The Indian Rupee-US Dollar Exchange Rate: The Economic Impact of a Strengthening Currency
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Case Code: ECON025 Case Length: 21 Pages Period: 2007 Pub Date: 2008 Teaching Note: Not Available |
Price: Rs.400 Organization : - Industry : - Countries : India Themes: Economics, Politics and Business Environment |
Abstract Case Intro 1 Case Intro 2 Excerpts
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
The case is structured to achieve the following teaching objectives:
- 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
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Introduction
Background Note
Reasons Behind the Appreciation of the Rupee in 2006-07
Effects on The Economy
Some Perspectives
Outlook
Exhibits
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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