What is Rupee?
Historical Background
Key Points
10 points- 1.
Issued and regulated by the Reserve Bank of India (RBI).
- 2.
Exchange rate value of rupee against other currencies is determined by market forces.
- 3.
Factors affecting rupee value: Demand and supply of rupee, Interest rates, Inflation, Global economic conditions.
- 4.
A strong rupee makes imports cheaper and exports more expensive.
- 5.
A weak rupee makes exports cheaper and imports more expensive.
- 6.
RBI intervenes in the foreign exchange market to manage volatility.
- 7.
Rupee convertibility: Current account convertibility is allowed, but capital account convertibility is restricted.
- 8.
Impact of rupee fluctuations on trade, investment, and inflation.
- 9.
Role of foreign exchange reserves in maintaining rupee stability.
- 10.
Government policies aimed at stabilizing the rupee.
Visual Insights
Factors Affecting Rupee Value
Factors influencing the value of the Indian Rupee (INR).
Rupee Value (INR)
- ●Economic Factors
- ●Global Factors
- ●RBI Interventions
Recent Developments
5 developmentsRupee's performance against the US dollar.
RBI's interventions in the foreign exchange market.
Impact of global events on the rupee.
Measures to attract foreign investment and stabilize the rupee.
Forecasts for future rupee movements.
Frequently Asked Questions
61. What is the Rupee, and what factors influence its value?
The Rupee (INR) is the official currency of India. Its value is primarily influenced by market forces, including economic growth, inflation, and foreign exchange reserves. Demand and supply of the rupee, interest rates, and global economic conditions also play a significant role.
Exam Tip
Remember that a strong rupee makes imports cheaper and exports more expensive, while a weak rupee has the opposite effect.
2. How does the Reserve Bank of India (RBI) regulate the Rupee, and what legal frameworks govern it?
The Reserve Bank of India (RBI) issues and regulates the Rupee. The key legal frameworks governing the Rupee are the Reserve Bank of India Act, 1934, and the Foreign Exchange Management Act (FEMA), 1999.
Exam Tip
Focus on remembering the Acts related to the Rupee and the role of RBI in managing its value.
3. Explain the concept of a managed floating exchange rate system in the context of the Rupee.
India follows a managed floating exchange rate system. This means that the value of the Rupee is primarily determined by market forces (demand and supply). However, the RBI can intervene in the foreign exchange market to manage volatility and ensure stability.
Exam Tip
Understand that in a managed floating exchange rate, the central bank allows market forces to determine the exchange rate but intervenes when necessary.
4. What are the implications of a strong versus a weak Rupee on the Indian economy?
A strong Rupee makes imports cheaper and exports more expensive, potentially leading to a trade deficit. Conversely, a weak Rupee makes exports cheaper and imports more expensive, which can help boost exports but may also increase inflation.
Exam Tip
Relate the strength/weakness of the Rupee to its impact on trade balance and inflation.
5. How do global economic conditions affect the value of the Rupee?
Global economic conditions significantly influence the Rupee's value. Factors such as global recession, changes in international trade policies, and fluctuations in commodity prices can impact the demand and supply of the Rupee, thereby affecting its exchange rate.
Exam Tip
Consider how events like global recessions or trade wars can affect the Rupee's performance.
6. What role do you think the RBI should play in managing the Rupee's exchange rate, considering India's economic goals?
The RBI should aim to maintain stability in the Rupee's exchange rate to foster sustainable economic growth. While allowing market forces to primarily determine the value, the RBI should intervene strategically to prevent excessive volatility that could disrupt trade and investment flows. The interventions should be data-driven and transparent to maintain market confidence.
Exam Tip
Consider the balance between allowing market forces to operate and the need for RBI intervention to maintain stability.