The Indian Rupee-US Dollar Exchange Rate: The Economic Impact of a Strengthening Currency


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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

Case Details:

Price:
Case Code : ECON025 For delivery in electronic format: Rs. 400;
For delivery through courier (within India): Rs. 400 + Rs. 25 for Shipping & Handling Charges

Themes

Economics, Politics and Business Environment
Case Length : 21 Pages
Period : 2007
Pub. Date : 2008
Teaching Note : Not Available
Organization : --
Industry : -
Countries : India

Abstract:

In 2007, India experienced rapid appreciation of its currency against the US dollar. The reasons for the appreciation of the rupee were a generally weak dollar in international currency markets and sharp increase in dollar inflows into the country, partly due to India's increasing attractiveness to foreign investors. Although India had been seeing a steady rise in dollar inflows into the country for quite some time, on earlier occasions, the Reserve Bank of India (RBI) had intervened in the foreign currency market and purchased excess dollars so as to prevent any appreciation in the value of the rupee. Now, the RBI decided not to intervene, mainly to control inflation which was around 6 percent in early 2007.

The case discusses the reasons for the appreciation of the rupee and its possible impact on the Indian economy. It also discusses the measures taken by the RBI and the government to control rupee appreciation and to try offset the negative impacts of a strong currency on the economy. The case ends with some views on the future movement of the rupee.

Issues:

» To understand the importance of exchange rate management.

» To examine the reasons for the rapid appreciation of rupee in 2006-07.

» To analyze the impact of rupee appreciation on the economy.

» To critically analyze the role of the central bank in the foreign exchange market.

» To assess the possible future movement of the rupee vis-à-vis the US dollar.

Contents:

  Page No.
Introduction 1
Background Note 2
Reasons Behind the Appreciation of the Rupee in 2006-07 3
Effects on The Economy 5
Some Perspectives 8
Outlook 9
Exhibits 11

Keywords:

Indian rupee, US dollar, Rupee-Dollar exchange rate, Impact of a strengthening currency, Foreign Direct Investment, Inflation, External commercial borrowings, Export competitiveness, Exchange rate management

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