 per dollar.

The rupee had last touched Rs 51.20 per dollar on 31 March 2009.

rupee Hit Three Month Low

The rupee on 19 May 2010 closed 46.36/37 against the dollar which is a three month low. It also marked the biggest single-day fall inmore than 14 months. Dollar registered a huge demand at the forex market and this demand was in tune with the gains overseas amid asharp fall in the euro. The dollar is found gaining against euro in a situation where the Euro zone crisis spreading across the globe.Germany banned short-selling in government bonds and ten other instruments alongside the EU’s decision to rein in hedge funds andPE funds.

Rupee Hit 15 Month Low

The Indian rupee on 1 June 2010 hit the biggest single day fall in 15 months when it crashed by 80 paise against US dollar. The rupeeclosed at 47.16/17 marking a fall of 1.73 per cent. The rupee depreciated to Rs 68.69 against the British pound sterling. It alsodeclined against the euro to Rs. 57.39/41.

CURRENCY TRACKER

Trends in Dollar 

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Indian rupee depreciated by 18.5 per cent against US Dollar from the same week of the previous year and the rupee-dollar pair closedat 53.8 on 14th December, 2011 highest in recent past. From the previous week it depreciated by 4.7 per cent.

Among the major supplier countries under the review in table below almost all currencies depreciated against dollar except forChinese Yuan (-4.3). Highest depreciation was registered by the Turkish Lira (23.6) followed by Indian Rupee (18.5), BangladeshTaka (8.9 per cent), Vietnamese dong (7.6 per cent) Pakistan rupee (3.1 per cent), Sri Lanka rupee (1.8), South Korean won (0 .2)andHong Kong dollar (0.1 per cent) (see below table).

Trends in Euro 

On 14th December, 2011 Indian rupee closed at 71.2 with depreciation of 18.4 per cent against euro on the same day of the previousyear. From the previous week Indian rupee appreciated by 3.3 per cent from Rs. 69 to Rs. 71.2.

All the countries mentioned in the table below have experienced depreciation against Euro from 30th November 2010 to 30thNovember 2011 except for Chinese yuan, Hong Kong dollar, and Sri Lanka rupee which has appreciated from the previous year.Depreciation of currencies against euro was led by Indian rupee (15.5per cent) followed by Bangladesh taka (8.8 per cent),

Vietnamese dong (7.4 per cent), Pakistan rupee (4.4 per cent), South Korean won (0.1).

Appreciation/Depreciation of Currencies against USD & Euro 

The following chart shows the appreciation/depreciation of major currencies against USD and Euro from 14th December 2010 to 14thDecember 2011.

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How Dollar Fluctuations Impact the Indian Economy

To better understand the fluctuating dollar value against the rupee, let us get to know some basics:

Exchange rate  – the rate at which a currency can be exchanged. It is the rate at which one currency is sold to buy another.

Foreign exchange market  –  Also known as ―Forex‖ or ―FX‖. It is a market to trade currencies  

Indian foreign exchange rate system  – India FX rate system was on the fixed rate model till the 90s, when it was switched tofloating rate model. Fixed FX rate is the rate fixed by the central bank against major world currencies like US dollar, Euro, GBP, etc.Like 1USD = Rs. 40. Floating FX rate is the rate determined by market forces based on demand and supply of a currency. If supplyexceeds demand of a currency its value decreases, as is happening in the case of the US dollar against the rupee, since there is hugeinflow of foreign capital into India in US dollar

Why is the US dollar walking down? – When it comes to the US being a consumer, it has one of the largest appetites in the world.To keep up its demand for consumption, its imports are huge when compared to exports. This created pressure since there were morepayments in dollars than receipt of any other currency, which made the supply of the dollar greater for imports payment and lessreceipt of foreign currency from exports. This resulted in the depreciation of the dollar’s value, which again caused more outflow of 

dollar for import payments. This created a state of inflation and made consumables costlier to US. To control inflation US re sorted toincrease in interest rates to cool down pressure on demand side of consumption. This factor along with recession in all other sectors,particularly real estate, is causing the mighty US dollar to shake.

Impact of dollar fluctuations on the Indian economy  

Until the 70s and 80s India aimed at to be self-reliant by concentrating more on imports and allowing very little exports to coverimport costs. However, this could not last long because the oil price rise in the 1970s and 80s created a big gap in India’s balance of payment. Balance of payment (BOP) of any country is the balance resulting from the flow of payments/receipts between an individualcountry and all other countries as a result of import/exports happening between an individual country, in our case India and rest of theworld. This gap widened during Iraq’s attempt to take over Kuwait. Thereafter, exports also contributed to FX reserve along w ithForeign Direct Investment into the Indian economy and reduced the BOP gap

Indian rupee appreciation against dollar impacted heavily to the following:

1.  Exporters

2.  Importers

3.  Foreign investors

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Exports from India are of handicrafts, gems, jewelry, textiles, ready-made garments, industrial machinery, leather products, chemicalsand related products. Since the 1990s, India is the world’s largest processor of diamonds. The mentioned export items contribute

substantially to foreign receipts. During the periods when the dollar was moving high against the rupee, exporters stood to gain, when$1 = Rs. 48, was getting them Rs. 4800 for every $100. Since the beginning of the year 2007, rupee appreciated by about 10%. Withits value of rupee Rs. 39.35 = $1 as on 16 Nov 2007, for every $100, exporters would get only Rs. 3935. This difference is towingaway the profit margins of exporters and BPO service providers alike.

Imports to India are of petroleum products, capital goods, chemicals, dyes, plastics, pharmaceuticals, iron and steel, uncut preciousstones, fertilizers, pulp paper etc. With the same scenario as given for export, if we analyze - an importer is paying Rs. 3935 now

instead of Rs. 4800 paid during yester years for every $100. This gain on FX is likely to create savings in cost, which could be passedon to consumers, thereby contributing to control inflation

Foreign investment into India is also contributing well to dollar depreciation against dollar. With the recent liberalized norms onforeign investment policy like – Foreign investment of up to 51% equity limit in high priority industries; foreigners & NRIs areallowed to repatriate their profits and capital with exception for Indian nationals who were allowed to do so only under specialcircumstances; allowing free usage of export earnings to exporters, made foreign investment in India very attractive. It is thisfavorable atmosphere which made FX reserve surplus in US dollar and helped rupee to appreciate

Conclusively, appreciation and depreciation of rupee cannot certainly be taken as beneficial to the Indian economy in general. On onehand the rupee appreciation will affect exporters, BPOs, etc., on the other, rupee depreciation will affect importers. So now it dependson what the future has to reveal for, how effectively the central bank can balance the FX rates with little impact to the relative areas ofFX usage. Can the Dollar remain king or not, is no longer a million dollar question, but a million Rupee question!

explain the impact of the rupee-dollar exchange rate on inflation, economic growth, and competitiveness of Indian industry.

Answers (1)

1.

The USA economy is slowly recovering from economic downturn and hence dollar gets weaker against all curriences. This results in

Rupee getting stronger and hence export oriented Indian companies may face a loss due to currency fluctuation. On the other hand

as dollar gets weaker OIL IMPORT Bill gets reduced as we have to pay lessor for our imports. Also many BLUE CHIP international

Indian companies borrow dollars to get Foreign exchange fluctuation benefit. The other side effect of Rupee getting stronger against

dollar is HUGE FII inflows in Indian sharemarket and bondmarket. This is also known as "dollar carry trade" i.e. buy in $ now and then

sell off after dollar gets weaker so as to receive more dollars on sale proceeds converted from Rs to $. As a result of heavy inflows

sharemarket rises sharply and other markets like Real estate and Bullion market also rises as profits booked from sharemarket is

blocked in other markets. Economy grows rapidly due to huge capital inflows and ...more 

Fluctuations in India’s Rupee Rate and its Economic Impact  

Posted on December 5, 2011 by India Briefing 

Dec. 5 – After depreciating to a record low of 52.73 against the U.S. dollar on November 22, the Indian rupee (INR) rose in value to51.206 per dollar on Friday to complete the currency’s first weekly advance since October.  

The Indian rupee is under great stress as overseas investors are paring their exposure to Asia’s third-largest economy amidinternational uncertainty and mounting worries over the domestic economy.

On November 21 alone, overseas funds sold more than US$500 million worth of Indian-listed shares over the five trading sessions,

reducing net inflows for 2011 to under US$300 million – a tiny sum compared with the record investments of more than US$29billion experienced in 2010. The rupee has lost more than 10 percent of its value this year, making it one of the worst performingcurrencies in Asia.

The rupee’s modest 2.1 percent advance against the dollar last week occurred as six monetary authorities, led by the U.S. FederalReserve, agreed to lower the interest rate on dollar-liquidity swap lines.

The premium banks pay to borrow dollars overnight from central banks will fall by half a percentage point to 50 basis points, the Fedsaid. It coordinated the move with the European Central Bank and monetary authorities in Canada, Switzerland, Japan and the U.K.

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―Sentiment has improved slightly after the central banks’ actions,‖ Vikas Babu, a Mumbai -based currency trader at state-ownedAndhra Bank, told Bloomberg News. ―This is unlikely to last long as only the symptoms of the crisis are being tackled, and I expect

dollar- buying to resume soon.‖ 

The exchange rate of the Indian rupee is dependent upon the market conditions. Though, in order to sustain effective exchange rates,the Reserve Bank of India (RBI) actively trades in the US$/INR currency market. The RBI also intervenes in the currency markets tomaintain low volatility in exchange rates and remove excess liquidity from the economy. The rupee is pegged by the Bhutanesengultrum at par and with the Nepali rupee at INR1 to NPR1.6.

India has a managed floating exchange rate system. This means that the Indian government intervenes only if the exchange rate getsout of hand by increasing or reducing the money supply as the circumstances demand.

Impact on economy Rupee appreciation makes imports cheaper and exports more expensive. According to intelligence reports by the AssociatedChambers of Commerce and Industry of India, sectors like petroleum and petroleum products, drugs and pharmaceuticals andengineering goods – which have import inputs of as much as 77 percent, 19 percent and 21 percent, respectively – will gain if therupee appreciates. They would have to pay less for the imported raw materials which would increase their profit margins.

Likewise, a depreciating rupee makes exports cheaper and imports expensive. So, it is good news for industries such as IT, textiles,hotels and tourism which generate income mainly from exporting their products or services. Rupee depreciation makes Indian goodsand services cheaper for overseas buyers, thus leading to increases in demand and higher revenue generation. The foreign tour istswould find it cost effective to come to India, therefore increasing the business of hotel, tours and travel companies.

India’s IT sector is dependent on foreign clients, especially the United States, for more than 70 percent of its revenue. Whe n an ITcompany gets a project from a client, it pre-decides on the length of the contract and the cost of the project. The contracts with U.S.clients are usually quoted in U.S. dollar terms. So, the fluctuation in the exchange rate can bring about a considerable difference in theperformance of a company.

Some companies undertake a range of measures like hedging exchange risks using forwards and futures contracts. This helps inmitigating some of the losses due to exchange rate fluctuations, but none-the-less the impact is substantial.

The exchange rate is a significant tool that can be used to examine many key industries; with fluctuations potentially having a seriousimpact on the economy, industries, companies, and foreign investors. Rupee appreciation is generally helpful for industries which relyclosely on imported inputs while depreciation of the rupee is welcome news for industries which are exporting a majority of theirproducts.

USDINR - Indian Rupee Exchange rate

The Indian Rupee exchange rate depreciated 0.45 percent against the US Dollar during the last month. During the last 12months, the Indian Rupee exchange rate depreciated 14.67 percent against the US Dollar. Historically, from 1973 until 2011the USDINR exchange averaged 30.34 reaching an historical high of 53.72 in December of 2011 and a record low of 7.19 inMarch of 1973. The Indian Rupee spot exchange rate specifies how much one currency, the USD, is currently worth in termsof the other, the INR. While the Indian Rupee spot exchange rate is quoted and exchanged in the same day, the Indian Rupeeforward rate is quoted today but for delivery and payment on a specific future date. This page includes: USDINR - IndianRupee Exchange rate, historical data and news.

India Exports

India exports were worth 19870 Million USD in October of 2011. Exports amount to 22% of India’s GDP. Gems and jewelry

constitute the single largest export item, accounting for 16 percent of exports. India is also leading exporter of textile goods,engineering goods, chemicals, leather manufactures and services. India’s main export partners are European Union, United

States, United Arab Emirates and China. This page includes: India Exports chart, historical data and news.

6/27/2011 Monday 44.94757 INR USD INR rate for 6/27/2011  

6/28/2011 Tuesday 44.91756 INR USD INR rate for 6/28/2011  

6/29/2011 Wednesday 44.76439 INR USD INR rate for 6/29/2011  

6/30/2011 Thursday 44.61000 INR USD INR rate for 6/30/2011  

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8/13/2011 Saturday 45.40050 INR USD INR rate for 8/13/2011  

8/14/2011 Sunday 45.31100 INR USD INR rate for 8/14/2011  

8/15/2011 Monday 45.24012 INR USD INR rate for 8/15/2011  

8/16/2011 Tuesday 45.29689 INR USD INR rate for 8/16/2011  

8/17/2011 Wednesday 45.32495 INR USD INR rate for 8/17/2011  

8/18/2011 Thursday 45.65572 INR USD INR rate for 8/18/2011  

8/19/2011 Friday 45.65971 INR USD INR rate for 8/19/2011  

8/20/2011 Saturday 45.67046 INR USD INR rate for 8/20/2011  

8/21/2011 Sunday 45.76846 INR USD INR rate for 8/21/2011  

8/22/2011 Monday 45.65931 INR USD INR rate for 8/22/2011  

8/23/2011 Tuesday 45.50757 INR USD INR rate for 8/23/2011  

8/24/2011 Wednesday 45.96703 INR USD INR rate for 8/24/2011  

8/25/2011 Thursday 46.05559 INR USD INR rate for 8/25/2011  

8/26/2011 Friday 46.08732 INR USD INR rate for 8/26/2011  

8/27/2011 Saturday 46.27533 INR USD INR rate for 8/27/2011  

8/28/2011 Sunday 46.18033 INR USD INR rate for 8/28/2011  

8/29/2011 Monday 45.84987 INR USD INR rate for 8/29/2011  

8/30/2011 Tuesday 45.90782 INR USD INR rate for 8/30/2011  

8/31/2011 Wednesday 45.73942 INR USD INR rate for 8/31/2011  

9/1/2011 Thursday 45.73780 INR USD INR rate for 9/1/2011  

9/2/2011 Friday 45.68990 INR USD INR rate for 9/2/2011  

9/3/2011 Saturday 45.76001 INR USD INR rate for 9/3/2011  

9/4/2011 Sunday 45.88473 INR USD INR rate for 9/4/2011  

9/5/2011 Monday 46.02647 INR USD INR rate for 9/5/2011  

9/6/2011 Tuesday 46.03035 INR USD INR rate for 9/6/2011  

9/7/2011 Wednesday 46.07942 INR USD INR rate for 9/7/2011  

9/8/2011 Thursday 46.32952 INR USD INR rate for 9/8/2011  

9/9/2011 Friday 46.52999 INR USD INR rate for 9/9/2011  

9/10/2011 Saturday 46.52999 INR USD INR rate for 9/10/2011  

9/11/2011 Sunday 46.88550 INR USD INR rate for 9/11/2011  

9/12/2011 Monday 47.02243 INR USD INR rate for 9/12/2011  

9/13/2011 Tuesday 47.58922 INR USD INR rate for 9/13/2011  

9/14/2011 Wednesday 47.63587 INR USD INR rate for 9/14/2011  

9/15/2011 Thursday 47.57075 INR USD INR rate for 9/15/2011  

9/16/2011 Friday 47.16004 INR USD INR rate for 9/16/2011  

9/17/2011 Saturday 47.19766 INR USD INR rate for 9/17/2011  

9/18/2011 Sunday 47.59932 INR USD INR rate for 9/18/2011  

9/19/2011 Monday 47.57442 INR USD INR rate for 9/19/2011  

9/20/2011 Tuesday 47.94810 INR USD INR rate for 9/20/2011  

9/21/2011 Wednesday 48.55760 INR USD INR rate for 9/21/2011  

9/22/2011 Thursday 49.43860 INR USD INR rate for 9/22/2011  

9/23/2011 Friday 49.40745 INR USD INR rate for 9/23/2011  

9/24/2011 Saturday 49.29930 INR USD INR rate for 9/24/2011  

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9/25/2011 Sunday 49.30294 INR USD INR rate for 9/25/2011  

9/26/2011 Monday 49.17649 INR USD INR rate for 9/26/2011  

9/27/2011 Tuesday 48.86321 INR USD INR rate for 9/27/2011  

9/28/2011 Wednesday 48.85427 INR USD INR rate for 9/28/2011  

9/29/2011 Thursday 48.91409 INR USD INR rate for 9/29/2011  

9/30/2011 Friday 49.08606 INR USD INR rate for 9/30/2011  

10/1/2011 Saturday 49.06773 INR USD INR rate for 10/1/2011  

10/2/2011 Sunday 49.25088 INR USD INR rate for 10/2/2011  

10/3/2011 Monday 49.13010 INR USD INR rate for 10/3/2011  

10/4/2011 Tuesday 49.14355 INR USD INR rate for 10/4/2011  

10/5/2011 Wednesday 49.14988 INR USD INR rate for 10/5/2011  

10/6/2011 Thursday 49.07957 INR USD INR rate for 10/6/2011  

10/7/2011 Friday 49.03308 INR USD INR rate for 10/7/2011  

10/8/2011 Saturday 48.99645 INR USD INR rate for 10/8/2011  

10/9/2011 Sunday 49.32645 INR USD INR rate for 10/9/2011  

10/10/2011 Monday 48.98790 INR USD INR rate for 10/10/2011  

10/11/2011 Tuesday 49.26672 INR USD INR rate for 10/11/2011  

10/12/2011 Wednesday 49.02224 INR USD INR rate for 10/12/2011  

10/13/2011 Thursday 49.07663 INR USD INR rate for 10/13/2011  

10/14/2011 Friday 48.81610 INR USD INR rate for 10/14/2011  

10/15/2011 Saturday 48.89899 INR USD INR rate for 10/15/2011  

10/16/2011 Sunday 48.82941 INR USD INR rate for 10/16/2011  

10/17/2011 Monday 49.00157 INR USD INR rate for 10/17/2011  

10/18/2011 Tuesday 49.41463 INR USD INR rate for 10/18/2011  

10/19/2011 Wednesday 48.99201 INR USD INR rate for 10/19/2011  

10/20/2011 Thursday 49.86644 INR USD INR rate for 10/20/2011  

10/21/2011 Friday 49.73409 INR USD INR rate for 10/21/2011  

10/22/2011 Saturday 49.82413 INR USD INR rate for 10/22/2011  

10/23/2011 Sunday 49.83527 INR USD INR rate for 10/23/2011  

10/24/2011 Monday 49.57149 INR USD INR rate for 10/24/2011  

10/25/2011 Tuesday 49.41525 INR USD INR rate for 10/25/2011  

10/26/2011 Wednesday 49.42014 INR USD INR rate for 10/26/2011  

10/27/2011 Thursday 49.90059 INR USD INR rate for 10/27/2011  

10/28/2011 Friday 48.64256 INR USD INR rate for 10/28/2011  

10/29/2011 Saturday 48.64428 INR USD INR rate for 10/29/2011  

10/30/2011 Sunday 48.62559 INR USD INR rate for 10/30/2011  

10/31/2011 Monday 48.92986 INR USD INR rate for 10/31/2011  

11/1/2011 Tuesday 49.20694 INR USD INR rate for 11/1/2011  

11/2/2011 Wednesday 49.05455 INR USD INR rate for 11/2/2011  

11/3/2011 Thursday 48.96949 INR USD INR rate for 11/3/2011  

11/4/2011 Friday 48.98206 INR USD INR rate for 11/4/2011  

11/5/2011 Saturday 49.15369 INR USD INR rate for 11/5/2011  

11/6/2011 Sunday 48.90168 INR USD INR rate for 11/6/2011  

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11/7/2011 Monday 48.97139 INR USD INR rate for 11/7/2011  

11/8/2011 Tuesday 49.36145 INR USD INR rate for 11/8/2011  

11/9/2011 Wednesday 50.33608 INR USD INR rate for 11/9/2011  

11/10/2011 Thursday 50.01561 INR USD INR rate for 11/10/2011  

11/11/2011 Friday 49.79382 INR USD INR rate for 11/11/2011  

11/12/2011 Saturday 49.68902 INR USD INR rate for 11/12/2011  

11/13/2011 Sunday 49.92906 INR USD INR rate for 11/13/2011  

11/14/2011 Monday 50.37549 INR USD INR rate for 11/14/2011  

11/15/2011 Tuesday 50.62995 INR USD INR rate for 11/15/2011  

11/16/2011 Wednesday 50.85562 INR USD INR rate for 11/16/2011  

11/17/2011 Thursday 51.15367 INR USD INR rate for 11/17/2011  

11/18/2011 Friday 51.21479 INR USD INR rate for 11/18/2011  

11/19/2011 Saturday 51.23373 INR USD INR rate for 11/19/2011  

11/20/2011 Sunday 51.21062 INR USD INR rate for 11/20/2011  

11/21/2011 Monday 52.23203 INR USD INR rate for 11/21/2011  

11/22/2011 Tuesday 52.42020 INR USD INR rate for 11/22/2011  

11/23/2011 Wednesday 52.26147 INR USD INR rate for 11/23/2011  

11/24/2011 Thursday 52.04751 INR USD INR rate for 11/24/2011  

11/25/2011 Friday 52.25168 INR USD INR rate for 11/25/2011  

11/26/2011 Saturday 52.23590 INR USD INR rate for 11/26/2011  

11/27/2011 Sunday 51.93921 INR USD INR rate for 11/27/2011  

11/28/2011 Monday 52.17676 INR USD INR rate for 11/28/2011  

11/29/2011 Tuesday 51.94733 INR USD INR rate for 11/29/2011  

11/30/2011 Wednesday 51.79985 INR USD INR rate for 11/30/2011  

12/1/2011 Thursday 51.44980 INR USD INR rate for 12/1/2011  

12/2/2011 Friday 51.08083 INR USD INR rate for 12/2/2011  

12/3/2011 Saturday 51.47143 INR USD INR rate for 12/3/2011  

12/4/2011 Sunday 51.02178 INR USD INR rate for 12/4/2011  

12/5/2011 Monday 51.22051 INR USD INR rate for 12/5/2011  

12/6/2011 Tuesday 51.23186 INR USD INR rate for 12/6/2011  

12/7/2011 Wednesday 51.59139 INR USD INR rate for 12/7/2011  

12/8/2011 Thursday 51.63588 INR USD INR rate for 12/8/2011  

12/9/2011 Friday 51.88413 INR USD INR rate for 12/9/2011  

12/10/2011 Saturday 51.87551 INR USD INR rate for 12/10/2011  

12/11/2011 Sunday 51.89298 INR USD INR rate for 12/11/2011  

12/12/2011 Monday 52.76280 INR USD INR rate for 12/12/2011  

12/13/2011 Tuesday 53.12095 INR USD INR rate for 12/13/2011  

12/14/2011 Wednesday 53.71472 INR USD INR rate for 12/14/2011  

12/15/2011 Thursday 53.21575 INR USD INR rate for 12/15/2011  

12/16/2011 Friday 52.35790 INR USD INR rate for 12/16/2011  

12/17/2011 Saturday 52.35590 INR USD INR rate for 12/17/2011  

12/18/2011 Sunday 52.55796 INR USD INR rate for 12/18/2011  

12/19/2011 Monday 52.77564 INR USD INR rate for 12/19/2011  

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12/20/2011 Tuesday 52.73639 INR USD INR rate for 12/20/2011  

12/21/2011 Wednesday 52.37480 INR USD INR rate for 12/21/2011  

12/22/2011 Thursday 52.51255 INR USD INR rate for 12/22/2011  

12/23/2011 Friday 52.71288 INR USD INR rate for 12/23/2011  

min = 43.9056 (August 1)

avg = 47.9410

max = 53.7147 (December 14)

Causes of Indian Rupee depreciation in 2011.

Causes of Indian Rupee depreciation in 2011

It was Rupees 43.96 against a dollar in the July end.And now for $1 it is Rupees 54.3.

Rupee hits all time low in this week. Rupee creating the new record against dollar every other day in this week .

This is obviously not the ―India Shining‖ thing. Government is not at all focused as its the season of elections. 

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It is not the first time for Indian Rupee. In 2008, Indian Rupee faced the devaluation because of oil prices.

Anna Hajare, Mamata Banaerjee and other unknow factors not allowing two Economist brains PranabMukherjee and Manmohan Singh to concentrate on Market values.

Not only the current political situation is responsible for depreciation in 2011 but also there are some externalfactors.

This is the combine effect.

Withdrawal of FII’s 

Foreign institutional investor’s withdrawal from domestic economy is the one big reason for this depreciation.The Greece Crisis and its rescue package made investor to think about their investments. Changes in the financeminister and political leaders (in EURO-ZONE) is also a factor.

Strengthening of Dollars

The Euro-Zone crisis has weakened the Euro significantly against the US Dollar. In other words dollar is gettingstronger in the world markets. Obviously the investors are considering US as safe place to invest in. The majorareas are Gold, greeback and treasury.

Other Capital Flows

On month by month basis, Foreign Direct Investments (FDI), External Commercial Borrowings (ECBs) andForeign Currency Convertible Bonds (FCCBs) recorded a slowdown in Financial year 2011.

Indian Politics

Number of Indian scams distracted governments concentration away from Economy. All these scams make thebad image of India in the global market.

Mr Manmohan Singh may be willing to implement good things for economical reform. But the real powerwoman Sonia Gandhi do not wish for open economy system.

That is what the Reserve Bank of India (RBI) Governor D Subbarao would like everyone to be on whilediscussing the sharp rupee depreciation against the US greenback. The Indian rupee has been mauled nearly 20

per cent in the last one year. And the downslide is unstoppable. The rupee closed at 52.22 against the dollar onTuesday, the second week of December 2011. Why the dramatic slide? Subbarao isn't the only one in the hotseat.

Some trigger happy commentators are quick to fire the central bank for not selling dollars from its foreignexchange reserves kitty of $300 billion, an action that could have cushioned the rupee's plunge. But that's easiersaid than done. There are far reaching implications of a forex sale that can outweigh the expected gains (Read:Why is the rupee falling?). Remember, India had foreign exchange reserves of just $10 billion exactly twodecades ago when Prime Minister Chandra Shekhar's coalition government was at the centre and YashwantSinha was the finance minister. Thanks to FII inflows into Indian equity markets, the foreign exchange reserves

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have grown big time since the early 90s. But a big chunk of the reserves actually started flowing from the early2000 period when foreign institutional investor (FIIs) started investing dollars in the Indian market. The rupee,too, appreciated big time to 38-39 levels in early 2008.

So what's pulling the rupee down now? Clearly, dollar inflows - especially short-term hot inflows into theIndian equity market - are vanishing fast because of global troubles and high valuations of Indian companies.The RBI Governor will surely rest his case on the lack of focus in terms of attracting longer term foreign directinvestments into India. Past governments were never able to pull their act together enough to attract more stable

dollar inflows through the FDI route. Whatever little FDI that comes into India is also on the decline from $40billion in 2008 to $25 billion in 2010. That amount is peanuts compared with neighbouring China. China, whichunlike India has no sectoral limits for FDI, pocketed $185 billion in 2010. The Chinese FDI inflows werealways well over $100 billion annually in the past. China runs a trade surplus and the currency is also inherentlyquite strong, though they peg it at a fixed rate to the dollar. India could have attracted FDI inflows had it relaxedforeign investments in retail, insurance, pension, defence, aviation and a host of other sectors. Some of thesereforms have been pending for nearly a decade. Call it a last minute desperate measure or a larger reformexercise, the move to allow FDI in multi-brand retail brands last fortnight also fell flat because of stiff opposition from UPA allies and opposition parties.

There are also softer measures - besides the FDI cap - that need attention from the government, say some

experts.

"There is also a perception issue," says Frank Richter, chairman of Horasis, a Zurich-based global businesscommunity forum. Frank, who met BT in a one-to-one meeting recently, highlighted issues like corruption,bureaucracy, regulations, delays in land acquisition and environmental issues as obstacles to globalinvestors.

"India needs a stronger export focus," advises Richter, who worked in China and Japan for well over a decade."FDI will only make Indian companies more competitive in the global marketplace," he adds. If Indiancompanies have to adapt to more competition at home, they'll be better placed in the global market. China is agreat example of allowing foreigners in all sectors and then competing with them head on.

The strength of a currency always reflects the demand and supply of dollars in the market. India historicallyruns a huge current account deficit (more imports than exports, meaning more dollars are going out of thecountry than are coming in). So be it a trade window or an investment window, dollars are in short supply. TheFIIs are also pulling out dollars from the Indian stock market to shift to other attractive destinations.

Today, the way the rupee is slipping, the central bank is as helpless as the corporate sector (with exposure inforex debt, imported raw materials etc). So if the rupee breaches the $55 mark against the US dollar, don'tblame the RBI Governor alone. There are other bigger culprits roaming scot free!

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Rupee Woes

Rupee falls 13 per cent in three months on domestic, global cues

After staying in a band of Rs 44 to Rs 46 for most part of 2010 and 2011, the rupee has

been on a relentless slide vis-a-vis the dollar since the last couple of months. In the last

3 months alone, the rupee has depreciated by 13 per cent, falling from the level of Rs

45 in August 2011 to Rs 51 as of 16 November 2011.

According to Alex Mathews, head of research, Geojit BNP Paribas Financial Services,

the sell-off in equities, dollar purchases by oil marketing companies and fears over the

deepening European crisis is boosting demand for the safe haven US dollar from

investors globally, which has added to the rupee's woes.

The fall has not been unique to the rupee alone; it was seen in other emerging markets (EMs) as well, possibly reflecting

global risk aversion. "However, of late, while many EM currencies recovered from their recent lows, the rupee continued

to exhibit weakness, possibly reflecting the deterioration in India's macroeconomic indicators," says Vikas Khemani,president and head (wholesale capital markets), Edelweiss Financial Services.

The rupee is facing headwinds arising from both domestic and global factors. The

widening current account deficit (CAD) and the deteriorating portfolio inflows

seem to be adding to the rupee's woes. Compared with an inflow of $30 billion in

the year 2010, foreign institutional investor (FII) inflows have been more or less

flat to negative this year.

The Reserve Bank of India can take measures such as selling the dollar in the

market or increasing interest rates, which could make the rupee appreciate.

However, analysts do not expect the RBI is to intervene.

Currently, the rupee is pretty close to its 32-month low against the dollar,

witnessed in March 2009, which was about Rs 52.1. Once the rupee crosses this

zone, it could be in an uncharted territory. "If this level is breached, the rupee could slide to Rs 52.41; else, it could

remain in the region of Rs 51.93 in the short term," says Mathews.

"Over the medium term, if the event risk recedes on account of some solution emerging from Europe or the domestic

macroeconomic situation improves, the rupee may appreciate. However, we don't see it regaining the Rs 44-45 levels in

a hurry," says Khemani.